World economy
For
five years past from 2002 to 2007 the world economy was in a boom. The boom has
actually been quite vigorous, with annual growth rates of 5%. This obviously
raises the question as to whether capitalism is entering a new golden age like
that of the post-War boom.
Our
answer to that is in the negative. If we look at the growth figures for the
advanced capitalist countries they show an average growth of 2.8%. These are
fairly ordinary figures for boom years, characteristic of the slower period the
world economy entered into after 1974.
What
is different is that the ‘emerging economies’ are growing strongly at 7.8% a
year. China has been growing at 11% and India at 9% since the end of the last
recession. We have to be careful here. It is not the case that the less
developed countries’ economies have all caught fire. We are mainly talking
about India, China and other Asian economies. The pattern elsewhere is much
more nuanced.
If we
strip out these ‘emerging countries’ (which are of course very important to the
world economy in view of India and China’s huge populations) it is business as
usual. Commentators are unanimous that the world economy cannot decouple from
the still overwhelming importance of the USA in a period of downturn. These
economies cannot become the motor of world economic growth.
The USA
The engine of world economic growth over these
past five years has been the American consumer. 4-5% of the world’s population
have been apparently responsible for 19% of the increase of demand in the world
economy.
Now
at first sight this is strange, since most American consumers are workers, and
working class incomes in the USA have been stagnant for the past thirty years.
The American consumer is spending more not because their income has increased,
but because their wealth has risen. For most Americans the only real wealth
they have is their home. This house is not just a roof over one’s head, but
also an appreciating asset that can be borrowed against.
We
have pointed out for years that rising house prices are a classic bubble. Now
the bubble has burst for all to see. US house price are in free fall. New house
building is at a standstill. All commentators agree that the stimulus to world
output given by the American consumers spending money they haven’t got was
bound to come to an end in 2008 in any case. The USA is entering recession. It
is probably in recession already.
Sub-prime mortgage crisis
The
sub-prime mortgage crisis burst in the summer of 2007. It emerged that the
banks were lending for mortgages to people with no income, no jobs and no
assets. This recklessness has produced a hidden iceberg of bad debt that
threatens to sink large chunks of the US and global financial system. The
sub-prime mortgage scandal will exacerbate and bring forward a recession that
was on its way in any case. One thing is certain. If the US goes into
recession, so does the world.
Credit crunch
The
next stage in the current financial crisis is the credit crunch. This means
that the banks become suspicious of one another, and either refuse to lend or
demand much higher interest rates than usual. Normally inter-bank lending is a
routine part of the financial system. Economists discuss how central banks
routinely adjust Official Bank Rate, the rate at which the central bank lends
to the high street banks. This bank rate is assumed to be the tip of a pyramid
of lending. The next level down in the pyramid, the rate at which banks lend to
one another is supposed to automatically adjust to the change from the top.
That is not happening. That means that the central banks are no longer in
complete control of the situation.
Why
has it all seized up? The sub-prime mortgages have been bundled up into
‘structured investment vehicles’ and sold on to other financial institutions.
They usually end up in the banks as a reserve asset. It is normal financial
practice under capitalism that what is a liability for one person (e.g. a
mortgage) can be an asset for another. After all it provides a steady income
stream. The problem is that millions of people are in the process of defaulting
on their mortgages. The banks have no way of knowing which SIVs will continue
to yield a revenue and which are duds. It is this uncertainty that has brought
about the credit crunch. The collapse of Carlyle Capital Corporation and Bear
Stearns, the fifth biggest bank in the USA, shows in the starkest terms that
the financial institutions are all interlinked, that crisis quickly spreads
through the financial system and that the present financial crisis is not going
away.
The
central banks of the world have decided to throw money at the national banking
systems to try to overcome the freeze in inter-bank lending. It is possible
that this could avert the immediate financial crisis. It is not certain that
this will lead to a ‘soft landing.’ How far have the financial authorities lost
control? Will it work? The situation is fraught with difficulties for world
capitalism. It should be emphasised that the current crisis is the result of
bubbles deflating. Re-blowing these bubbles is not a solution in the longer
term. It will not make the problem go away. If it ‘works’ it will make things
worse later on.
Northern Rock
It
was the credit crunch in turn that brought down Northern Rock, in the first run
on a bank in Britain for 140 years. It is an irony of capitalism that a bank
that does not have a single sub-prime mortgage on its books should be laid low
by dodgy dealings in Florida or Pennsylvania. But that is evidence that a world
division of labour, and a worldwide spread of risk and calamity, is governed by
the global financial system. We are all dependent on one another in the world
market, but we don’t realise it till something goes wrong. And things are
almost bound to go wrong from time to time if the world economy is
interdependent but unplanned.
Northern
Rock has had to be nationalised. After months of dithering, Brown and Darling
have hurled more than £50bn of taxpayers’ money at the bank to keep it afloat
and stop the panic from spreading. The myth of New Labour’s exonomic competence
has taken a damaging knock.
Northern Rock’s strategy was to borrow short
on the money markets to lend long to mortgage holders. This aggressive business
plan had won the management many plaudits in the past. Northern Rock grew fast.
Then the money markets dried up and the bank was left stranded.
Marx
noted in a footnote to Capital that, “The monetary crisis defined in the text
as a particular phase of every general industrial and commercial crisis, must
be clearly distinguished from the special sort of crisis, also called a
monetary crisis, which may appear independently of the rest and only affects
industry and commerce by its backwash. The pivot of these crises is to be found
in money capital and their immediate sphere of impact is therefore banking, the
stock exchange and finance.”
There
is no doubt that the present crisis originated in money capital. It is the
second type of crisis discussed in the quote, rather than one triggered by a
crisis in ‘the real economy’. Events are showing the huge backwash effects it
will have on a world economy which appears to be on the verge of a recession.
It is likely to bring the recession forward and could make it the most serious
slowdown for decades.
We
believe that the misselling of sub-prime mortgages is not a practice confined
to the USA. The level of repossessions in the UK has risen sharply since the
crisis broke out. House prices are falling and housing sales are frozen over. And
it’s early days yet. More unpleasant surprises lie in store for finance capital
in Britain.
Commentators
like Will Hutton have emphasised that this is the most serious financial crisis
in Britain for thirty years. Let us not forget that the 1970s was a period of
the most severe economic crises since the Second World War, and one where these
economic problems posed revolutionary possibilities in this country for the
first time for decades.
It is
worth looking briefly at previous financial crises, like the Wall Street crash
of 1929. Contrary to the general impression, the stock exchange collapse did
not come out of a clear blue sky. The USA was clearly entering recession from
the spring of 1929, contrary to the situation with the present financial
crisis, which is only beginning to infect the ‘real economy.’ Car sales, a
decisive sector of the economy at that time, were already collapsing in the
spring of that year. But the subsequent years after 1929 were not ones of a
spiralling downward economic decline. For long periods the situation would appear
to have stabilised. Then people would wake up to find, for instance, that the
Kredit Anstallt bank had collapsed and the crisis had entered a new phase. So
it is likely to be in the coming months and years. The present crisis will
travel through different stages of difficulty and disaster.
The
UK in the ‘neoliberal’ era is a country with instability built into its
foundations. Yes, most people’s living standards have improved. But this has
been at the cost of both partners going out to
full time work, with child care as a constant problem, particularly for
the woman, with increased intensity of work, with overtime often unpaid, and
with a mountain of debt hanging over workers just to get a roof over one’s
head. Workers have survived so far. But it is like riding a bike. The real
problem is how to avoid falling off when the thing stops.
The
UK is one of the most heavily indebted countries in the world. Whereas
Americans owe $1.42 for every dollar they earn, in Britain we owe £1.62 for
every pound earned. These debts that have kept capitalism afloat now lurk like
so many land mines below the surface as we enter a period of capitalist crisis.
Recession – when, not if?
Economic
commentators have been predicting the next recession for 2008 or 209 in any
case, even without the effects of the financial crisis upon the real economy.
One of the problems in economic prediction is this interaction between
developments in the real economy and apparently accidental occurrences in the
world of high finance. Recession could be brought forward or made worse by the
present financial crisis, as some argue the ‘new economy’ bust in 2000 acted as
a trigger for the last recession in the following year. So economic
developments are uncertain.
British economy
But
the alarms are clearly ringing for the world economy, and for Britain. What
would recession mean for politics in Britain? It is elementary that it would
not produce an immediate outburst of revolutionary zeal. That did not happen in
the recessions of 1929 or in 1974. But a few years later there were
revolutionary repercussions from the Wall Street crash. The question of power
was posed in Germany, France and Spain as a result of complex processes, of
which the economic crash was at least in part responsible. Likewise the 1974
recesssion did lead to revolution in Portugal and a revolutionary situation in
Spain, though it cannot be regarded as the exclusive cause.
What
would a downturn in the next year or so mean for consciousness? It would pose a
big question mark over the ability of the British economy to sustain increased
living standards for the majority year after year. As we have indicated,
workers in Britain live a highly geared life, just managing to balance the
stress of life at work with the
compulsion to get head over heels in debt in order to pay for a house and to
keep a family. For many, the repossession of their home or getting stuck in
negative equity or losing their job would be the last straw. For all, it would
be a warning. The mood would be one of profound insecurity. Insecurity can turn
into fear, or it can turn into struggle. A recession will change the terms of
the debate. It could actually cause millions of people to call into question
the basic principles of the ‘neoliberal’ phase of capitalism that has dominated
their lives since 1974.
World recession: is
Britain immune?
There’s an old saying that, ‘When the USA sneezes, we all
catch cold.’ Alistair Darling and Gordon Brown claim that Britain is best
placed to be immune from the looming world recession. They’ve even commissioned
a Treasury report to try to prove it.
Don’t believe them. The chill winds of economic crisis are
coming our way. The parallels between the US, which is already in the mire, and
the UK are stark.
·
Both economies have had consumer booms that were
fundamentally unsound, based on a housing bubble.
·
A housing bubble is when house prices go up because
people are buying, and people are buying because prices are rising.
·
A housing bubble means people feel richer. They can
borrow on the basis of the rising price of their house. In effect they can use
their house as an ATM.
·
In both the USA and the UK consumers, who weren’t
really getting much better off, went on a spending binge based on their rising
paper wealth.
·
In both countries the government built up massive
deficits by spending more than they were getting in tax.
·
Both countries accumulated huge debts with the rest of
the world, in effect living at their expense.
·
In both countries, the currency took the strain of the
trade deficit, and went into an uncontrolled slide.
·
Now the bubble has burst
This has already started happening in the States. It is no
wbeing played out here.
According to John Authers (Financial Times April 3rd 2008) “Since 1988 US house
prices have risen 155%.” (They’ve taken a dive recently, and they’re going to
go lower). “UK prices, in spite of a slump in the early 1990s, have risen by
more than 300%.
The sub-prime crisis in the States has caused defaults, the
bubble has burst, and the banks are in schtuck. House prices have already
fallen sharply. Capital Economics reckons we could see a worse fall in house
prices here than across the pond – down 25% by 2010. Why not?
US consumers racked up debt that was 128% of household
income. UK consumers have gone one better. We managed 175%. Households have
traditionally been the sector of the economy that was always in surplus. Yet in
both Britain and the USA households have moved into deficit – by 4% of GDP in
our case.
It’s a financial crisis, right? In recent years the British
economy has been booming in…finance. A third of all growth in the economy has
been generated in finance, mainly in the City and Canary Wharf. Now that’s gone
into reverse. At least 10,000 jobs are to go right away, with knock-on effects
later on.
It’s not just the consumers that have been partying like
there’s no tomorrow. Governments on both sides of the Atlantic have been
spending money as if it were going out of fashion. Bush’s profligacy is well
known. He’s been wasting huge sums on weaponry and dishing out tax cuts to the
rich, with no thought for how to make the figures add up. He’ll leave a legacy
of government debt that stands at $9.2 trillion and is still going up every
day.
Meanwhile Gordon Brown has wasted £170bn of our and future
generation’s money on bent PFI schemes. This is the direct equivalent of Bush’s
tax handouts to the rich. From a government surplus amounting to 2% of GDP in
2002, Britain has moved to a deficit of 3%. This is important, because the
government can’t now reflate its way out of the pickle we find ourselves in, as
they are trying to do in the US with tax cuts.
Not only have the consumers and governments gone on a spree
– so have the countries. Enabled by these wonderful new global capital markets,
both nations have built up huge deficits with the rest of the world. Britain
and the USA both have current account deficits of 6% of GDP. That means that we
as a nation and the Americans are spending $106 for every $100 we earn abroad.
In the old days you just couldn’t do this. The Labour
government in 1967 was forced to bow the knee, devalue and tear up its reform
programme on account of a much smaller deficit – about 2% of national income
run for a few months. More recently Britain has been permitted to run a deficit
of 5-6% of national income for years at a time by borrowing the difference. No
doubt the bankers will want their pound of flesh in time. Now the international
banks are just like the high street version. They’re basically factories
churning out debt. Their livelihood actually depends on our collective
financial irresponsibility.
The current account deficit means that foreign capitalists
are building up claims on UK assets to cover the difference between imports and
exports. Traditionally both Britain and the USA, as imperialist countries, have
relied on the export of capital to maintain their control and exploitation of
other countries. (The export of capital was identified by Lenin as a key
feature of imperialism.) In simple terms, imperialist countries make their living
by plain old parasitism. Britain has enormous overseas assets of £5,000bn in
2005 (4 x GDP that year), a world record. But the net asset position is being
nibbled away in both countries, as both countries live beyond their means and
fall into debt. The layers of fat are melting away.
So both Britain and the USA are spending more than we earn,
consuming more than we produce and borrowing to make up the difference. It
can’t go on for ever. We can see that from what is now happening in America.
Then there’s the dollar’s slide. A country with a deficit
like the USA can expect the dollar to become worth less against other
currencies. Now there is one way they can prop up the dollar. That is by
jacking up interest rates so holders of dollar-denominated assets will get a
better return. But Bernanke at the Fed is desperately driving rates down to try to stave off the recession.
Bernanke is reckless – he could forfeit the confidence of foreign owners of US
assets. Then the dollar slide would become an avalanche. As it is, every day
the dollar hits new lows against other currencies.
Since Britain is a country with as big a deficit as the USA,
there is as much pressure on the pound as on the dollar. Sterling has fallen
against the Euro from 1.45 in November to about 1.25 at the time of writing.
There’s one important difference with the States. The Monetary Policy Committee
of the Bank of England is charged with setting interest rates so as to stop
inflation getting out of control. This rule comes from the monetarist dogma
that monetary policy should be directed solely at the threat of inflation, and
it can’t be used to influence the level of economic activity in a capitalist
economy. The real effect of raising rates will be to dampen economic growth
though, especially investment, and that is supposed to cut inflation. It’s a
pretty blunt instrument.
Really inflation is more than 4%, way above the permitted
maximum. So the MPC can’t do a Bernanke unless it fiddles the figures. It is
doing that by using the Consumer Price Index which does not accurately show the
rate of inflation workers face. The Bank doesn’t have a lot of wriggle room.
Britain is a ‘small’ economy, dependent on what happens elsewhere in the world,
above all in the USA. Raising rates will hurt. But even cutting them would
accelerate the decline of sterling against the Euro. And that will hurt too, by
making imports dearer.
If the sterling goes down in value, as it has been, that
makes exports cheaper and imports dearer. In theory, that should correct the
deficit over time – but that’s economic theory, not the real world. It hasn’t
helped the Americans. And it won’t get us out of a hole.
Just as it made us feel rich once, so the housing market is taking
us into recession. House prices are the
link between the world of high finance and ‘the real economy.’
As a result of the housing bubble bursting, the era of cheap
credit is now at an end. The bankers have pulled the plug. The days of 100%
mortgages have finished. Now, if you
want a mortgage, the bank wants 25% of the value of the house up-front. That
amounts to kicking away the lower rungs of the housing ladder for first-time
buyers. Mortgage approvals have also taken a tumble. And some banks have declared outright that there are no mortgages
except for existing customers. So you can’t buy a house at any price. The
actual housing market is freezing, with HBOS predicting a 30% fall in
transactions this year. New housing starts are down by 24% this year.
House prices are now falling in Britain as well. March saw
prices down 2.5%, the biggest monthly fall since 1992. There are predictions of
three million households in negative equity next year, trapped in homes they
can’t afford just like in the 1990s. The Citizens’ Advice Bureau reports a
worrying 35% rise in borrowers coming to them asking for help with their
mortgage arrears. Dispossessions loom.
Britain is subject to the same processes as those that have
already laid the USA low. The structure of British capitalism is very similar
to that of the US, specially the out-of-control role of finance capital. In
both cases house prices have been in a bubble that is bursting. The same house
of cards of unstable credit structures has built up in both countries. They
gave a false feeling of wealth. It was only this dance of the millions that
kept the boom going.
Now, when house prices collapse, they will bring real
impoverishment to millions of people. So the banks that dished the money out
are struggling. House building is the first part of the ‘real economy’ to take
a hit.
Relative decline halted?
In
the past we talked about the special crisis of British capitalism. This
analysis was based on Trotsky, particularly in his book Where is Britain going? It applied the notion of combined and
uneven development to the first capitalist nation. From the 1920s Britain was
perceived as falling behind its rivals. By the 1960s Britain was regarded as
‘the sick man of Europe.’
Has
this special crisis disappeared? Yes and no. The crisis and relative decline
was essentially a problem of the manufacturing sector. But this sector has severely
contracted, at least in view of its former glory. So the problem of the
relative decline of British manufacturing industry has been ‘solved’ by its
virtual extinction! Formerly the ‘workshop of the world,’ Britain began
deindustrialising earlier and more drastically than the other major capitalist
powers. Indeed the Tories raised the slogan in the 1980s that ‘manufacturing
doesn’t matter.’ They did so partly to cover the wanton destruction to industry
caused by the mass unemployment of the 1980s, unemployment that their policies
(and huge policy mistakes) had made worse.
Traditionally
the relative decline of British capitalism expressed itself as a balance of
payments crisis, of an excess of imports coming into the country, over and
above our exports being bought by the rest of the world. Under a fixed exchange
rate regime, this would lead to a run on the pound to pay for the excess of
imports over exports, and the government would be forced either into a
humiliating devaluation or deflation of the whole economy. As we shall see,
this problem of uncompetitiveness has not gone away.
City and industry
On
the other side of the coin from manufacturing the City of London has emerged
apparently victorious in its contest with New York to become the world’s
leading financial centre. The UK commands 20% of international lending compared
with America’s 9% share. This is a blessing and a curse to British capitalism.
On one hand hundreds of thousands are employed in the City and Canary Wharf on
financial transactions. Though we all know about the £8bn in City bonuses paid
out in Christmas 2006, most financial service workers have no share in this
glitz and lead mundane working class
lives. The majority work in high street banking, not the City.
‘Invisibles’
are a massive earner of foreign currencies, partly filling the black hole in
the balance of payments left by the collapse of manufacturing. These are
services. For the most part they are financial services. ‘We’ make $1trn a day
from derivatives trading. On the other hand, the success of the City has
partially covered up the catastrophe occurring in the regions dependent on
traditional manufacturing industries to make a living.
Exchange
rate policy has been a traditional area where finance and industrial capitalism
have clashed. Exporters of manufactured goods tend to favour a depreciation of
sterling which makes their goods cheaper abroad. The City supports a strong
stable pound so that foreign capitalists can have confidence in leaving their
money here. Brown has taken the City’s side.
He
has followed a policy of malign neglect in relation to the exchange rate, a
policy instrument that remains available to finance ministers even in a ‘neoliberal’
age. The rate of exchange can be manipulated by using interest rates. In this
he continues his short-sighted and stupid policy of keeping silent when the
Tories pegged the pound into the Exchange Rate Mechanism in 1990 at what was
clearly an over-valued rate. Sterling has clearly been over-valued for most of
the past ten years. It has actually been higher for nearly all the 1997-2007
period than it was when it was lodged in the ERM from 1990-92. So a million
manufacturing jobs have gone under this Labour government. Till recently the
overvalued exchange rate has made it very difficult for British manufactures to
compete on the world market. The recent depreciation of sterling has come too
late to be a panacea for British manufacturing.
The
result has been a balance of payments problem that would have been regarded as
catastrophic, and would have brought down governments in the 1960s and 1970s.
The deficit on goods with the rest of the world in 2006 was £60bn, amounting to
more than 5% of GDP. A surplus on invisibles (services) brought the deficit
down a bit to 4%. The only thing that prevents a vast gulf opening up beween
what the world gives us and what we give to the world is earnings on
investments overseas. British capitalism has become a rentier economy once
again, as it was in the nineteenth century.
More
evidence that the prolonged upswing is unsustainable comes from the statistics
on consumer debt. Since Labour was elected, consumer credit has gone up by 65%
and mortgages by 94%. Over the same period real earnings increased by an
average 22.4%. Economic growth was fuelled by people spending money they didn’t
have. When the recession comes and many of these people find themselves out of
a job, there will be major repercussions throughout the economy.
Manufacturing still matters
It is
clearly impossible for a nation of sixty million people to all make a living in
the world by playing about with coloured pieces of paper in the City. New
Labour’s notion that the economy can move into a new era where all jobs are
based on knowledge and design skills is clearly also a fantasy. One reason, of
course, is that their skills training programme is a joke. Another is that it
is very difficult to maintain and hone design skills if you’re not actually
making anything. Our surplus from other countries in design industries halved
from £1.4bn in 2001-2 to £700m in 2004-5 for that reason.
We
discuss later the predominance of new employment in what is called the service
sector. What most of these activities have in common – child minding, nursing,
driving people around Salford in buses – is that they cannot be exported. They
are not internationally tradeable.
Generally,
manufactures can be sold abroad for goods we want. It is therefore disastrous
to let industry go to the wall. Such is the government’s commitment to
neoliberalism, that it has made no attempt to protect or even encourage British
industry. If manufacturing is dying, that must be the will of the market, and
the will of the market is the will of God!
Growth and the government
The
economy has been growing continuously for more than ten years. Two and a half
million extra jobs have been created. The government has admitted that 1.3
million of these went to immigrant workers. Till the recent wake-up call the
economic problems of the past have seemed to many workers to be a distant
memory. This situation has led Brown to boast about an ‘end to boom and bust’.
Britain slowed down but did not actually go into the recession of 2001-3 that
hit the rest of the world. This long period of upswing is bound to have an
effect on consciousness. In fact, from a historic core rate of growth of about
2 ¼%, over recent years expansion has been moving a little faster at about 2
¾%. The principal reason for this acceleration seems to be the huge wave of
migration from eastern European countries that have gained accession to the EU.
We shall discuss the political implications of this change to the British
workforce later in the document.
What
has government policy done to create this benign economic environment? The
answer is -nothing. Capitalist governments have two policy levers at their
disposal – fiscal and monetary policy. Fiscal policy relates to government
taxing and spending. For the first years after 1997, Gordon Brown stuck to very
tight Tory public spending limits. His predecessor Kenneth Clarke, who left him
this straitjacket as a little parting gift, admitted he thought the targets
were impossible. Later Brown loosened the reins and spent serious money on the
health service in particular. In fact 89% more was being splurged on the public
sector than in 1996-7, the last financial year the Tories were in charge. This
should have transformed the quality of public services. But the perception is
very different. Certainly the big queues for treatment under the Tories have
mainly disappeared. But anyone who has visited a hospital recently can see that
resources are still being withheld. The problem here was that a large amount of
this cash was drained away by the fraud of PFI.
The
fat years are now definitively at an end. The government has called a halt to
expanding public spending. It is time to rein it in. This is in advance of a
crisis in the real economy. Of course cutting state spending will make the
crisis worse, when it comes. Brown is also trying to cut the living standards
of public sector workers, using the threat of inflation as an excuse. It will
come as a surprise to many workers that the rising price of bread, of milk and
of petrol are caused by above inflation settlements to nurses and teachers,
particularly as they have already been putting up with very moderate wage
settlements.
What
did Brown do about monetary policy? In the first week of power in 1997, he
handed control over to the Monetary Policy Committee of the Bank of England. A
major lever of government policy under capitalism was delivered over to a bunch
of apolitical economic ‘experts’.
So,
if the economy has behaved well over the past ten years, the government can
take no credit for that.
That
is not the way it will be perceived by the mass of the population. As long as
the economy delivers improved living standards to the majority of the people,
active political involvement is likely to remain low. As we have argued above,
recession is coming to the world and so to Britain. It will mean time for
workers to take stock.
Industrial perspectives: background
issues
Proletarianisation
The
most significant trend in the world today is proletarianisation. Global head
counts are hard to come by and figures come with a time lag. The last estimate
of numbers seems to have been by Filmer
for the World Bank in 1995. He worked out there were 880m workers in the world.
Since we know the ‘South’ has been industrialising fast, there are almost certainly
now one billion humans who make their living exclusively by working for a wage.
Together with their families, they have become a majority of the world’s working
population.
Filmer
estimated the peasant population at one billion in 1995. There continues to be
a steady flight to the towns, so this number must have gone down since. It is
probable that there are now more workers than peasants in the world’s workforce
for the first time ever.
At
the same time there were 480m described
as self-employed. Most of these live in the towns. Their jobs are often casual
and precarious. It would be wrong to characterise them as lumpenproletarians
(to use Marx’s expression in the Communist
Manifesto), though the ever-growing shanty towns and slums on the outskirts
of all the cities of the ‘third world’ pose the prospect of growing a hardened
lumpen layer over time. But the vast majority of these people aspire to regular
full-time work, to the status of proletarians.
Deindustrialisation?
When
we discuss deindustrialisation, we need to take the long view of the processes.
In 1900, according to Feinstein, 47% of the labour force in the OECD (rich)
countries was engaged in agriculture. Britain was an exception in this regard,
as it was already fully industrialised. A hundred years later the numbers
involved in farming had fallen below 5%. Most of these workers moved into
manufacturing in the first instance. The numbers involved in farming fell, of
course, because productivity rose there and many fewer workers were needed to
feed the population. The process of rising productivity in both agriculture and
industry meant that, over the course of the century, workers flowed first from
agriculture into manufacturing; while later others were migrating out of
manufacturing into the service sector. Feinstein reckons that about 30% were
involved in industry at the beginning of the century and the same proportion at
the end. So the other net result – that the service sector went from 25% to 67%
over the course of the twentieth century – is actually the result of several
conflicting economic trends.
Feinstein
points out that a 3% annual growth in GDP, which is about average for most
countries in the OECD for the twentieth century, will over 100 years produce a
seventeen-fold increase in income. How is this extra income spent? Since the
industrial sector has been at the cutting edge of rising productivity, the
relative price of manufactures has fallen, and people will spend a smaller
proportion of their income on them, while enjoying vastly more material
prosperity in terms of manufactured goods than people a hundred years ago.
There
has been much discussion of deindustrialisation in the advanced countries even as the global south industrialises apace. We need to
be clear what this means and what it does not mean. Feinstein shows that, for
the OECD (mainly rich) countries, manufacturing output increased faster than
national income over the period 1950-1995, with the sole exception of the USA.
Manufacturing has become relatively more important in their economies. The
advanced capitalist countries have been producing more manufactures, despite increased
competition from the less developed countries in this regard.
But,
because of the dramatic increase in manufacturing productivity, it takes fewer
and fewer workers to produce these goods. If a smaller number of workers are
producing the same amount of manufactured goods, then each manufacturing worker
has potentially more power to paralyse profits. This is not only true of
industrial workers. The sharpened division of labour and the development of
stock control programmes such as the just-in-time system means that relatively
small groups of workers (as in rail and road transport) have the power to
paralyse capitalism and cause an enormous loss of profits in a short period of
time. And, when workers with this clout have showed themselves prepared to use
it, they have made gains and the unions have gained members. The message is
loud and clear – militancy pays.
But
there are other sectors where productivity has not risen at all, sometimes over
centuries. Pulling pints in a pub or looking after children may be two
examples. The service sector is labour intensive. In consequence a relatively
larger proportion of the population is likely to be employed in these sectors,
as less are employed in manufacturing. The shifts in the pattern of employment
caused by this slewed productivity growth are bound to produce significant
changes in trade union membership and organisation, and in the consciousness of
the different layers of the working class.
Manufacturing and services
These
expanding areas of employment are generally referred to as the service sector.
Production is divided into primary (agriculture and extraction, such as
mining), secondary (industry) and tertiary (services). The service sector is
not a Marxist term. In reality it is a ragbag of contradictory elements.
Transport workers such as bus and train drivers, are counted as part of the service sector. In reality they know
they are working class and most people would instantly and unhesitatingly
identify them as such.
The
term service sector is a hodge podge. Nurses, teachers and other useful members
of society have little in common with bond dealers or corporation lawyers, who
in any case are not workers at all. Yet both groups are described as working in
the service sector. Some differences
between service and manufacturing workers seem to be the product of statistical artefact. Workers at Gate
Gourmet make convenience foods in the form of aircraft meals. They are
manufacturing workers. Workers in McDonalds, who fulfill a very similar
function, count as service workers.
The
service sector is traditionally harder to unionise and it is easy for
management to hire and fire, in general because of the low skill base and the fact that they have no legal rights
for the first year of employment (two years under the Tories). The other side
of this is that workers in such jobs have no loyalty to the firm, no commitment
to the industry and drift from job to job. Sectors like the NHS and local authority
workers are exceptions with a long tradition of unionisation. The fact that
most health workers have taken the time to acquire a scarce skill, and in doing
so have shown a commitment to the health service as a long term career, means
they are more inclined to organise to defend their wages and conditions. Even
if they have not gone through a formal education process, public sector workers
have usually received in-house training, so they cannot be regarded as casual
and unskilled. That enhances their bargaining power with their employers.
We
now have not many more than 3 million workers in manufacturing compared with a
labour force of 29 million. It should be noted that millions of workers in
energy generation, construction, dockers, forklift drivers and other
‘distribution’ workers in transport, all hospital workers and virtually
everyone in the public sector are excluded from the manufacturing sector. But
most of these are seen as traditional working class occupations. There are
1.75m transport and communication workers, 6.7m in shop and distribution,
hotels and catering (are female shop assistants in Woolworths middle class?),
and 7m in health and education (hospital ancillaries heavily outnumber doctors
in health).
Transport
workers are even productive workers in Marx’s sense; that is, they produce
surplus value for their employers. Note that Marx does not narrow the
definition of productive labour to those who make things, as Adam Smith did.
Call centre workers are working for a boss’s profits, so they are productive
workers in that sense. There are nearly a million such workers. Workers who
write computer programmes are also producing surplus value.
The changing working class
In
fact the distinction between productive and unproductive labour is not
important to the question of who is
working class. The essential definition is – how do you make your living? Have
you any alternative to working for someone else? Whether you actually perform
productive or unproductive labour is irrelevant to your class affiliation.
Of
course there are contradictory and transitional phenomena. The ruling class
have always needed to work through stooges to do their dirty work for them,
like all previous ruling classes. After all they have better things to do than
supervise the working class! In a sense a stooge’s relationship to the means of
production is irrelevant. If they have decided to become stooges and support
the other side, the fact that they make their living through working for a wage
is neither here nor there. We can use the contradiction between their
ideological commitment and the way they make their living to neutralise some in the course of the struggle.
Blue and white collar
One
important distinction between class and caste is that individuals can move between
classes. That does not in fact obliterate class differences; it strengthens
them. So we also have to look at the aspirations of workers, and whether they
can fulfill these aspirations. Edwardian ladies of leisure may have taken up
typing for a few years before entering into a well-appointed marriage. They
never regarded themselves as members of the working class while they were
slumming it. It goes without saying that their consciousness was a million
miles removed from that of twenty-first century clerical workers in the private
or public sector. For the vast majority of us there is no way out from wage
slavery except socialist revolution.
The
difference between blue and white collar workers was important at the beginning
of the last century, with the beginnings of scientific management and the
emergence of a managerial bureaucracy. These black-coated workers, as they were
called, had markedly superior social status to those on the shop floor. In
addition these layers were recruited from the old middle class. By and large
they lived in different areas from industrial workers and had no social contact
with them outside the world of work. Such people would often have investments
to fall back on and kept servants. They could also be expected to share the
outlook of the ruling class. Otherwise they would be unable to carry out their
supervisory tasks satisfactorily.
How
different now! The remorseless grinding down of the pretensions of the
so-called middle class has been a feature of capital accumulation over the past
century. Teachers may have regarded themselves as ‘different’ a hundred years
ago. No more. They live in the same kind of housing stock in the same streets
on the same sort of wage level as other workers. They have responded to their
perceived change in status in a positive way by making their occupation one
with a relatively high level of trade unionisation – in other words they have
acquired working class consciousness.
Millions
of white collar workers now work in conditions not fundamentally different from
those manufacturing workers put up with. They are often in giant clerical
factories, and their pace of work is measured relentlessly, often by the very
computer that is their basic work tool. This has been the most significant
change of the last century, that the so-called middle class has found its place
in the labour movement. Regarding oneself as middle class today is actually a
question of false consciousness based on the lack of effective trade unions at
work and the illusions created by home
ownership. Though consciousness lags, the old nineteenth century type middle
class has ceased to exist..
The
petty-bourgeoisie, who both work for a living, and own their own dwarfish means
of production, is little more than a distant memory. The peasantry had been
destroyed in this country long before
Marx wrote Capital. In the countryside a tripartite class structure held sway,
consisting of landlords, capitalist farmers and agricultural proletarians. Farm
workers in Britain have always been extraordinarily difficult to organise. In
the towns craft workers have long ago been displaced by mass factory
production, except for isolated professions making luxuries. Their last hiding
place, as small shopkeepers, is now being dive bombed by the supermarket
express and metro convenience stores.
Working class consciousness
The
definition of class is not a question of lifestyle, though it is true that
workers who are conscious of their identity may share a certain lifestyle as
they live together in a working class community. Certainly a worker of the
Chartist era would not recognise wearing a cloth cap and keeping a whippet
(long regarded as the parody of working class identity) as a badge of being
working class at all. In any case the problem is that the development of
capitalism tends to destroy settled working class communities, and their
lifestyles with them. And capitalism is changing much faster now than it was in
the time of Queen Victoria. In the nineteenth century, and for much of the
twentieth century, the working class lived in separate homogeneous communities.
The reason they no longer appear to do so is that they are now the overwhelming
majority of the nation. They are between 80% and 90% by any criterion, with all
the qualifications about intermediate layers and people in transition between
classes.
Consciousness,
of course, is not a direct reflection of social being. In general the ruling
ideas of any era are the ideas of the ruling class. Workers come to class
consciousness through struggle. The working class is many-layered, not a
homogeneous lump. Occupational change produced by changes in capitalism is
part, but only part, of the way consciousness changes. For long periods consciousness
lags behind conditions. Then, in the course of struggle, it can take gigantic
leaps. Over the last twenty years of government policies consciously designed
to promote the idea that individuals can get ahead as individuals rather than
advancing together in collective organisation, working class consciousness has
become blurred.
But
it is important that a growing 68% of us regard ourselves as ‘working class,
and proud of it.’ Interestingly, a Guardian poll found that 56% of 25-34 year old regarded themselves as
working class compared with 48% of 55-64 year olds. So much for working class
consciousness dying out.
A history of struggle
The
general pattern of the industrial class struggle in Britain has been of a
repeated cycle of a buildup of grievances and discontents without an outlet, then
an eruption of anger and struggle, and a relapse as the movement sinks back,
exhausted for the time being.
Occupational change is a permanent feature of
a dynamic system such as capitalism. In the past there was a deep division
between craft workers (often with a five year apprenticeship) and mass
production workers. The unskilled were regarded by the existing craft unions as
unorganisable. Sometimes developments appear to stagnate, perhaps for decades,
and then there is a leap of consciousness with the opening up of class struggle.
1889 was the year when labour ceased what Engels called its ‘forty year sleep’.
In that year accumulated changes led to the successful organisation of
unskilled workers such as dockers and gas workers. That was also the beginning
of the modern giant general unions. In fact trade union membership, the level
of struggle and, apparently, class consciousness then fell back after 1889,
though not to the 1888 level, till the next labour upsurge in 1909-14.
That
has been the repeated pattern: sections of the working class regarded as
‘backward’ and unorganisable moving into struggle, followed by a partial
relapse. There was another upsurge after the First World War, possibly the
biggest of the lot, then, after the defeat of Black Friday, a period of the classes
measuring one another up before the General Strike of 1926.
It is
also the case that a lack of strike action is not necessarily evidence of a
defeated working class. The General Strike of 1926 was the most serious defeat
the working class has ever experienced industrially. The formation of the
National Government in 1931 and the mass unemployment that peaked in 1932 were
all part of a period of defeats. But the years before the Second World War were
ones of revival in some parts of the movement, for instance among armaments
workers and bus drivers (driving was then a scarce skill). Certainly the labour
movement was continuing to advance throughout the 1940s and 1950s. Strike
statistics were low. This is because disputes were often short, since management
settled at once to keep the wheels turning and the profits rolling in. Strikes
were almost always unofficial, as the monolithic right wing bureaucracy acted
throughout as a fire hose. And often they involved small groups of workers.
Leapfrogging differentials was a common pattern of class struggle in those
years. This means that assembly line workers would put in for parity with craft
workers, who would then begin negotiations to maintain their differential. This
sounds sectional. It is not the ideal way to bargain for the interests of the
workforce as a whole. But it was often treated as a kind of game by the
workers, aimed at getting higher wages all round. It seems there was not one
national official stoppage from 1926 through to the bus workers’ strike in
1958.
The 1960s and 1970s were one of the stormiest periods in the
history of British capitalism. The setting was the relative decline of British
capitalism becoming more acute as the world moved towards recession. What was
significant was not the fact of recession, but the way it illuminated that an
era of prosperity and relative class peace was coming to an end. Workers were
forced to come to an understanding that they had to fight to maintain the wages
and conditions they had gained over the previous period of post-War boom. The
‘soft’ side of the ruling class was shown to be a mask as the boss class in
Britain and elsewhere began to prepare private armies and strengthen the forces
of the state for use against the working class.
Revolutionary and counter-revolutionary possibilities began
to open up. The 1970s were a decade of struggle. The miners’ strike of 1984-85
was almost the last act in a period that was one of unprecedented turmoil and
change in the memories of the participants. It is not altogether surprising
that we have seen a prolonged lull since after such titanic struggles.
Industrial perspectives: the present
period
Class and leadership
The past year has continued what, for Marxists, has been a
frustrating period on the industrial plane. The possibility of a breakthrough
was always there. Take the case of the Post Office. PO management have made it
quite clear that they intend to get rid of tens of thousands of Royal Mail
workers. The workers took solid official action, supplemented in some areas
with up to two weeks’ unofficial time on strike. Yet the ‘left’ union
leadership showed themselves desperate to settle with management, with all the
basic issues unresolved and with the threat of mass redundancy still hanging
over their members’ heads. There was a real prospect of a unified movement of
millions of public sector workers against what was clearly signalled to be a
co-ordinated policy of cuts in living standards for all of them. That
opportunity, which could definitely have seen the government off, was fudged.
Different union leaderships called for separate, ineffective one-day actions.
The Unison local authority and NHS sell-outs can be given as an example of the
failure of leadership. The power for a fightback remains latent. The TU leadership
is the problem.
How has this relapse happened over the past years? A layer
of leaders (especially over the last 20 years since the defeat of the miners’
strike, though they have always been there) has come up through the structures
of the unions. They have taken the rep’s job for a number of reasons, other
than political – to get out of work, ‘no-one else wants to do it’ etc. These
individuals have now made it to the tops of the unions. Any one that shows any
ability gets elected. The competition for places has declined. It just reflects
the period and the lack of class struggle.
Today, a lot of the present generation of trade union
leaders have either not been tested or are manoeuvring before any fight starts.
The key issue for them in the last 20 years has been mergers. The decline in
union membership has mainly been in the manufacturing industries. The
overwhelming majority of the present union leaderships are incapable of
recruiting in the service sector because it would mean unionising from the coal
face like in the beginning of trade unionism. This job will become the task of
new layers of young people either politically motivated or faced with no other
choice, who will become political.
Those that were involved in politics in the 1980s have a
different leadership style from other trade union lefts. In the past they were
from the Communist Party, organised in the trade unions to take positions, and
then from Militant in the 1970s and 1980s. There is no organised left wing
presence of the same significance now as there has been in the past. This is
general: a number of good individual fighters have come through. Not to become
part of the union bureaucracy requires being backed by and being a part of a
revolutionary organisation, which can explain the bigger picture.
The virtual disappearance of the CP as a serious force in
the unions is an important development for industrial perspectives. Though
never a serious force electorally, in the past the Communist Party has had a
significant presence, particularly in the old-established industrial unions.
Their influence went far beyond their actual membership. They managed to gain
influence within the educational structures of the trade union movement, and
acted as the core of the broad lefts. They had a tendency to hide their
politics and concentrate on organisational manoeuvring. But their demise has
left a vacuum. All that is left are Stalinist sects, of no significance in
industry. There is no force at present that can replace them. But that is a task
the Marxists must set themselves over time.
The last time the Communist Party was able to act as a lever
on the mass movement was via the Liaison Committee for the Defence of Trade
Unions in the 1970s. Then they were able to strike a chord to the extent of in
effect calling an unofficial general strike (and putting pressure on the TUC to
call an official general strike) in order to get the Pentonville Five dockers
released from prison.
Other means such as overtime are being used to solve
individual problems. If workers see no collective solution to their problems,
they will look to an individualistic way out. Working class consciousness is
based on an awareness of our collective power and underlines the need for
collective action. Historically the middle class has been individualistic,
convinced that they can improve their lot by their own effort, raising
themselves above their fellows. Successive governments have attempted to play
on and encourage this individualism in order to break down working class consciousness.
With inflation rising along with personal debt, wages will
be a key issue in 2008 at the same time as the economy is taking a downturn,
and bosses will be least likely to afford higher wage demands. It is worth
stating again that, in periods of boom, wages normally rise. This has not
happened for all workers in the last period. A lot of jobs are topped up by tax
credits – such as those in Tesco etc. Workers have survived because the economy
has grown, food and other goods have got cheaper and credit has been easy to
get. Now that’s all in the past.
The power of the working class has not changed. What has
changed is that a generation has left education and gone into work where trade
unions either do not exist or are weak or have not resolved young workers’
problems – low pay, exploitation etc. An individual within a unionised
workplace can make all the difference as to how trade unions are perceived.
The last upsurge
Clearly
the past period of almost 30 years has been one of relapse. In the 1970s the
trade union movement was officially led from the left for the only time in its history. Scanlon and Jones were the
General Secretaries of the two most important unions the AUEW and TGWU
respectively. In 1979 trade union membership peaked at almost 13 million. A
series of strikes involved ‘unorganisable’ sections such as women workers in
action for the first time. Women
workers are now a majority in the trade union movement. Most households are
totally dependent on both adults working to make ends meet. How far away it
seems from the time when we had to argue against the notion that women only
worked for ‘pin money.’
The
strike struggles of the 1970s
demonstrate that service sector workers were working class and knew it. In that
decade the shop stewards’ movement became a power in the land. A quarter of a
million workers were involved, many with 100% facility time. There was even the
emergence in some workplaces of elements of workers’ control, such as shop
stewards’ control over whether and how much overtime was to be worked. This
powerful shop stewards’ movement is now marginalised, banished to some parts of
the public sector and long-unionised parts of private sector industry. Facility
time was in any case a double-edged sword, as it could serve to separate the
stewards away from the rank and file they were supposed to be representing. Life could become cosy away from the pressures of the
assembly line. But the movement cannot go forward again without the mass
involvement of workers at a rank and file level.
Another set of rank and file
institutions that have faded over time are the local Trades Councils. In some
areas these are still worthwhile bodies. But their influence is much reduced
from the 1970s when they were effectively charged with organising the days of
action against the Tories and getting the workers out on strike. With an
upsurge in militancy, they are likely to regain their vitality together with
the trade unions as a whole.
There are natural limits to pure
industrial action. The movement of the 1970s was undermined by mass unemployment
after the election of the Tories, unemployment in part deliberately engineered
by Thatcher as a weapon against the trade unions.
We draw a basic dividing line,
contrasting the present period with the period of the post-War boom, which had
relatively full employment, steadily rising living standards, and the working
class in a favourable bargaining position on the shop floor. But even within
the earlier period, we have to bear in mind the British ruling class was
becoming increasingly concerned after World War II about its declining position
in the world and more and more determined to settle accounts with the working
class as a way of retrieving its former glory.
The first serious attempt to take
on the working class was provided by the election of the Heath government in
1970, which represented a clear break with the post-War consensus. Of course
Heath was ignominiously defeated but, as far as the ruling class was concerned,
those tasks remained on the agenda.
The defeat of Heath in 1974
coincided with the first generalised capitalist recession since the War, and
the beginning of a new era with slower growth and permanently higher
unemployment. Throughout this era the ruling class strove might and main to roll
back the gains the working class had made in the era of the post-War boom.
Though this section of the
document is concerned with industrial per
