16th Congress of WR: Britain can’t escape the world economic crisis

This is the first part of a report presented to WR’s recent 16th Congress.

In the recent budget Gordon Brown, the Chancellor of the Exchequer boasted “Britain is today experiencing the longest period of sustained economic growth since records began in the year 1701 […] Inflation has been the lowest for 30 years. Interest rates the lowest for 30 years; employment the highest ever. And with living standards since 1997 rising on average by 3% each year, Britain has today the best combination of low inflation, high employment and rising living standards in a generation”. It is true that rates of growth in Britain have been above those in much of Europe while the unemployment rate has been lower. In the report on the National Situation presented to the 16th congress of World Revolution last November, which we are publishing below, we showed how the ruling class has achieved this by increasing the exploitation of the working class. The means it has used to do this, far from expressing the health of the economy, actually confirm its fundamental weakness. Far from escaping the crisis British capitalism is caught fast and sinking further. It is the ability of the ruling class to manage the crisis, above all through the attack on the working class, which it has sustained for the last quarter of a century, that has put the British economy at a temporary advantage compared to its rivals.

The economic crisis of British capitalism is an expression of the global economic crisis of capitalism. Consequently the latter provides the framework in which the former must be understood. At the level of the whole historical period this is provided by the theory and reality of the decadence of capitalism… The basic theory is set out in our pamphlet The Decadence of Capitalism and it has been further deepened in numerous articles in the International Review, including, most recently, the series that began in IR 118. Complimenting this, the publication of extracts from the report on the crisis to the 14th International Congress in IR 114, provides the framework for understanding the current evolution of the crisis at a global level:

- It shows the growing struggle of capitalism to maintain its momentum: “Since the sixties, each decade has shown a mean growth rate lower than the preceding one:

1962-69 = 5.2%

1970-79 = 3.5%

1980-89 = 2.8%

1990-99 = 2.6%

2000-02 = 2.2%”.

- It shows the growing weight of debt: “The weight of the national debt expressed as a percentage of GDP decreases throughout the ascending period. In general it never exceeds 50%. This ratio explodes at the time of the entry into decline, to ebb only during the period 1950-80, but without ever going down below 50%. It then goes up during the years 1980-90”.

- It shows the growing weight of the state: “Oscillating at around 10% throughout the ascendant phase of capitalism, the share of the state (i.e. the non-market sector) in the creation of added value climbs during decadence to almost 50% in 1995 in the OECD countries”.

- It shows that this distorts the figures for growth “insofar as national accounting partly counts the same thing twice […] In short to correctly evaluate real growth in decadence it is necessary to deduct nearly 40% of current GNP corresponding to the growth of the unproductive sector since 1913”.

- It shows the growth of military spending: “From 2% of world production in 1860, to 2.5% in 1913, it rose to 7.2% in 1938, reached around 8.4% in the 60s and again went up to about 10% at the height of the cold war”.

- And since such expenditure is a sterilisation of capital “To the 40% growth of unproductive expenditure in the period of decadence, we thus have to add another 6% corresponding to the relative increase in military expenditure…which gives us a world production overvalued by nearly 50%”.

The health of the British economy

“Since the mid-1990s, GDP growth, inflation and unemployment have been remarkably stable in the United Kingdom. Nowhere else in the OECD has economic activity remained so consistently close to trend over this period. The United Kingdom has also been among the most resilient economies during the recent downturn. Apart from Canada, it is the only G7 economy, for which output has not fallen by significantly more than one percentage point below potential. Moreover, it has been one of the few European countries (large or small) to display such a degree of robustness during the downswing. At the same time the unemployment rate has remained continuously close to 5 per cent. In 2003, it will be the lowest among the major seven economies, while deviations of inflation from the target have been as small as could have been reasonably expected” (OECD Economic Surveys, United Kingdom, 2004, p.23).

Since the mid 1990s growth in Britain has been above that of the Euro area and close to that of the OECD as a whole, which includes the US. It has been above that of Germany since 1992 and also of France, other than for a few years at the turn of the millennium.

Inflation in Britain averaged 7.4% between 1979 and 1989, rising to 13.4% in 1990. It fell sharply in the early 1990s and since 2000 it has been below the Euro area average (OECD Economic Outlook – Consumer price index).

“A recent study concluded that evidence of the benefits of two decades of structural reform in the United Kingdom was provided by the halting of ‘the nearly century-long trend in relative economic decline of the United Kingdom relative to its historic competitors France and Germany’… Indeed, over the last decade the gap in GDP per capita with the major continental European countries has been substantially closed” (OECD Economic Surveys, United Kingdom, 2004, p.37). Does this really mean that Britain is an exception to the economic problems besetting Europe and most of the world as the Labour government argues? Does Britain show that the economic crisis can be managed and even overcome?

Growth and Productivity

The first part of the answer comes from understanding the relationship between growth and productivity. A recent publication by the Department of Trade and Industry identified a number of ‘paradoxes’ in relation to the productivity and competitiveness of the economy. The first of these stated “Productivity is the long run driver of prosperity, and relative prosperity has increased since 1998. However, the UK’s relative productivity performance remains poor” (UK Productivity and Competitiveness Indicators 2003, DTI November 2003, p.8). “Over the last five years, the UK has indeed become a more prosperous economy, both absolutely and relative to others. In 1998, UK prosperity, measured in terms of GDP per head – was below that of Germany, Italy, the OECD average and the EU average. It is now above all four of these areas. This has been achieved despite subdued productivity growth and little movement to close the productivity gap with our major competitors. The gap with the US, France and Germany remains at just over 20 per cent in terms of output per hour worked.

“The UK has been able to achieve higher prosperity because of strong labour market performance. Prosperity depends on both the productivity of workers and the proportion of the workforce employed. For the UK, the former has improved slightly while the latter has risen sharply since 1998.” (ibid, p.9).

The underlying problem confronting British capitalism can be shown by comparing unit labour costs in Britain with those of its rivals. Taking 1995 as the starting point, there has been a strong divergence between Britain and the other powers, especially those in Europe.

This means that the increase in production in Britain is based on an increase in the quantity of labour employed and not on the level of productivity per worker. Such an increase in quantity can be achieved either by bringing more workers into productive activity or by increasing the amount of labour provided by the existing number of workers, that is by requiring them to work longer hours. This is supported by the OECD’s definition that labour utilisation “is measured as trend total number of hours worked divided by population” (OECD Economic Surveys, United Kingdom, 2004, p.39).

In Britain, both options seem to have been followed, although the official reports tend to stress the former: “The growth in labour force utilisation in the UK has been stronger than in Continental Europe and is the decisive factor that allowed the UK to catch up in terms of prosperity” (UK Competitiveness: moving to the next stage, DTI May 2003, p. 10).

There has, indeed, been an increase in the number of hours worked, even though recent government publications suggest the opposite, reporting a reduction in the numbers working over 48 hours a week following the introduction of the EU working time directive.

A longer view shows that hours declined from the start of the last century until 1984 and then began to rise again. “The TUC…using the LFS,[Labour Force Survey] shows that the number of full-timers working 45 hours or more increased from 4.7 million (29 per cent) in 1984 to 5.7 million (36 per cent) in 1994. Within these, those working 45 to 49 hours went up just one per cent, but those working 48 hours or more rose from 20 per cent to 25 per cent. Furthermore, those working 50 hours or more increased from 15 percent to 21 per cent. There was a simultaneous decline in proportions working a ‘standard’ week of 35 to 39, or 40 to 44 hours” (Working long hours: A review of the evidence Vol.1, p.44 DTI November 2003).

The true picture of the hours actually worked is distorted in several ways. While contracted hours have gone down there has been an increase in the amount of overtime worked, both paid and unpaid. The level of unpaid overtime in particular increased sharply between 1988 and 1998: from 25.2% to 40.6% of males working fulltime and from 27% to 57% of females working fulltime.

Secondly, the growth in part-time working has the effect of reducing the average hours worked, so masking the growth in working long hours. What this implies is that there is a polarisation between those working shorter hours and those working longer ones, between underwork and overwork. This would fit into the overall picture of the divide between those with little or no work (see below) and those facing increasing absolute exploitation. Such a situation is entirely consistent with the marxist analysis of capitalism: “The overwork of the employed part of the working class swells the ranks of the reserve, whilst conversely the greater pressure that the latter by its competition exerts on the former, forces these to submit to overwork and to subjugation under the dictates of capital. The condemnation of one part of the working class to enforced idleness by the overwork of the other part, and the converse, becomes a means of enriching the individual capitalists, and accelerates at the same time the production of the industrial reserve army on a scale corresponding with the advance of social accumulation” (Capital, Vol I, Part VII, Chapter XXV, Section 3 “Progressive production of a relative surplus population or industrial reserve army”)

The recent OECD report provides some evidence to suggest that the growth in the number working has been less important than the increase in the hours worked because the fall in the rate of unemployment is not the same as more people being in work “while the structural unemployment rate has fallen by around 4 percentage points since 1990 there has been virtually no fall in the trend inactivity rate…The flat aggregate inactivity rate conceals a number of worrying trends. While the female inactivity rate has fallen, the male inactivity rate has shown a consistent upward trend. The latter has been accompanied by a similar rise in men reporting long-term sickness or disability as the main reason for inactivity…In 1980 the numbers claiming invalidity benefit were less than the number claiming unemployment benefit, whereas they are now more than two-and-half times as great” (ibid, p.103). While the report tentatively suggests that this “may partly reflect disability benefits being used as an alternative pathway to early retirement given the absence of other ‘formal’ early retirement schemes” (ibid, p.105) the truth is that this is one of the major ways in which the bourgeoisie has hidden the real level of unemployment. This is why, in the midst of such growth, Britain continues to have “a high level of poverty relative to other European countries at similar levels of prosperity” (UK Competitiveness: moving to the next stage, DTI May 2003, p. 9). As we note in the article in WR 275, in which this passage was first quoted, “While for the economic geniuses of the bourgeoisie the paradox that a richer capitalist nation is also a poorer one is merely unfortunate, Karl Marx explained some 150 years ago that the polarisation of wealth and poverty in society is the necessary, inevitable, result of capitalist production; that the two extremes are dependent on each other. The more wealth the working class produces, the poorer it becomes. Surplus value, upon which capitalist growth depends, can only increase if the value of labour power decreases” (“British economy rising on a mountain of debt”).

The argument that there is a quantitative increase in exploitation is also supported by the evidence about the level of investment: “The UK continues to suffer from low levels of capital investment. Over the most recent cycle, business investment per worker remained lower than our major competitors... The persistence of under investment over the past thirty years has created a significant deficit of capital available to each UK worker. This is common across manufacturing and services” ” (UK Productivity and Competitiveness Indicators 2003, DTI November 2003, p.29). “The UK has a lower capital stock per worker and per hour worked than the other three countries, lagging France by 60%, Germany by 32% and the United States by 25% in terms of capital stock per hour worked” (UK Competitiveness: moving to the next stage, DTI May 2003, p. 12). The workforce is also relatively less skilled: “The UK continues to show weakness in terms of relative levels of human capital. Too many workers lack the key basic and intermediate level skills. There have been improvements in the flow of workers into the labour force – through the reforms made to schooling – but weaknesses in the stock of skills remain” (UK Productivity and Competitiveness Indicators 2003, DTI November 2003, p.54).

What all of this suggests is that despite all the rhetoric about a knowledge-based, high-tech economy, the growth achieved by British capitalism, that is the increase in the level of exploitation of the working class, is due to an increase in the level of absolute surplus value extracted from the proletariat: “The surplus-value produced by prolongation of the working-day, I call absolute surplus-value. On the other hand, the surplus value arising from the curtailment of the necessary labour-time, and from the corresponding alteration in the respective lengths of the two components of the working-day, I call relative surplus-value” (Marx, Capital Vol.1, Part IV, Chapter XII “The concept of relative surplus value”). The countries with lower growth rates than Britain, principally its European rivals tend to have lower levels of labour utilisation but higher levels of productivity while those ahead of Britain, such as the US, Australia and Canada have both higher levels of labour utilisation and higher levels of productivity.

The increase in GDP has not come from manufacturing but from services. Taking 1995 as a starting point, services have increased from 100 to over 130 while manufacturing has dropped below 100, that is, there has been an absolute decline in manufacturing. While such a divergence is true of most developed industrial countries, the situation in Britain is worse than in the US (rising to over 120 in 2000 before dropping back to over 115 two years later) and the Euro area as a whole (increasing to just under 115 by 2002).

WR, November ’04.