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
