UK: Never had it so good?

Our economics correspondent Michael Roberts looks at the British economy and the real situation facing workers in Britain today, which is somewhat different to the rosy picture painted by Tony Blair and his spin doctors.

Back in 1959 - I know it's a long time ago - the then Tory prime minister, Harold Macmillan, went into an election with the slogan that the British people had never had it so good as under the Conservatives. Economic growth was over 3% a year, wages were rising, house prices were firm and, above all, everybody was in work - and all this with low inflation.

Well, here we are nearly 50 years later and now this is the cry of the New Labour spin doctors, and of its leading exponent, Tony Blair, when timidly interviewed by BBC's Jeremy Paxman. Tony tells us that under New Labour, Britain is booming, that inflation and interest rates are low and that, above all, everybody who wants a job can get one. Sure, more needs to be done, on health, education, transport etc, etc, but give us time, says Tony, and it is all going to fall into place.

But are things in Britain so rosy? Let's look at the economy first. OK, the number of Britons in work has risen to a new record, reaching 28.4 million in the first quarter of this year. The official unemployment rate is just 3.4%, the lowest in the OECD! However, this figure is bogus. The best measure of unemployment is the number of people seeking work but unable to find it. On that basis, there are 1.5 million Britons still out of work. That puts the real figure at 5.1% of the total workforce. However what this shows is that Britain needs more workers not less. Net immigration into the UK will reach 160,000 this year and that's only half of the increase in employment that would be needed in order to meet the government's national output target of 3.0-3.5% for next year.

The reason that we need so many more workers is that the productivity of the existing workforce in the UK is so poor. It's not that the British don't work hard enough. As we know, apart from the workaholic Americans and the dragooned Japanese, nobody in the OECD works harder. Since, under the pressure of British big business, New Labour opted out of the 1998 EU directive to limit most workers to a 48-hour week, nearly 4 million Britons are working longer than this. That's up 350,000 compared to ten years ago. And now one in ten men work 55 hours a week and one in 25 do a 60-hour week! 60% of the workforce says they work unpaid overtime for their bosses.

And this sweated labour is killing us. One health research unit pointed out that if you consistently work more than 40 hours a week, you will damage your health and live a shorter life. The International Stress Management Association found that more than half UK workers cited stress and one in four take time off work as a result.

Despite this, UK capitalist business is the least efficient in Europe, with the exception of Greece and Portugal. Manufacturing productivity is just 67% of that of the US, while France is up to 85%, even though French workers have the longest holidays and shortest working week in Europe.

Indeed, the government's own survey of industry found that of 18 industrial sectors, British productivity was lower in eight (media, insurance, chemicals, autos, engineering, electronics and other manufacturing). It was higher in just five (banking, oil, pharmaceuticals, supermarkets and retailing). It's no surprise that the UK leads in "rentier" industries of finance in the City of London and retailing (a nation of shopkeepers) but not in the heartland of new technology and industrial innovation. The British economy is a parasite on the rest of productive capitalism.

For that very reason, British capitalism's dependence on the rest of the world's capitalists, it has done well in the boom years. But it also means it will do badly in the lean years. And that is what has been happening. Beneath all the talk of success, the UK economy is beginning to flounder. In the first quarter of this year, real GDP grew by just 0.1% compared to the last quarter of the year. And in that last quarter national output was totally static. So that's six months of stagnation. And growth in the last 12 months has been just 1%, the weakest rate for a decade. Having grown faster than the US and Europe last year, it is now the weakest economy.

Industrial output is the weakest sector of the economy. It is diving at an annual rate of 7.4%! Only the services sector (finance, property, etc) has kept the UK economy growing. The weakness in industry has been reflected in a rising deficit in trade with other countries. Exports fell 8.7% in the year to March 2002 and the trade deficit rose to 2.3% of GDP. Such is the decline of British manufacturing that it is worth remembering that back in 1982 UK manufacturers sold £2 billion more abroad than foreign manufacturers sold here. Now, 20 years later, British manufacturing runs a £25 billion deficit with those overseas.

New Labour's pathetic trade and industry secretary, Patricia Hewitt, is right for once when she says that "modern manufacturing is central to our future as leading knowledge-based driven economy." The problem is that British capitalists don't agree. They prefer to invest in financial services or send their profits abroad. As a result, British industry is increasingly not British-owned at all. Whereas in 1973, 17% of UK manufacturing output came from foreign-owned companies, now that figure has reached 25%, and the share of British workers in foreign-owned manufacturing companies has risen from 13% to 17%. Inward investment from foreign companies was just 0.5% of GDP back in the days of Harold Macmillan. Now our prosperity and the financing of our trade deficit depend on nearly 3.5% of GDP coming from investment by foreign manufacturers (over half of which are American). And that's the big worry for British capitalism. If inward investment should die, the UK will be exposed. Last year 19% of all investment into Europe went to the UK. But US companies cut their investment into Europe by 25%.

However, optimism about the future exudes from New Labour spin doctors. Well, at least most of them. Low and behold Peter Mandelson! The arch spin doctor, witch-hunter of the left and exponent of New Labourism, now tells us that New Labour has failed. He breathtakingly tells us that the government has lost public trust by "clumsy, crude over-use of spin". He goes on: "too many of the worst estates and deprived communities in Britain remain unchanged by five years of Labour describing them as bleak ghettoes depressing the spirits of all who live in them" (not him I might add!) What has New Labour (with Mandelson in the Cabinet, remember) done about this deprivation and inequality? "Has it really taken these citadels [of deprivation] by storm and made a difference for the sort of young people who live there and feel shut out because so many paths are barred to them? The answer is no. We just tinkered," concludes Mandy.

The evidence confirms Mandelson's belated and self-seeking outburst. Inequality has never been so bad for over one hundred years. The latest analysis by the Rowntree Trust shows that poverty (defined as an income 60% or less of the average) is still just as bad as it was when New Labour came to office in 1997. Indeed, whereas inequality (the share of income going to the top 10% versus that going to the bottom 10% of income-earners) rocketed under Thatcher's Tories in the 1980s (the top 20% of income earners saw their incomes rise 30 times faster than the bottom 20%!), it was actually reduced a little under Major's government. Under Blair and Brown, it has widened again.

The latest data show that the top 10% of households spend nearly seven times more than the bottom 10% of households every week. The rich 10% spend £850 a week on average, while average households spend £390 a week and the poorest 10% spend just £125 a week. The rich 10% spend ten times as much on eating out or going to the theatre or holidays than the poorest 10%. And they spend 14 times more on their motor cars. But just as depressingly, the rich 10% spend only 50% more a week on cigarettes and cigars than the poorest 10%.

One of New Labour's great pledges has been to reduce child poverty. They aim to eradicate it by 2020. In 1997, Gordon Brown predicted that over 1.2 million children would be lifted out of poverty by April 2001. The result was 500,000. It's better, but it's only tinkering.

The worst feature of continued tinkering with the inequalities and injustices of British capitalism must be housing. Sure, we know the weakened state of the health service, the lack of opportunity in our education and training services and the impossibly shocking state of public transport. But the government talks the talk about these. It says nothing about housing. We are now in a massive property bubble that will eventually burst, but in the meantime it is creating more and more inequality in wealth and income.

Last month, public service workers in London demonstrated against the impossibly high cost of living in the capital and the need for higher "London weighting" allowances. The key reason for high costs is the cost of property. Property prices are still rising at over 16% a year. Teachers and health staff under 30 cannot afford to buy even a flat and teachers under 40 cannot trade up to give their families some more room. And this is also at a time when private sector workers are seeing a sharp slowdown in their pay settlements.

And yet the supply of "social housing" (good accommodation at reasonable rents) has disappeared. Thanks to destruction of council housing by the Tories and New Labour, there is no decent public housing to live in and rents in the private sector have rocketed. The Rowntree Trust found that new house construction is at its lowest level since 1924!

Young people are forced to stay with their parents (the average age of a first-time buyer is now 34 compared to 29 three decades ago), or crowd into shared flats or spend hours commuting. At the same time, rich property owners are using their wealth to buy more property to rent out to the poor. The rich 10% are turning themselves into a rentier class. Left to the market, the housing needs of the average Briton will never be met. Public ownership and national planning is essential, just as it is for public transport.

The New Labour spin-doctors continue to spin. Gordon Brown tells us that the UK will grow at 3-3.5% a year through the rest of this parliament. Even the IMF doubts this - its forecast is just 2.5%. If the US slides back into recession by the end of this year, as I expect, even that forecast will be revised down. Then New Labour will get nowhere near its huge number of timid targets for improvement.

Poverty, inequality, instability and stagnation are the Four Horsemen of the Economic Apocalypse. They remain brooding over the British Isles. And they will crush the optimism of the New Labour spin doctors.