The British Economy
The inherent contradictions of capitalism have not gone away despite the last decade and a half of almost uninterrupted growth. That boom has been based on a cruel combination of stress and strain at work for millions; a service sector based on illegal practices and the virtual slavery of migrant workers; credit and consumer spending; the continued destruction of public services and the disintegration of the country’s infrastructure; and, despite all the rhetoric about tackling poverty, a massive growth in inequality.
The yawning chasm between wealth and poverty, and its impact on health, education, crime and all aspects of life represents a sharpening of the class division of society, dispelling the myths that we have all become middle class, homeowners etc. Conditions determine consciousness and it is the changing conditions of the working class that will be at the core of the class polarisation of society which will be a fundamental feature of the next period.
Alongside the general squeezing of the workforce in industry and the services, we can see that this boom has been paid for by the sweat and stress of the working class and not by the productive investment of the profits the capitalists make from our labour.
Manufacturing and Services
Without an expanding market for their goods at home or abroad - or at least without the ability to compete in those markets where they do exist due to years of underinvestment in new machinery and research - the capitalists do not invest in increasing production. Instead they squander the profits we make on speculation, acquisitions and mergers. Through privatisation in all its different forms they have found a way to make money without the bothersome business of investing, employing and producing, by buying up already existing production and services and asset stripping them while squeezing the workforce dry.
We have explained many times that the economy cannot survive on services alone, they are parasitic on the production of real wealth. Manufacturing now accounts for less than 20 percent of economic activity, once more confirming Britain’s increasingly rentier state. Consumer spending today accounts for seventy percent of GDP. There are now just 3.09 million employed in manufacturing, yet this sector is still vital as the source of capitalism’s profits.
The ‘new’ idea that Britain does not need to make anything anymore, but can rely on production in China, Brazil and elsewhere, is only an extension of the nonsense that services can replace manufacturing in the economy and everything can go on as before. The price of property, shares and government debt cannot continue to rise forever because they depend on something, namely the profits of capitalism. Profits do not come from bankers lending money or rich people buying luxuries, governments buying arms or people buying houses. These individuals are merely redistributing profits that have already been made by the producers of things. Profits are the unpaid labour of the working class, they arise only from the sale of things made that people want. Marketing, advertising and distribution add nothing to the profits of the capitalist system (though they do for the individual companies involved). They are a part of the cost of making a profit for individual capitalists in competition with each other.
Similarly workers in public services are necessary to capitalism (to different extents, at different times, in different countries) to keep the workforce healthy enough or trained to work. They do not produce profits for capitalism. They are unproductive for capitalism. Bankers, mortgage lenders, estate agents and the rest may get paid huge sums but they do not make profits for the capitalist system (even if they do for the individual companies employing them). They too are unproductive.
Yet these are the sectors meant to keep the whole world economy going. Buying a house in Britain is supposed to keep the British economy growing and buying a house in the US is supposed to keep the whole world economy afloat.
The interests of manufacturing and finance capital diverge like a pair of scissors. The series of interest rate rises introduced by the Bank of England – in a vain attempt to control the unprecedented growth of credit and debt in a ‘soft landing’ – choked investment in industry, where the financial press are forever seeing signs of a non-existent recovery. Industrial capital demands big cuts in interest rates, to reduce the value of the pound which they argue hurts their exports, and so that they can afford to borrow to invest. However in December those famous green shoots of recovery were spotted again when manufacturing output rose by 0.4 percent, its strongest performance for seven months! Instead of recognising that such small rises are inevitable when rock bottom is reached, the City of London argues that this recovery means further cuts in borrowing costs are not necessary. Whether interest rates are cut again or not will depend on the housing market and consumer spending not on the desires of industrial capitalists. Finance capital has the upper hand.
While the decline of British industry has continued apace, with a million manufacturing jobs destroyed since Blair and co came to office, 100,000 in Scotland alone, Britain does lead the world in one sector – credit. At over one trillion pounds British indebtedness continues to outstrip GDP.
The Credit and Property Bubble
For the last couple of years we have laid heavy emphasis on trends in the housing market, pointing to the inevitability of a sharp fall, or even crash, in house prices looming. The dependence of the economy on consumer spending, which in turn has been based upon credit linked to house price rises, makes this question vitally important. Following a fall in prices in the second half of 2005 - which as we shall see has already had an impact on spending in the shops - economists and government departments are now reporting a property market revival in 2006. Does this mean that we got it wrong? On the contrary, it is their optimism that is misplaced.
The Bank of England attempted to bring Britain’s unprecedented credit binge to an end, slowly and calmly, by fiddling with interest rates. First they increased interest rates in order to cool the overheated property market, gently, without causing a crash in house prices. This resulted in a further fall in investment and production, causing unemployment to grow, and spending to slowdown as job insecurity mounted alongside the cost of debt repayments. At the same time it resulted in an increase in credit as people paid their higher bills – mortgages, fuel bills (gas alone went up by 19 percent last year, and is set to rise by more than 20 percent again this year) – with their credit cards.
To begin with the rate of increase in house prices started to slow, then eventually prices began to fall, as people with less to spend because of the increased cost of their debts were priced out of the market by higher mortgage costs. However, the price being paid for bringing house prices down by about five percent – leaving them still considerably overinflated – was that the entire economy began to grind to a halt. The only answer was to cut interest rates. That was back in August last year. The quarter percent cut then introduced has done nothing to increase investment - unemployment continues to grow - but it has generated what these economic geniuses describe as a recovery in the housing market.
According to Nationwide house prices rose by 1.4 percent in January to reach an average of £158,478. This was the largest rise since July 2004 when prices rose by 1.9 percent. However, at that time the annual rise stood at 20 percent, in January it stood at 4.4 percent (up from September’s nine year low of 1.8 percent)
Does this mean that the slowdown is over? Will prices now rise again? Nationwide’s economist Fionnuala Earley said three-quarters of that rise was in the last four months as a result of August’s interest rate cut. She added that 2006 was unlikely to see strong price rises because of the chance of further unemployment and the problems of affordability, “Affordability remains stretched and it is unlikely that the market could absorb another strong rally of house price inflation.”
Howard Archer, chief UK economist at consultancy Global Insight, added “Most affordability ratios are still stretched and will become more so if house prices start moving back up markedly… Indeed annual house price inflation at 4.4 percent is actually back above headline annual earnings growth of 3.4 percent in the three months to November… Anticipated continuing relatively moderate earnings growth and the likelihood that interest rates will only be trimmed modestly further in 2006 will maintain pressure on affordability rations.” In English what this means is house prices can get back to the levels that forced the Bank to raise interest rates, particularly if they cut interest rates again, but they cannot go up any further. What cannot go up any further must come down. Having gone up so high they have a long way to fall. The Bank’s fiddling around with interest rates only postpones the inevitable.
First time buyers still could not afford to climb onto the property ladder even when prices fell last year. Young workers and their families don’t earn enough to buy so those wanting to sell to them can’t sell, they in turn can’t move up the ladder and so on. This is property gridlock, which can only be solved by a big fall in prices maybe even of twenty percent, which will leave many in unmanageable debt.
Increased mortgages meant an increase in monthly housing costs of more than £100 for the average family, which, especially when added to increased energy costs, inevitably had a negative effect on consumer spending, and resulted in a fall in property prices as the affordability gap widened. If prices rise in the next few months they will widen that gap still further and eventually result in a crash. If prices begin to fall again millions can be left in negative equity because of the extra money they have borrowed against the rising price of their house. There will be more people desperate to sell, driving prices still lower, and more in unmanageable debt unable to spend. Falling values will block off remortgaging as a source of funding consumer spending.
From the point of view of British capitalism, rising house prices spells disaster… and so do falling house prices. It really is a case of heads they lose and tails likewise. Of course it will be the working class which will be presented with the bill for the system’s crisis, with mounting unemployment, rising debts etc. Falling consumer spending leads to rising unemployment (consider the numbers employed in retailing and other services who will lose their jobs when spending falls). In turn rising unemployment leads to falling consumer spending. This is a downward spiral that must sooner or later result in economic recession.
Even the recent relatively small decline in house prices had profound effects on consumer spending, and consequently on the entire economy. As we have previously explained there has been a dramatic increase in repossessions in the last two years.
Personal insolvencies are now at their highest since comparable records began in 1960. This is a direct consequence of the historic levels of personal debt, an economy based on consumption not production, and is directly linked to the fall in the housing market in the second half of last year. Until recently additional personal spending was funded by remortgaging at around 6 percent. Replacing that with credit card spending – and a remarkable 1 million new credit cards were issued in the last three months of 2005 alone – at 20 percent plus leads quite inevitably to bankruptcy. Individual insolvencies have increased by 57 percent in the last quarter of 2005 on a year earlier to a total of almost 57,000 last year. That is a 38 percent increase in bankruptcies and 117 percent rise in individual voluntary arrangements (where your assets are handed over in order to avoid actual bankruptcy)
As we have pointed out before there are two sides to the housing crisis in Britain. Young workers cannot afford to buy and are increasingly forced into the private rented sector as council housing stock has continued to decline. There are now just 2.8 million council houses left in Britain. The lack of affordable housing is an important issue alongside health and education, and Blair and co have only one answer, PFI. This is a licence to print money for private consortia but cannot begin to solve these important problems.
Meanwhile the property market still teeters like an implausibly high house of cards which must tumble sooner or later.
Interest rate rises resulted in falling investment and production, in turn strengthening the pound, leading to further falls in investment and production. They also meant increased credit to pay for the increasing cost of credit. A small cut in interest rates led to even higher levels of indebtedness without resulting in increased investment. As we have pointed out previously a failure to invest over a long period has led to British production being uncompetitive. British bosses try to overcome this deficit through an increase in the burden on the shoulders of the working class in the shape of stress, long hours and speed-ups. They continue also to abandon manufacturing resulting in an increase in unemployment.
The State of Britain
This is reflected too in the decline of Britain’s infrastructure. In British capitalism’s heyday one of the functions of the state was to provide the necessary infrastructure in terms of transport, energy, communications and so on, for private firms to operate and make profits. The degeneration of British capitalism into a quick buck economy means that this infrastructure has been privatised and asset-stripped in an attempt to make money out of already existing production rather than the troublesome business of long term investment in machinery and employing people to make things.
As a result the roads and railways deteriorate at an alarming rate. Thanks in part to the ongoing destruction of the environment, but also to the short-sightedness of concreting over large numbers of reservoirs to build car parks, and a failure to repair broken pipes – both of which are the consequences of privatising the water industry – Britain is now facing a water shortage. The answer of Blair and co is not a massive programme of investment to repair the damage, but to give water companies the right to make water meters compulsory. More and more Britain resembles a third world country rather than one of the richest countries in the world.
A few years ago we commented on Britain’s looming energy crisis. With supplies of gas and oil rapidly running out, and coal abandoned in a short-sighted political assault on the militancy of the miners, Britain is increasingly being forced to rely on the import of energy. The response of Blair and co has been to raise the prospect of building new nuclear power stations. In the meantime the rising price of oil, combined with the privatisation of gas and electricity suppliers, which has meant a failure to invest in infrastructure, leaves Britain facing an energy shortage.
A cold snap this winter would cause an energy crisis that would force industry onto short-term working for the first time since the three-day week of the 1970s, according to Sir Digby Jones, director-general of the CBI. Amid forecasts from meteorologists that the country could be in for its coldest spell in more than 40 years, Sir Digby said he had told the industry secretary, Alan Johnson, that Britain's limited stocks of gas reserves would run out after little more than a week of sub-zero temperatures. "If we have a harsh winter - and all the long-range weather forecasts are saying that we will - this economy, the fourth biggest in the world and the most successful in Europe, will see the switch thrown on business," Sir Digby told The Guardian.
It will take two or three years for supply of gas to be boosted by a new pipeline from Norway and a new terminal at Milford Haven that will take imported gas from Qatar. At the moment, Britain's storage capacity is 11 days compared with an average of 55 days in the rest of Europe, and that would be quickly eaten up by a week or more of sub-zero temperatures.
Blair and co’s answer? Needless to say it did not involve renationalising gas, electricity etc. No their answer once again is to rely on the market. They are pressing for greater ‘liberalisation’ of the energy market in Europe in order to erode price differentials. They are doing nothing to increase the supply or storage of gas, instead they want gas to be privatised and price controls to be removed on the continent so that gas bills there will be as high as here. The CBI complains that the French and the Germans flout EU regulations by subsidising their firms. Britain’s gas bills are more than 30 percent higher than the average in Europe, thanks to the free market.
In September British Gas increased gas and electricity prices combined by 14.2 percent blaming soaring oil prices and declining North Sea gas reserves. These price hikes have added £96 to the average household's annual bill. British Gas' owners Centrica revealed earlier this year that more than 1.1 million customers deserted British Gas in 2004 after bills were raised by 5.9 percent in January and by 12.4 percent eight months later.
Announcing yet another rise at the beginning of 2006, Centrica argued that higher bills would not fully cover the rising cost of wholesale gas and electricity, which is 50% and 61% higher than a year ago respectively. The new rise will lift the annual gas bill of a family with a typical three-bedroom semi-detached house from £405 to £462 and their electricity bill from £268 to £307. The impact on consumer spending is self-evident.
Energy, water, transport and telecommunications were all sold off years ago. The results of handing this essential infrastructure over to the private sector are now clear for all to see. More recently the wonders of the free market have been imported into the National Health Service. Free health care was a huge conquest of the working class following the second world war. Now it is being dismantled and sold off to the highest bidder, with various forms of privatisation offering lucrative rewards for private consortia of contractors, banks and construction firms. There are fortunes to be made out of the NHS, and not just those leeched off the ill health of working people by the multinational pharmaceutical companies.
The Health Service is understaffed, underfunded, undermined and under attack. Privatisation, contracting out, competitive tendering, PFI are not just economically crazy - in reality a licence to print money with no concern for the service provided - they are themselves now the cause of ill health.
The spread of the MRSA hospital superbug has been blamed on a 45% cut in cleaning staff since the NHS allowed the private sector to compete for the work. UNISON has published independent research showing there were 55,000 cleaners in the NHS in 2003-04, compared with 100,000 20 years ago. Sub-standard cleaning practices at Birmingham Heartlands and Solihull NHS Trust were exposed in a recent BBC Panorama documentary. That was not an isolated case. According to the Scotsman on Sunday, describing the Woodend hospital in Aberdeen, “the hospital had one of the worst known MRSA rates in the country, with one in every 62 patients catching the bug last year. Latest figures show the rate has soared in 2005, with 30 more patients being infected in the first seven months of the year, compared with 2004…photographs taken inside the hospital by relatives of patients reveal the shocking conditions that have led to the spread of the superbug.” Examples like this could be repeated at will.
Add this to the reality of life in hospitals where there is a more intensive use of beds. Patients are frequently moved between wards and discharged as soon as possible so ensure greater “throughput”. At a time when there are reduced numbers of clinical staff to deal with more complex illnesses, these pressures make it easy for MRSA to spread. However, this is only part of the story. The parasitic drug companies have also contributed to the spread of MRSA. Last year, a study of 300 European hospitals found that those with the highest rates of MRSA also had the greatest levels of antibiotic use. In 2002-3 the NHS in England spent over £6bn on drugs and for 2006-7 they have allocated 13% (over £8bn) to be spent on drugs. The pharmaceuticals industry is amongst the most profitable in the world . For example, in 2004 two of the top UK drug companies (GlaxoSmithKline and AstraZeneca) made nearly £34bn from selling healthcare drugs. It is no coincidence that drug companies are happy to sponsor conferences and other health events and provide trainee doctors and nurses with free breakfasts, lunches and freebies!
Despite Blair and Brown’s claims of record spending in the NHS, the service is now in deficit to the tune of around £800 million.
Every aspect of the welfare state fought for by the working class for generations is now under attack. The NHS, pensions, and the benefit system can no longer be afforded by the market. What British capitalism was forced to give with its left hand in the past it is now snatching back with its right.
The benefits system pays out a total of £109bn each year. Whitehall's spending watchdog, the National Audit Office, refuses to accept the Department for Work and Pensions' (DWP) accounts for the last 15 years because of concerns about amounts of money going astray. It called on the DWP to develop a more accurate method for measuring fraud, noting that the department currently estimates levels only to the nearest £500m.
A combination of mistakes by officials and fraud means the government loses £3bn every year, according to the House of Commons public accounts committee (PAC). They reported that the DWP had succeeded in cutting unemployment benefit fraud by 38% since 1997-98. Half of the total figure lost was down to mistakes by officials, and plans to cut 30,000 staff will not improve matters. To cut down on these losses they have a simple answer. Sack a large section of the workforce and make the rest work harder. To ease their workload, benefits will be cut and thousands will lose their entitlement.
The since disgraced Work and Pensions Secretary, David Blunkett, announced that the disability benefits system was "crackers", and told claimants to stop watching daytime television and get out to work! Blunkett and his successors make the Orwellian promise to ‘liberate’ benefits claimants from dependence, insisting the way to overcome depression and stress was to stop watching daytime television and get back to work. "If people ... reassociate with the world of work, suddenly they come alive again," Blunkett said. "That will overcome depression and stress a lot more than people sitting at home watching daytime television."
It was a paradox, he said, that although work was now physically less demanding (!), four times as many people claimed incapacity benefit today than were on the equivalent invalidity benefit 25 years ago. The rise, to 2.7 million people, suggested "something very strange had happened to our society", Blunkett added. Yes indeed, but what has happened is not that millions have become benefit cheats, but that work has become more demanding, both physically and mentally.
While ministers are adamant that the number of people on incapacity benefit can be reduced, they are nervous of provoking a backbench rebellion by being perceived to be cutting benefits. During the government's first term, 41 Labour backbenchers voted against proposals to cut lone-parent benefits, with another 14 abstaining. A similar rebellion would surely follow any new assault on basic benefits.
The PAC says the DWP should put more effort into retrieving overpaid cash, pointing out that only £550m of the estimated £9bn wrongly paid out over the past three years has been recovered. The department should consider increasing its use of private debt-recovery agencies to hunt down "those debtors who may be difficult and time-consuming to pursue".
They mean those who cannot afford to pay the money back, some of whom end up in court, others will have moved, some may even be homeless. These people are very hard to track down.
Much easier to find is a group of real cheats, who are not prosecuted but lauded by the government. Britain’s fifty biggest companies have avoided paying corporation tax worth over £20 billion in the last five years. Whilst some was owed to governments in other countries, some £12 billion of it – enough to build 45 new hospitals – should have gone to the Exchequer. Of course, none of this was illegal. As always there is one law for the rich and another for the rest of us. Get paid a tenner too much in benefit and you are branded a criminal. Hide a few billion away in an offshore bank account and you will probably end up with a knighthood.
Government minister Hutton has hit upon a new scheme to cut back on incapacity benefit. Doctors are to be offered financial incentives not to sign people off as sick. Hamish Meldrum of the British Medical Association is outraged “our first duty is to the patient” he said. “Doctors are advocates for the patient not policemen for the Department of Works and Pensions.”
Incapacity benefit currently starts at £57.65 and rises to £76.45 after a year. Blair wants to cut the incapacity benefit bill by forcing one million sick people back into work. According to the Sunday Times (22/01/06) he also wants to cut the level of benefit by 25 percent to bring it in line with job seekers’ allowance. The system according to the government is too crude. For instance, they argue it automatically entitles all blind people to benefit! That will never do, there must be some low paid menial work they can do. As the welfare state is unravelled by capitalism in decline the system’s ugly, cruel face is being revealed for all to see.
What is left now of the promise of care from the cradle to the grave? It is not only the cost of living that we have to worry about, but even the cost of dying. The average cost of a simple burial has soared by more than 60% since the year 2000. The total cost of arranging a burial - including the coffin, chapel of rest and funeral director's fees - now averages £3,307, compared with £2,048 six years ago.
This is in part due to a kind of sick extension to the property boom, as the price of graves is rising. Pretty soon you will need to take out a mortgage on your final resting place. A shortage of burial plots, particularly in urban areas, and the array of expensive coffins now on offer are two factors behind the £1,250 increase, revealed in a survey of 100 funeral directors by insurer American Life. This may seem like a joke in poor taste, but this is the reality of life in Britain in 2006. Insecurity is now what follows us from the cradle to the grave. Remember that all these cuts in social spending are the best the system can offer us during a boom.
That boom is heavily dependent on consumer spending. When one combines together all these different rises – energy costs, debt burdens, unemployment and job insecurity – with the general uncertainty about the future, about families’ healthcare, education and retirement, the result will inevitably be a collapse in that consumer spending with far reaching consequences.
Consumer Spending
Consumer spending now makes up 70 per cent of the UK's GDP and it has hit stormy waters. Before Christmas sales were falling in the shops. The gloom that settled over the nation's high streets was the deepest since 1983 according to the CBI. The employers’ body said the underlying annual sales trend among retailers in August was the weakest in the 22 years it has been compiling its retail survey. The CBI figures came as accountancy firm KPMG's summer review of UK manufacturing painted a similarly depressed picture. Its business outlook survey showed optimism among manufacturers had sunk to its lowest level since KPMG started the survey three years ago.
By the end of last summer consumer spending was already feeling the pinch of low wage rises, high house prices, rising energy prices and the weight of debt. August’s results were the first time for seven years that more retailers had been negative than positive about their prospects. Month on month the survey’s results have gone from grim to dire. In the CBI's distributive trades survey for November, 51 percent of retailers questioned said sales volumes were down on a year ago while only 17 percent said they were up. The balance of nearly -35 percent was the worst since the survey began in 1983 and far lower than September's figure of -24 percent.
Sales of DIY goods, furniture and carpets, white goods and electrical items were hit hard in the second half of last year because of the malaise in the housing market, according to the survey. The UK's leading DIY store, B&Q, saw half-year profits slump from £225 million to £149m. The downturn has already sparked huge job cuts and a store closure programme.
Even at this early stage in the consumer downturn, a number of once well-known names have already gone bust. Chains such as Courts, the Gadget Shop, Ciro Citterio, Allders, Tiny Computers, Dickins & Jones and Littlewoods have all left the high street in recent months. The retail chain Furnitureland became the latest victim of weak consumer spending when it closed its stores and went into administration. Meanwhile, advertising spending is also projected to fall this year, which is usually a sign of collapsing business confidence.
Increasing mortgages, debts and energy prices, plus the downturn in the housing market, have stuck a pin in a consumer bubble that until now had been swelling relentlessly for 10 years. Will a further cut in interest rates come to the rescue of the high street? As we have already explained the City is split on whether inflationary pressure is more of a priority than weak demand. In reality they will be damned if they do and damned if they don’t.
Britain's annual inflation rate in September was driven to its highest level since 1997 by higher transport and petrol prices. The Office for National Statistics (ONS) said the consumer prices index (CPI) rate had risen to 2.5%, up from 2.4% in August and the highest level since comparable records began in 1997.
The ONS said the largest upward effect on the CPI annual rate had come from transport, mainly due to fuel and lubricants. British economists point to the benefits of higher oil prices in the record profits of Shell. They blithely ignore the fact that for most companies energy is a cost and that cost is rising. Furthermore the more people have to pay to fill up their cars the less there is to spend on anything else. Add to this low wage rises, the fear of growing unemployment, huge debt burdens, and the end of the gravity defying property boom and you have a finished recipe for consumer spending to plummet. Higher oil prices mean rising costs for companies and for workers. This means even more indebtedness, even less investment, more unemployment, a rising balance of payments deficit, higher taxes and cuts in public spending.
Grocers, who had not reported a decline in sales growth since September 2004, recorded year-on-year sales figures at -24% at the end of 2005. The motor trade suffered another poor month of sales in November, with a balance of -50%, following October's balance of -62%.
Ordinarily these results would encourage the Bank of England to cut interest rates. However, in the event many retailers recorded record Christmas sales. Overall retail spending at Christmas was the highest for four years.
How can this be explained? The answer lies in one simple yet remarkable figure. In the last three months of last year one million new credit cards were issued. This in turn will only serve to postpone and exacerbate the problem. Credit takes the market beyond its limits, spending tomorrow’s money today. When tomorrow comes there is no more money to spend, and instead there is a bill to be paid.
According to Nationwide, with Christmas binge spending over, the downward trend in the retail sector has continued apace. Their consumer confidence index fell by five points in December, and their ‘present situation index’, where people are asked how they view the economy and their job prospects fell 10 points to 91, its lowest ever.
Does all this mean that the consumer boom is now over? In the year to November the rise in retail sales volume compared with a year earlier was only 2.1 percent, the lowest for 15 years and well under half the 5.6 percent rise recorded the previous year. The brief respite of Christmas shopping will not alter that.
If consumer spending declines what else can take its place as an engine of growth. Public expenditure? 700,000 public sector jobs have been created since 1998, but as we have already explained cuts in public expenditure are now the order of the day given the fall in government revenues, higher unemployment and lower growth. Exports have risen, but no longer contribute enough to the economy to prevent a descent into recession. Business investment, which fell year on year even at the height of the boom shows no sign of recovery. The huge budget deficit rules out tax cuts to boost investment (the capitalists won’t invest anyway if they cannot see a profitable market for their goods or services) or consumer spending. That just leaves the Bank of England to cut interest rates. This tinkering can have a temporary effect, but beneath this sticking plaster the wound can only fester.
Soaring energy costs and weak consumer demand saw profit warnings rise by 23 percent last year. Half blamed lower than expected sales and more than a fifth blamed rising costs. This is the kernel of the problem.
Profits are the lifeblood of capitalism. The law of the market is quite simple if a capitalist investor cannot make a profit they will not invest capital or employ workers to produce things or provide services.
The reality is that the economy is grinding to a halt, industrial production is falling and the credit that has been fuelling consumer spending and the service sector to mask it is reaching its limit. The trade deficit is now running at £60 billion a year, or £1000 for every man, woman and child in the country. Far from abolishing the boom-slump cycle, as we explained last year Brown could not even succeed in meeting his so-called ‘golden rule’ of balancing the budget in terms of current expenditure over the economic cycle, without moving the goalposts. Growth in the economy would have needed to have been around 3-3.5 percent for that.
Instead in his pre-budget report, the chancellor cut his 2005 economic growth forecast to just 1.75%, blaming inflationary pressures caused by the rise in global oil prices. Any government wedded to the market has no choice faced with these figures but to increase taxes, increase borrowing or cut spending. Most likely it will be a combination of all three and the working class will once again be asked to foot the bill. Wages are not rising fast but unemployment is. House prices and consumer spending dangle over the edge of a cliff. The interaction of all these factors creates a downward spiral at the bottom of which lies recession.
Leon Trotsky explained something quite profound when he wrote that it is not simply the experience of a boom or a slump that determines outlook. The idea that slump means revolution and boom equates to social peace is patently absurd. Often in a boom, if order books are full workers can fight offensive battles for higher wages. A sharp decline in the economy leading to high level of unemployment can curtail the workers’ movement. It all depends on the context of the conditions, what period has been passed through. A slump following a boom based on increased stress and sweat and job insecurity can have a different effect to a slump following a boom in which the conditions of workers have improved significantly. More important is the change from one condition to the other. The mounting insecurity and uncertainty that disturbs routine has an unsettling impact and can have the effect of shaking a sleeping man. This fact makes it even more important not to hang on the prospect of a slump. From any point of view this is foolish.
The exact tempo of the economic cycle can not be forecast. In any case a serious slump in the economy is not the best situation for anyone. From our point of view a period in which despite statistical growth in the economy, jobs are in danger, conditions are under attack, raises questions in the minds of workers. The British economy is undoubtedly heading towards a recession which will have a profound impact on politics and on the outlook of all classes. Already threatened job losses and attacks on pensions are providing the conditions for big defensive battles. Remember, the 1926 General Strike began as a defensive battle over jobs and wages. We are not predicting that there will be a battle on that scale this year, but nevertheless all the conditions are being created for a generalised struggle of the working class. Along the way there can be all kinds of ‘minor’ explosions. We must be prepared for rapid changes in the situation.
In any case, it would be a serious mistake to think that consciousness is determined solely by economic factors. As Marx explained social being (and not just wages) determines consciousness. Many other factors – political questions like the war in Iraq – and social questions like health, crime, education and so on have a big impact too. All the different factors analysed here have an effect not only on statistics, but on real lives, on the outlook of classes, on class consciousness and on the class struggle.
Working hours and conditions have just as much of an effect as wages. A ‘booming’ economy was achieved not through investment in new machinery, but above all through an increase in absolute and relative surplus value, that is through longer working hours and a massive increase in stress and strain at work. This applies to all sections of workers. In the past we have explained the role of speed-ups on the production line and the general introduction of new management techniques. The ingenuity of the bosses in finding ways to cut corners and squeeze the workforce knows no limits – certainly not those of health and safety, nor even those of basic human rights as the latest fad for ‘tagging’ workers demonstrates.
Employment and Stress
More people than ever are in work in Britain, and this has an effect on the outlook of the working class. However that effect is not one of widespread security and prosperity. According to official statistics there are now 28.8 million people in work. On its own however this figure tells us little. It is necessary to know what jobs they are doing, for what wages, with what, if any, level of security, under what degrees of stress.
At the same time unemployment has started to rise significantly over the last six months. The number of people looking for work jumped by 111,000 in the three months to November. The increase brought the total number of people out of work to 1.53 million, the highest since the end of 2002. The unemployment rate for the quarter stood at 5%, up from 4.7% the previous quarter and the highest rate in two years. "The trend in the employment rate may be starting to fall, while the trend in the unemployment rate is increasing," according to the Office for National Statistics (ONS).
Claimant count unemployment, which includes people receiving Jobseeker's Allowance, rose by 7,200 in December 2005 to 909,100, the 11th consecutive monthly increase. The December figure takes claimant count unemployment to its highest level since November 2003.
Analysts argue that the ‘continuing softness in the labour market’ (by which they mean rising unemployment) strengthens the case for a cut in interest rates. As we have already explained the Bank of England is in two minds. The problem is if interest rates go up then investment will fall further, unemployment will rise and house prices will start falling again, setting the whole economy on a downward spiral. However if they cut interest rates, they may prolong the housing boom and consumer spending a little only to prepare the conditions for an even bigger crash later.
The Bank of England follows wage settlements closely in its interest rate calculations and on this score, they are encouraged. Average earnings growth fell by 0.2% to 3.4% in the year to November compared with the previous month. Excluding bonus payments, the figure was 3.8%, down by 0.1% from October's rate. "This confirms that late in 2005 there was still no evidence that pay was starting to be pushed up by recently higher consumer price inflation and increasing energy bills," said Howard Archer of Global Insight. However, as pleased as the capitalists will be to keep wages down, this spells disaster for consumer spending and of course for the housing market.
Employment in manufacturing remains as grim as ever. The number of jobs in the sector fell by another 109,000 in the three months to November 2005 and is on target to fall below 3 million during 2006. There was also an increase in the number of people classed as economically inactive, including students, those looking after a relative and people who have given up looking for a job. The figure rose by 25,000 on the quarter to 7.94 million, the highest total since records began in 1971.
The UK still has one of the lowest unemployment rates in the industrialised world. However this headline masks the reality beneath of millions working under immense stress; many forced off benefits into work; and record numbers abandoned as unemployable. Blair and co are determined to force even more people off benefits. However unemployment is now rising again, which has an effect on the economy as a whole. As well as statistics this fact has an important impact on ordinary workers’ lives, adding to insecurity and stress.
The total number of working days lost to ill health continues to outstrip the numbers of days spent on strike. This is hardly a surprise given the lengths to which the bosses will now go to squeeze every last ounce out of the labour power for which they have paid.
The AA has recently brokered a new deal with its employees, as part of a £12m savings scheme: it plans to introduce "dataveillance", which is a form of electronic tagging, like that applied to criminals. Each employee is entitled to 82 minutes a day away from the computer. Given the statutory 60 minutes for lunch and 15 minutes for tea, this leaves seven minutes for going to the loo, and they will be timed.
This is powerfully reminiscent of the Victorian factory code. This new productivity measure is not confined to the AA - Sainsbury's, Tesco, Pets at Home, Spar, Securicor - are looking at similar monitoring equipment. It is, as the GMB union has said, "treating employees like battery hens". The dark satanic mills of old have indeed been replaced by dark satanic call centres, supermarkets and warehouses.
The Trade Unions
“The trade union question remains the most important question of proletarian policy in Great Britain, as well as in the majority of old capitalist countries…
“The trade unions were formed during the period of the growth and rise of capitalism. They had as their task the raising of the material and cultural level of the proletariat and the extension of its political rights. This work, which in Britain lasted over a century, gave the trade unions tremendous authority among the workers. The decay of British capitalism, under the conditions of decline of the world capitalist system, undermined the basis for the reformist work of the trade unions. Capitalism can continue to maintain itself only by lowering the standard of living of the working class. Under these conditions trade unions can either transform themselves into revolutionary organizations or become lieutenants of capital in the intensified exploitation of the workers. The trade union bureaucracy, which has satisfactorily solved its own social problem, took the second path. It turned all the accumulated authority of the trade unions against the socialist revolution and even against any attempts of the workers to resist the attacks of capital and reaction.” (Leon Trotsky, Writings on Britain, Volume Three, P.75)
Falling living standards; rising debts; deteriorating conditions; increasing stress and job insecurity; combined with the governments’ assault on civil service jobs and public sector pensions are creating all the conditions for industrial struggles. In their turn these struggles will have an impact inside the trade unions and at a certain stage inside the Labour Party. Indeed that process, which we have described many times over the last couple of years, has clearly already begun.
The magnificent struggle of the firefighters marked an important turning point in the events of recent years. Never satisfied with the outcome of their strike, firefighters have drawn many lessons from the experience of their struggle over pay, and as a result have elected a new left general secretary, Matt Wrack – which continues the trend of a swing to the left at the top of the unions – who has pledged to defend firefighters’ pensions threatened by Blair and co. Further strike action looms, which in turn will have a big effect on the outlook of other sections of workers facing similar attacks.
Pensions are a big issue for local government workers and civil servants too, as Blairism attempts to impose the rigours of the market place, i.e. the attacks suffered for many years by workers in private industry, into the public sector. In total more than a million workers are being balloted for strike action against these attacks.
Civil Servants facing massive job cuts have provided, along with London Underground workers, much of Britain’s most recent industrial action. These sectors of young, increasingly militant workers have led the way in the last period.
Unison, along with other public sector unions, is balloting for strike action over the attacks on pensions. Were it not for the inadequacy of the trade union leaders and their lack of confidence in the workers, the result would be guaranteed - more than a million workers taking strike action. They would be in an immensely powerful position. Even in spite of the best efforts of the trade union bureaucracy this may still happen. This would represent an enormous change in the situation, with far reaching consequences in the trade unions and inside the Labour Party.
This proposed strike also involves Amicus members. Amicus remains a decisive union, in terms of its size and the sectors of workers it organises. The turn to the right by a leadership elected on a left ticket was widely predicted and has been confirmed both by their persistent repudiation of strike action and their scandalous attack on the Marxists and consistent lefts in the union.
The shift to the left at the top of the unions which began a few years ago, and which we have analysed in some detail, has continued, but there has also been a refining of that position. A division is now clearly opening up between the left and the centre left who are rapidly becoming the new right. Neither the ruling class, nor their agents in the labour movement, could allow a union like Amicus to shift left without interfering. The role played by the Marxists in that union will have made them extremely nervous. Precisely because of its size and power, there is a long history of interference and infiltration in this union’s affairs (and its predecessors the AEU and the EETPU) by the state.
Derek Simpson was elected as General Secretary of Amicus on a left ticket. He is now desperately trying to abandon his pledge to elect full time officials, and turn to the right. This has assumed even more importance in the eyes of the ruling class and the Labour right wing given the prospect of the union merging with that other immensely powerful force in the labour movement the T&GWU. As Marxists we are, in general, in favour of union mergers that have industrial logic and increase the fighting abilities of the workers involved. For the trade union bureaucracies mergers are usually a matter of finances and consolidating their grip on the union. Whilst supporting the principle of this merger, that does not mean that we will endorse it no matter what proposals the leadership make. We will be fighting for a democratic rule book, to allow the rank and file control over the union.
Simpson has thrown his full weight behind Brown. Several other trade union leaders are with him on this. There is perhaps one difference between the Brown camp and the Blairites. Brown recognises the threat from the unions moving left – after all it has been the unions that have defeated the Labour leadership at party conferences over the last few years (a fact completely lost on the sectarians), and is preparing support for his clique at the top of the union bureaucracies.
However, Simpson was elected because the rank and file were determined to oust Blair’s friend Sir Ken Jackson, and, in the end, Simpson and his supporters can expect the same fate.
His shift right was rapid indeed. Although he later attempted to take credit for the marvellous victory of the Wembley workers, during their dispute he wanted nothing to do with them, allowing scab labour to be employed with impunity.
The struggle of the Wembley workers was an important battle. The workers secured an impressive victory, and many have become active in the union as a result. Another major and far reaching dispute last year was the struggle of the Gate Gourmet workers
At the beginning of August a dispute erupted at Gate Gourmet, the exclusive supplier of on-flight catering for British Airways (BA), when 600 staff were sacked for taking unofficial strike action to defend their jobs.
The company had been threatening compulsory redundancies for months after staff voted earlier in the year to reject a package that would have cut pay and conditions. Things came to a head when, while still threatening lay-offs, management brought in casual staff to cope with basic demand. This provoked a walkout which Gate Gourmet managers then seized upon to carry out the sackings.
The workers, 70% of whom are middle-aged Asian women, were then frogmarched off the premises by security staff. Up to 30 ‘bouncers’ removed their air-side security passes, staff identity cards, and locker keys. Some people were forcibly removed after refusing to leave, including a pregnant woman who, it was reported, was carried out by the arms and legs. People outside the gate were told by a supercilious manager barking into a megaphone that they were all sacked and would receive their P45s by post. The workers were not cowed, by this intimidation, instead they set up a picket on the hill opposite the plant.
The rest of BA’s staff has a close relationship with the Gate Gourmet workers. Until 1997 they worked for the same company, and to all intents and purposes Gate Gourmet still functions as part of BA group. On the very same afternoon 1000 BA ground staff, check-in staff, and baggage handlers at Heathrow terminals one and four were on strike in sympathy in a marvellous display of solidarity. As a result of this action all BA flights from Heathrow had to be grounded, and as time went on more and more of BA’s world operations ground to a halt. Thus a group of catering workers demonstrated just how insignificant the anti-union laws are when they are subjected to a serious challenge, and just how feeble is the leadership of the TUC not to have destroyed those laws by now.
The dispute quickly became a cause celebre. Even former Labour deputy leader Roy Hattersley was moved to write supporting the Gate Gourmet workers, and the principle of secondary action, in The Guardian (19/09/05):
“More than 200 years ago Adam Smith, examining strike action, concluded: ‘The master can hold out much longer than the men ... In the long run, the workmen may be as necessary to the master as the master is to him. But the necessity is not so imminent.’
“Trade unions were created to redress the balance. They cannot do that if they are prohibited from confronting the big companies that manipulate the small.
“That may require union members in ‘associated companies’ to lose pay and risk jobs. The ‘sympathy strike’ requires one worker to make sacrifices for another. That is why secondary action is often laudable. Heathrow baggage handlers are rarely congratulated on their altruism, but during the Gate Gourmet dispute they supported lower-paid workers at considerable personal cost. Solidarity is no longer fashionable - indeed, in industry and commerce it is illegal. But in a decent society it ought to be encouraged rather than condemned.
“It all comes down to the most important political question: whose side are you on? Adam Smith was right again: ‘We have no acts of parliament against combining to lower the price of wages but many against combining to heighten it.’ The odds have always been stacked against low-paid workers. Gate Gourmet employees, and people like them, have no chance of a fair deal unless they receive help from friends. Secondary action is more than necessary. It is right.”
These two disputes are typical of the explosive episodes that have regularly punctuated the apparent industrial peace of recent years. On the one hand they reflect the fact that groups of workers like these have their backs against the wall and are left with no alternative but to fight often without support from, sometimes against the wishes of, their union leaders. Many more such incidents will occur in the next period. In each new episode the role of the union bureaucracy tends to be exposed before a new layer of workers, who can be drawn into the union’s activities and the struggle against the bureaucrats.
What has been missing for the last couple of years has been major national strike action. With one or two exceptions there have been few strikes of this character since the massive public sector strike of 2002. We explained at the time that those workers were in an immensely powerful position, but their leaders settled too early, and for too little. Now we are faced with the possibility of another strike of the same dimensions or bigger.
All the conditions exist for explosions on the industrial front, and are being created for more widespread, generalised action in the next period. We must be prepared for this. Our perspectives point us in the direction of those groups of workers under attack, and likely to take action. They point us towards those unions where a process of change is taking place. At the same time we must be ready for sudden and sharp changes in the situation.
At the forefront of the industrial action taken by tube workers, civil servants and others have been the young workers. Alongside the mood of discontent – expressed in the anti-war movement in particular - amongst students, school students and other sections of youth that we have already described, a similar mood is also brewing amongst young workers.
Youth
In the most general sense it is impossible to separate the perspectives for young people from those for Britain and the world as a whole. At the same time, the whole of history teaches us that youth are always more rebellious, more idealistic, more interested in the future of the planet and of society. This is only natural as it is their future after all. At the same time, whether in work or college, young people are the lowest paid, with the least protection and often work in the worst conditions. This affects their outlook and the outlook of school students looking to their own futures. For some this means despair at the lack of a future on offer to them under capitalism. For others it means anger, and a desire for revolutionary change.
There is a myth that students have the time of their lives, partying, drinking, lazing around. This prejudice collapses under the weight of debt and work students must now accept as the price of studying. In 1992 only a third of students owed money. Now 90% are in debt. That is a heavy price to pay, and explains why so many students are now forced to fit their studies in around working.
Almost 40% of all 16-25 year olds work in distribution, hotels and restaurants. 5.5 million work in these areas, according to the TUC, some of them while studying at university, some of them after their studies have finished. The number described as economically active among 18-24 year olds stands at almost 3.4 million, and unemployment among this age group stands around 400,000, which, according to official figures, means an unemployment rate of around 12 percent. This is more than double the figure for society as a whole.
Meanwhile female students with jobs were earning, on average, 16 pence per hour less than male students in the year 2000. This was an increase in the gender pay gap, which had been 14 pence in 1998. That means that to pay off their student debts female students will have to work more and therefore their academic results will be under threat. But when they finish their studies things do not improve, recently a spokesperson for NUS Scotland said that they estimate that women students can expect to earn 15% less than their male counterparts within three years of graduation. The Equal Opportunities Commission Scotland figures show that women working full-time earn, on average, £559 less per month then men do (The Scotsman 24/08/05).
The vast majority of young people are in work, education, or increasingly both. There are over seven million 16 – 25 year olds in Britain, and 4.5 million of them are in work. The National Union of Students has some 5.2 million members, over two million of them in full time education and in work to pay for it.
The prospect of rising tuition fees has resulted in the number of applications for English universities (the new fees do not apply in Scotland and Wales where the Assembly and Parliament have rejected them) fall by a little over three percent this year. The new fees of up to £3000 will leave students with even higher levels of debt when they leave college.
There has already been the beginning of an important radicalisation taking place amongst school students in the last period. The spontaneous walk-outs and demonstrations amongst this layer of young people, especially against the war in Iraq, illustrate clearly the mood of discontent that already exists in the schools. More recently we have seen the development – here and there at any rate – of school students unions developing. This layer of young people in particular will be looking for a revolutionary alternative to the mess they see all around them. If our perspectives are truly a guide to action, then as well as pointing us towards the trade unions, and those sections of workers entering struggle, above all it is the youth, in college, in work and in school whom we must energetically reach with our ideas.
Conclusion
Far from everything being for the best in the best of all capitalist worlds (to paraphrase Voltaire), it becomes clear, once we begin to dig beneath the surface, that all the features of the impasse of capitalism on a world scale are repeated to one degree or another here in Britain.
Indeed the veneer on the top of British society is remarkably thin. One does not need to penetrate far below the surface to uncover the processes of change at work beneath. The ruling class is increasingly split and divided over how to proceed, how best to defend its ailing system. The middle class feel a profound discontent with the war and the failures of the Labour government. There is a class polarisation of society, where previously blurred lines are being sharpened.
Manufacturing industry is a hollowed out shell. The economy is dependent on debt and consumer spending, and heading for recession.
Blairism is finished. Blair will go soon, and despite the best efforts of his clique, or that of his successor, the attempt to transform Labour into a version of the US Democrats has reached its limits. The Labour government faces new crises on every front. Brown – or whoever – will inherit a party where the process that brought Blair to power in the first place is moving into reverse. He will inherit a divided group of MPs. The economy will not come to his rescue. On the contrary, the slide into recession will add to his woes.
At the same time all the conditions are being created for major class battles, even generalised struggles such as this country has not seen for 80 years. The combination of all these factors is preparing a new period of class struggle, of inner differentiation within the labour movement, big changes inside the trade unions and, as night follows day (though perhaps not quite as quickly) inside the Labour Party too.
The youth have become radicalised already in the recent period and that process has not ended yet, in fact, like the process of change in the unions, and the mood of discontent in the workplaces, it has only just begun.
This process - the different elements of which can be found in different stages of development and maturity in different countries – will not simply pursue a straight line of march. There will be ebbs and flows, periods of advance and retreat. One thing is for sure, there can be no return to the sort of equilibrium established by capitalism in the past. On a world scale, and Britain is no exception, we have entered a period of profound instability and lightning changes.
Basing ourselves only on the surface of society, especially British society, we would be lost, demoralised and depressed, which explains the psychology of the various brands of reformism. The advantage provided for us by the ideas of Marxism is precisely the superiority of foresight over astonishment. “A revolutionary policy” explained Trotsky, “requires above all that we look facts openly in the face so as to foretell the course of their subsequent development. A revolutionary policy appears fantastic to philistines only because it is able to predict the day after next, while they do not dare to give a thought to the next day.” (Writings on Britain, Volume Two, P.176)
That does not mean to say we can predict with any accuracy when house prices will collapse, when there will be a recession, or when there will be major strikes. It does mean however that we must prepare ourselves for sudden and sharp changes in the situation. On the basis of perspectives we can avoid being caught napping and can orient our forces through each stage of the process now unfolding.
Perspectives are a science, but tactics and the building of a revolutionary party is an art. It is necessary to grasp every possible opportunity and make the most of it. A big, powerful army faced with an obstacle in its path may be able to simply smash through the barriers to its progress. The working class possesses that immense power, but is not yet conscious of the fact. The task of Marxism is to make conscious the unconscious strivings of the working class. The molecular process of change within the working class is conditioned by the crisis of capitalism which is unfolding at the present time. White-collar workers, industrial workers, students and youth, all sections will be looking for answers to their problems and the problems of society. We must build and train the forces capable of providing those answers in the shape of the ideas of Marxism.
At this time the revolutionaries are a small minority and sometimes a smaller force needs to tack and turn, to find a path around the road block in its way. The capitalist system is now a tremendous barrier standing in the way of human progress. The leadership of the mass organisations stands like a border guard in front of that barrier. All such barriers must be overcome in order to transform society and free us from the straitjacket in which this lunatic system confines humankind. As Trotsky put it, “The question of the economic emancipation of the British proletariat cannot be seriously put as long as the labour movement is not purged of such leaders, organizations, and moods, which are the embodiment of the timid, cringing, cowardly and base submission of the exploited to the public opinion of the exploiters. The inward policeman must be cast out before the outward policeman can be overthrown.” (Leon Trotsky, Writings on Britain, Volume One, p.33)
These perspectives are a guide to the action we need to take to build the forces of Marxism, and it is to action that we must now turn. The vital question is how do we gather the forces necessary. There is not one simple answer to this. Instead we must make opportunities for ourselves, directing our energies to those areas that our perspectives clarify offer the greatest possibilities. The process of interaction between class struggle and the transformation of the workers’ organisations will take time. Along the way there will be many opportunities for our ideas to find new supporters. Amongst the youth we must not delay. The clarity of our ideas, our perspectives and our programme are the means by which we can reach them. They too are looking for answers and those answers can only be provided by the ideas of Marxism. We must explain that only the socialist transformation of society can meet the needs and aspirations of the working class, and put an end to the nightmare of capitalism in Britain and on a world scale.
“Revolutions are not made in the order of the most advantageous sequence. Revolutions are not generally made at will. If one could rationally map out a revolutionary itinerary then it would probably avoid revolution altogether. But this is just the point, for revolution forms the expression of the impossibility of reconstructing class society by rational methods. Logical arguments even if elevated by (Bertrand) Russell to the status of mathematical formulae are impotent against material interests. The ruling classes will sooner condemn all civilization, including mathematics, to ruin rather than renounce their privileges. In the struggle between the miners and the coal owners of Great Britain the coming revolution already wholly exists in embryo just as in the grain of corn the future stalk and ear exists in embryo. The irrational factors of human history operate most brutally of all through class contradictions. Over these irrational factors one cannot leap. Just as mathematics by working with irrational quantities arrives at completely realistic conclusions so in politics one can rationalize, that is bring a social system into a reasonable order, only by clearly taking into account the irrational contradictions of society so as to overcome them finally — not by avoiding revolution but through its agency.” (Leon Trotsky, Writings on Britain, Volume Two, p.178)
London, 06/03/06
See also Part One and Part Two
