Socialist Party congress 2006
British Perspectives February 2006
These preliminary remarks on the international situation indicate the background against which events will unfold in Britain. One thing is absolutely clear: the next historical period will not be a repetition of the past decade. Economically, Britain is probably in the most exposed position it has been in history. It confronts globalisation today not as it did in the previous phase, which we have described. Then, it was the major economic force of world capitalism as the firstborn of the major capitalist powers with a powerful industrial base and ruling one quarter of humankind through its empire. The British ruling class then thought in decades and centuries. Now its ambitions are limited to how to sneak around the next corner without mishap.
Formally, according to Blair, Britain is the "fourth richest country in the world". If that is the case, it will not remain so, given the winds of change, particularly economically, that will sweep over British capitalism in the next period. Only a fortunate coincidence of factors, unlikely to be repeated, has allowed British capitalism to appear to have escaped the worst economic problems which have confronted its rivals, particularly in Europe. These were mainly the world economic upswing of the 1990s, combined with the effect of the devaluation of the pound following the collapse of the Exchange Rate Mechanism (ERM) in 1992. This increased the competitiveness of Britain by lowering the price of exports.
Undoubtedly, another factor is the brutal pursuit of neo-liberal policies in Britain, firstly under the Tories and now, if anything, more ferociously, in the eight years of Blair’s government. Relying more on cheap, sweated labour, with low-paid jobs, instead of a high level of investment in industry and highly-paid manufacturing jobs, the British bourgeois were able to considerably boost their profitability at the expense of the share going to the working class. This has resulted in historically high levels of profitability with a current average of 13.7%, the highest for five years, for corporations generally in the UK. The oil companies operating in the North Sea actually increased their ‘return on capital’ from 30.6% at the beginning of 2005 to 33.7% between April and June. On the other hand, manufacturing industry, while increasing its profits in the second part of the year, ‘only’ chalked up a profitability of 7.5%, half of the average.
This underlines once more the increasing ‘rentier’ character of British capitalism, marked by massive de-industrialisation, which continues apace even during an economic ‘boom’. Industrial production actually suffered its biggest fall for five months in August 2005, with the British Chamber of Commerce declaring that this sector of the economy "was in technical recession in the first part of 2005". The manufacturing sector’s share of the economy has fallen by almost 30% since Labour came to office in 1997, a total loss of one million jobs. This is worse than any of Britain’s European competitors. Between June 1997 and the end of 2004, France and Germany each lost between five and six per cent of manufacturing jobs, not the 30% experienced under New Labour. The Transport and General Workers’ Union (TGWU) has predicted that on current trends manufacturing as a sector will cease to exist in Britain by 2029! Of course, this is an exaggeration but nevertheless does indicate how manufacturing is drastically declining in Britain.
The serious implications of this have been pooh-poohed by bourgeois economists who argue that there are " large surpluses in insurance, banking, or the financial intermediation, architectural and other technical consultancy, computer services, business services, legal services", etc. [Diana Coyle, The Independent] The fact that British capitalism experiences massive combined deficits in trade of goods and services is airily dismissed. It is true that the deficit in August partly arose because of an estimated £1.4 billion in pay-outs by British insurance firms for damage from Hurricane Katrina. Moreover, North Sea oil, which hitherto has buoyed up the British economy, experienced its largest deficit in modern history. As to services, the usual suggested alternative lifeline for British capitalism, the surplus stood at £300 million, the smallest since records began in 1993, other than the deficit of £920 million in September 2001 related to the 9/11 attacks.
The collapse of British capitalism is symbolised by the demise of Rover, with Chinese companies seeking to pick up a few titbits from its wreckage, and the implosion of Marconi, the British telecoms firm. Ericsson, the Swedish company, has now bought Marconi for £1.2 billion, yet 20 years ago its market value was £5 billion and it was the global leader in power generation and defence contracts. All of this impacts enormously on the jobs and the lives of workers and their families who were turfed out of the factories, some to remain jobless for the foreseeable future, a few scrambling into non-manufacturing, low-paid employment. The Confederation of British Industry (CBI) predicts a further 24,000 job losses in British factories by the end of 2005. The argument that the ‘free market’ is the only possible engine for employment and high-paid jobs is collapsing around the ears of the neoliberal prophets.
In fact, as Andrew Glyn and John Edmonds, former leader of the GMB trade union, have pointed out in a joint study, it is not the private sector but the much derided state sector which has provided an employment lift to the British economy. This has allowed Gordon Brown to boast that Britain "escaped" the worst ravages of the recession of 2000-01. Glyn and Edmonds calculate that "between 2000 and 2003, some 550,000 extra private sector jobs were created as a direct result of public spending. We are left with the startling conclusion that the public expenditure programme of Gordon Brown, the chancellor, has been responsible for all the growth in private sector employment between 2000 and 2003." What then is the justification for the neo-liberal policies which officially underpin Gordon Brown’s approach to the economy, combined with his and Blair’s obsession with inflicting further cuts in the public sector?
Nor is there, as Brown has suggested, an escape hatch for British capitalism in the form of foreign direct investment into Britain or of a ‘race to the top’, the production of high-value goods, linked to the development of China. Admittedly there was a huge surge of foreign direct investment into the UK in 2004. This amounted to an impressive $78 billion, a fourfold increase compared to 2003. It was particularly impressive given that from 1985 through to 1995 the average amount of inward investment per year in Britain was $17 billion. In the earlier part of this decade this had increased to $30 billion. But as one bourgeois economist has commented, "there is more than one form of foreign direct investment" [The Independent].
If it had led to green field sites, linked to the development of factories in ‘partnership’ with British capitalism then this would have led to increased extra capacity and more jobs in British industry. Unfortunately, however, $58 billion of the $78 billion attracted to Britain was used in parasitic ‘mergers and acquisitions’ (M&A) by speculative foreign companies taking over their British counterparts. For instance the Spanish Banco Santander Hispano has taken over Abbey National. As the same bourgeois economist bemoaned: "M&A activity is not guaranteed to add to a nation’s wealth. Indeed, by disposing of assets to foreigners – particularly for a country running a current account deficit – a cynic might argue that this amounts to selling the family silver."
In answer to this, it is argued that Luxembourg comes fourth in the list of countries attracting FDI and has not done too badly. But "no-one is suggesting that Luxembourg, despite its undoubted charms, is an international economic powerhouse." [The Independent] In the competition for FDI, Britain is playing on Hackney Marshes – if any is left after the London Olympics – in comparison to the big league of China and the US. To rub salt into the wound of British capitalism, our economic sage comments: "The less encouraging news is that companies [who have come to Britain] are not planning to stay where they are." In other words, British capitalism’s future, and thereby the jobs and lives of the 60 million people in this country, rest on the weak reeds of service industries, FDI both inwards and abroad, as well as a hope and a prayer.
All of this is a consequence of the short-termism of the British capitalists, reinforced in the 1980s by the conscious policy of deindustrialisation of Thatcher. This was in order to break the resistance of the working class, which was manifested in the mighty industrial struggles of the 1970s and early 1980s. She was similar in this respect to the French ruling class who took fright at the Paris Commune of 1871, held back the development of industry in order to weaken the working class and relied on the exploitation of its colonial slaves. The difference is that British capitalism now is in a far more exposed position than was the case for its French counterparts. The minimum consequence of this will be the further long-term decline of British capitalism, a ‘slow and glorious decay’. If however, the bottom falls out of the world economy, hubris looms for British capitalism and thereby catastrophe for the working class.
In the short term, the so-called ‘largesse’ doled out by Brown in the past period in the form of increased public expenditure – which did not make up for the cuts under the Tories and sustained by Brown himself from 1997 to 2001 – will be a thing of the past. The so-called ‘golden rule’ of balancing public expenditure over the course of the economic cycle, which is an arbitrary period, will go for ‘a Burton’. Either that or he will face an economic ‘black hole’ of £10 billion in public expenditure. This will require a slashing of public expenditure or tax rises (probably of the indirect kind), which significantly Brown has not ruled out, or a mixture of both. The Bank of England cut interest rates by a quarter of one per cent to 4.5% in August while international capital, through the mouthpiece of the OECD, is calling for rate increases. The CBI and manufacturing industry are prescribing the opposite medicine, a further cut in interest rates.
Brown’s economic forecasts have also been thrown overboard as the British economy is unlikely to grow beyond 2%, the lowest growth for 12 to 13 years. This growth in any case has not been fuelled by investment, which is pathetic compared to the competitors of Britain. It is the ‘consumer’ – ‘shop till you drop’ – which has sustained the miserly growth in the British economy. This in turn is based upon a colossal asset bubble, particularly in housing, which has allowed fortunate owners of property to take out cheap loans at historically low interest rates, resulting in a massive spending binge.
In Britain, as with the other ‘Anglo-Saxon’ countries –the US, Canada, Australia and New Zealand, as well as the Netherlands – which have also pursued similar policies, this ‘locomotive’ will inevitably hit the buffers in the next period. The massive overvaluation of houses, by as much as 15%, has helped to push London into becoming the most expensive capital in Europe and one of the most expensive in the world. House prices have risen by 200% over the last seven years. Although there has been a recent slowdown, house prices still stand at six times average salaries compared to the long-term average of three and a half times. A measure of the problem is that even if prices were to stand still it would take at least eight years for the average to be re-established. It is more likely that what the capitalist economists call a ‘painful readjustment’ will take place. A massive repossession of housing similar to the early 1990s is therefore in prospect. The number of court orders to repossess houses has jumped by 66% in the space of a year to reach its highest level since 1996, but not yet approaching what happened in the late 1980s.
House prices in London have reached such absurd levels that, for example, a garage in London was recently sold for £240,000! Another house, five feet five inches wide, sold for more than £500,000. House building – particularly of low-cost affordable houses for working class people – social housing – is needed to alleviate a huge housing crisis which exists and will worsen in the future. There are 1.5 million people on the waiting lists of councils. With no real council housing being built, there is no prospect of them being housed by councils. A fighting socialist programme on housing is essential for our party in the next period which can engage the support of tenants and what will become economically besieged home owners, as well as those who are completely priced out of owning a house and whose only hope is rented ‘social’ housing. The Office of the Deputy Prime Minister said that only three out of ten of today’s ten-year olds will be able to afford their own house by 2026.
The housing catastrophe in London and the South- East has radiated out to produce a similar situation throughout Britain. It is time to dust off the old copies of Friedrich Engels marvellous little pamphlet ‘The Housing Question’, where he correctly predicted that capitalism is incapable of solving this most basic of all requirements of humankind. This should be a starting point for a combative action programme which can set out a clear explanation and programme for a mass movement on housing. This of necessity raises the need for a massive house building and housing renovation programme but not on the lines of that promised by Prescott. This would mean a massive ‘concretisation’ of London and the South-East by further huddling more people together in a region already grossly overpopulated.
Housing is now closely bound up with ‘modern’ capitalism where credit pays a role in extending the system way beyond its limits. Loans on the basis of the appreciation of property prices – house prices in London were recently increasing by £64 a day – have stimulated the ‘spend, spend, spend’ culture. But now, household spending has slowed sharply as has mortgage equity withdrawal, where people add to their mortgage on their housing in order to spend on other things. This in turn has had a knock-on effect in the retail sector, with sales at a recent 20-year low until the shops slashed their prices even more. This in turn has had an effect in slowing down the economy as a whole. At the moment there has not been a collapse in house prices, merely a slowdown in rises. But so hooked is the economy on the ‘housing drug’ that even if there is a stagnation in prices, as happened in the Netherlands, this would be sufficient to plunge the economy into crisis; an actual drop in house prices would have even bigger consequences. In Sydney, Australia, house prices are down 16 per cent in two years and, according to the Economist, indicates what is coming in Britain. The timing of this, however, is the unknown factor.
But at the same time the prices of key household necessities and goods have begun to creep up. In general, globalisation has had the effect of dampening down inflation, particularly in sectors such as clothes, where over the past nine years prices have dropped by over 40%. Now, partly as a result of the rise in oil and its effect on petrol prices, the rate of inflation has increased to a nine-year high. This is still low by historical standards, particularly compared to the double-digit inflation of the 1970s, but it disguises a significant rise in some important household items. Some food prices, particularly of fruit because of cheap imports, have fallen, but others have risen and pushed up household expenditure. The official figures for price rises are fiddled, excluding, for instance, the cost of housing, which is the major factor in the typical household budget. Fuel prices, particularly of oil because it is a factor in determining the prices of practically all goods made and transported throughout the economy, have a more generalised effect than price increases for other goods. Oil has both an inflator effect, increasing prices in general, as well as a deflationary effect because, by increasing the price of energy, which still has to be used, it cuts the amount which can be spent on other goods.
Despite claims to the contrary by Mervin King, the current Governor of the Bank of England, the wheels are coming off Brown’s economic chariot and that of British capitalism as well. Brown has chided Europe for the 20 million unemployed and suggests his neoliberal schemas be applied throughout Europe. It is true that the official unemployment rate in Europe is twice that of Britain but it is rising here as well and could soon hit a million unemployed. The trend of joblessness will be upwards given the slowdown of the British economy. At the same time all types of ‘make-work’ or ‘pretend work’ measures have been taken which disguise the real situation.
An occasional economic bonus can accrue to the government, such as the increase to the price of oil, which could lead to more tax income for the government, put at £3.5 billion this year. But Britain has become an importer of oil so this is only a very short-term bonus. The long-term position of British capitalism is summed up by the continued drop in investment, which last year fell to its lowest as a share of nominal GDP since figures began to be collected in 1960. A miserly 3.4% increase in ‘business investment’ is an indictment of the stewardship of the capitalists of the economy. A pointer to the future is the burgeoning number of empty shops, which has jumped by 45% in the past year.
Energy crisis and nuclear power
The consequences of the neglect of investment, coupled with the destruction of the mining industry, have also pushed up the cost which Britain pays for energy. This has increased by 60% compared to a year ago and is double the figure of two years ago. This has led the CBI to warn that there could be insufficient energy supplies this winter, which may lead to factory closures and a return to the ‘three-day week’ of the Tory government in 1973-74. This is a possibility if, as is predicted, there is a cold, possibly ‘Siberian’ winter in prospect for Britain. This has provoked a government charge that the CBI is being ‘alarmist’ for making such claims. The energy unions have also warned of shortages. Irrespective of who is right or wrong, one thing is clear: a combination of rising demand and falling North Sea output means that Britain faces a squeeze on gas supplies, which it is now overdependent on, given the smashing of the coal industry by Thatcher in the 1980s. The sins of the ‘mother’ in this case have been visited on the children, ailing British capitalism today. However, it will be the working class that will pay the main price for this scandalously chronic underinvestment in energy supplies.
Panicked by the looming energy gap, Blair has now floated a return to nuclear power and the rapid building of fission-fuelled nuclear power stations throughout the country. We must oppose this on environmental and cost grounds; fission leaves a waste product with a half-life of tens of thousands of years. This is an unacceptable burden on posterity, on future generations. Moreover, it has been estimated by the environmentalist George Monbiot that a nuclear accident inflicted on one plant by a terrorist attack, an earthquake or some other ‘act of god’, like another Chernobyl, could mean not just a terrible nuclear fallout but also clean-up operations costing up to £5.5 trillion.
Just as bad is the proposal of Blair to order a new generation of nuclear weapons to replace the aging Trident fleet at a cost of billions of pounds. If he was to go ahead with this – again involving a minimum of £10 billion extra ‘defence’ expenditure – a new anti-nuclear movement could be generated in Britain. What ‘danger’ to Britain exists which makes the acquisition of weapons of mass destruction (WMD) necessary for Britain? The ‘war on terror’? To defeat a ‘foreign invasion’? From whom? To pose these questions show just how ludicrous are Blair’s ambitions for Britain to remain even a second ranking military power. Even if these weapons are acquired they will not be an "independent British deterrent", as was argued by governments in the past. New revelations in The Independent have shown that the firing of nuclear weapons from Polaris submarines will require the express permission of the US president before Britain could proceed. In other words, even with these weapons Britain, like other minor imperialist powers, will still remain under the ‘nuclear umbrella’ of US imperialism. In terms of cost, as well as of the misuse of precious resources which could be used more beneficially elsewhere – on schools, hospitals, and the infrastructure – and on environmental grounds, we must oppose the development of a new generation of British nuclear weapons.