Yet it’s a strange boast that, seven years on, we are only just reaching that point. Between them, chancellors Alistair Darling and Osborne imposed public spending cuts which suppressed Britain’s economic recovery below the levels achieved in France, Germany, the US and even Japan in the two years after the end of the recession in 2009.
Indeed, their plans almost derailed the recovery altogether over the following period, as EU-imposed austerity programmes did in Spain and Italy. Initial cuts in public-sector investment and then far deeper ones to government spending on wages, pensions and benefits, together with the private-sector attack on wages and pensions, slashed demand in the British economy at the very time when sustained consumption and investment were required.
The TUC analysis published this week confirms that this has been the slowest and shallowest recovery of the eight biggest recessions in almost two centuries of British capitalism. In the five years since the depth of the most recent one, the British economy has grown by just 6.1 per cent — less than half the level (15.5 per cent) achieved after the recession of the early 1980s, barely half that (11.4 per cent) in the mid-1970s and less than one-third of post-Depression growth (21 per cent) in the 1930s.
No wonder Professor Simon Wren-Lewis, who sits on the Office for Budget Responsibility’s panel of economic experts, has been widely quoted as saying: “Anyone who continues to describe what is happening in the UK as a ‘strong recovery’ either has not bothered to look at the data, or is being deliberately deceptive.” Nonetheless, however unevenly between different sectors, regions and sections of the population, the British economy now appears to be growing more firmly than in some other major capitalist countries.
What are the prospects for this recovery to continue and its prosperity to trickle down and spread more evenly? The recent surge in corporate profits should offer some protection against involuntary cutbacks in production, investment and jobs. Yet, as Centrica is determined to demonstrate, the drive to maximise shareholder profit trumps all — especially when monopoly power has an entire population at its mercy.
Six thousand redundancies may lower service quality and security of supply, but the Big Six energy utilities which produce and distribute our gas and electricity can collude to charge whatever they like. They know that regulators and the government are on their side — and that, effectively, consumers have nowhere else to go. The ongoing tumble in world commodity prices over the past two years could make British exports more competitive and free up corporate funds for investment.
Certainly, Britain’s trading position with the rest of the world has been improving this year. Manufacturing investment has also risen, if sluggishly, although a slowdown is forecast by Lombard in its latest report for the EEF employers’ body. But there can be little confidence that falling commodity prices will counteract severe structural imbalances and weaknesses in the British economy. The City gamblers will still speculate the final prices to British industry upwards, while the big monopoly firms and financiers continue to direct much of their capital into property, services (including privatisation), bond and currency markets and overseas, rather than into domestic productive industry.
The priority given to City of London interests maintains the pound at a high exchange rate, to the disadvantage of export prices. There is no sign of this rate weakening against the euro, in Britain’s main export market, although it may not quite keep up with the dollar after a rise in US interest rates later this year. Further down the line, an increase in the Bank of England base rate will make it more expensive for industrial companies to borrow for investment. Quality based on more R&D and new technology is as important as price when it comes to exports — unless British capitalism intends to compete against Third World labour costs. It is also vital when it comes to productivity, the balance of payments, employment and rising living standards at home.
Yet British levels of business and scientific investment remain poor in relation to most other G7 and Brics economies, even after a prolonged period of low interest rates. A new Office for National Statistics survey confirms that Britain spends far less on investment (only 15 per cent of total annual spending) than any other G7 or leading Brics country, including Japan (21), France (20), the US (19), Germany (17), Russia (26), India (36) and China (49).
For at least the past four decades, fixed capital investment in Britain has languished at between two-thirds and three-quarters of the level in France, Germany, Japan and more recently the US. According to Eurostat, British industry consistently devotes less (around 18 per cent) of the new value it creates to investment than most other EU member states.
Hampered by continuing low investment, labour productivity here has yet to return to its pre-recession level as, in particular, the US and France surge ahead. British ruling-class strategy to sustain investment and competitiveness is to rely on relatively low wages, kept down by unemployment and anti-union laws, together with inward investment and — funded from privatisation sales — slightly increased government infrastructure spending.
The CBI targets workplace pensions as a drag on internal company funds that could go to investment instead.
Public spending cuts, privatisation and lower corporation tax on company profits are also essential elements in a strategy which has its central goal the expansion of capital’s profit base — and the restoration of the rate of profit itself. This being capitalism, there are contradictions.
Austerity for the working class will reduce purchasing power, but the intention is for this to be counteracted by extra household and corporate (as well as government) borrowing — even though this is almost certain to create another financial crisis.
One basic problem for capitalism is that, in the drive to maximise profit, companies seek competitive advantage by reducing labour costs and increasing production and market share. Purchasing power is restricted at the same time as output expands until, at the peak of a boom, not everything produced can be sold a profit. Credit cannot postpone such a recession infinitely. Capital accumulates which has nowhere profitable to go, so its value has to be slashed as investment, production and employment spiral downwards.
Just such a cyclical crisis of over-production was already gathering in the major advanced economies on the eve of the 2008 financial crash, manifested in a glut and then fall in steel production. Moreover, in the perpetual drive to reduce costs by introducing labour-saving machinery and new technology, the proportion of new value being created by labour power falls as a share of output. Yet this surplus value, for which the capitalists are competing in any given sector and the economy generally, is the basis of capitalist profit as whole.
Marxist economist Michael Roberts has recalculated official figures recently to show how this tendency for the rate of profit to fall has occurred in the G20 countries collectively, since 1950. Post-war expansion ended in an international recession and a collapse in profit rates from 1974. The long decline since then has only been interrupted twice — by “New Right” policies during the 1980s and, until 2002, the post-Soviet neoliberal globalisation offensive.
Since then, the main capitalist classes have had to intensify their efforts to try to increase both the rate and mass of profit. This is the context in which to understand the renewed drive to maintain austerity, cut business taxes, restrict trade union rights, impose even greater labour flexibility, increase the state retirement age, cut pension rights, expand privatisation and increase the power of transnational corporations through international trade and investment agreements such as TTIP.
This is the strategy of British state-monopoly capitalism, the EU Commission, the European Central Bank and the IMF.
Rob Griffiths. General Secretary, Communist Party of Britain