According to George Osborne, the British economy has ‘turned a corner’ and there are ‘tentative signs of a balanced, broad-based, and sustainable recovery’.
Osborne’s optimism is based mainly on a recent increase in the figures for gross domestic product, which show the UK economy on course for annual growth of perhaps as much as 3%.
But there is nothing ‘balanced, broad-based, and sustainable’ about this. The opposite is true. None of ‘the fundamentals’ have changed. We are still in a depression – a state of permanent mass unemployment, or what Keynes called ‘an under-employment equilibrium’.
The upturn/downturn cycle is characteristic of the system in periods of both boom and slump. During the Great Depression, the US economy collapsed in 1929, recovered somewhat after 1932, then collapsed again in 1937. The crisis was ended only by rearmament and war.
To get a handle on what is happening, we need to look at the economy in six distinct frames. In what follows, the smaller frames sit within the larger, and the largest of all is the most important. The Osborne bubble occupies the smallest frame. The chronic and intensifying tendency to stagnation inherent in world monopoly capitalism and the global ecological crisis occupy the largest.
Frame 1: the Osborne bubble
Osborne’s boom is, in fact, a bubble. This is clearly explained in another article on this site [Counterfire] by James Meadway, so what follows here is a brief summary.
British wages have fallen by about 6% in real terms since May 2010. Unite (the union) estimates that more than five million workers are now on zero-hours contracts. One in four youngsters is unemployed.
At the same time, house prices are soaring again, up almost 10% in London over the last year, and many retailers, especially in the South East, have reported a big increase in consumer spending over the summer.
Falling incomes and rising demand. How come? There seem to be two elements to the answer. One is that the increased spending is concentrated at the top end and, in regional terms, in London and the South East, where the rich, and to some degree the middle class, are better off as the age of austerity continues to siphon wealth upwards (and into the capital) and to widen social inequalities.
The second is debt. One measure of increasing working-class debt is the rise and rise of payday loan company Wonga. It is now making more than 10,000 loans a day, a 70% annual increase, charging annual interest rates of 2000% and upwards, earning the company £1.2 million in profit a week.
In other words, Osborne’s micro-boom is a debt-fuelled bubble. Back in the real economy, things are grim. One recent Office for National Statistics report Osborne has not been trumpeting revealed that output per worker in 2012 was down 2% on pre-slump levels and 16% below the average for leading industrialised nations.
The reason? Capitalists are not investing in new plant and machinery. The demand for manufactured goods does not exist. Workers’ wages are falling. Government spending is being cut. And export markets have been choked by the Euro-crisis. Britain is left a cheap-labour economy based on speculation, privatisation, and debt.
Frame 2: the social crisis
Osborne’s micro-boom has zero benefit to most working people and the poor (this too is clearly set out in James Meadway’s article). Their lives are dominated by the ongoing effects of neoliberal restructuring of the social order and by the impact of government austerity. Neoliberalism is designed to redistribute wealth from labour to capital – that is, from the 80% who do the work to the 1% who own the wealth. Austerity has accelerated this process since the 2008 Crash.
To see the rich getting richer and the rest of us getting poorer, you can choose any measure you like. Let’s, in this case, take housing.
This summer, the average house price in Britain passed the £250,000 mark. In the South East, the average was £330,000. In London, it was £515,000. Prices have risen further since then.
The rising wealth of the global super-rich has created feverish activity at the top end of the market. Records were broken when a London house price hit £250 million for the first time this summer. Internet multi-millionaire Eric Schmidt, with only £30 million to spend on a London home, is currently struggling to find anything suitable. Apparently he has recruited a friend of Prince William to help.
Schmidt represents one pole of a spectrum of grotesque and obscene inequalities. At the other are the thousands of poor people being driven from their homes because they cannot pay the bedroom tax. Two-thirds of a million are currently struggling with the consequences of this particular benefit cut.
There are millions more paying astronomical rents. This spring, the average London rent hit more than £1,100 a month, having risen 8% over the previous year.
Escape from the rent-trap is impossible for the vast majority of young workers. They can neither save enough for a deposit nor pay the cost of a mortgage. The average age of a first-time buyer in the 1960s was early 20s. Today it is late 30s.
This is just to speak of housing. It is only one barometer of the growing social crisis in British society. One might equally focus on unemployment, precarious work, and zero-hours contracts. Or the crippling cost of higher education. Or the accelerating privatisation of the NHS. All the indices point the same way.
Moreover, as The Guardian’s Larry Elliott puts it, ‘economically speaking, London is a different country’. If house prices are rising by up to 10% a year in the capital, they are falling in real terms in most of the country outside the South East. Ditto the other indices. Unemployment is double the national average, for example, in regional blackspots like Glasgow, Liverpool, Hull, Birmingham, and Wolverhampton.
This, then, is our second frame: the economics of growing inequality, shrinking opportunity, and decaying social fabric.
Frame 3: the race to the bottom
Why are wages under attack? I am using ‘wages’ here as shorthand for the entire share in the national product that goes to working people as opposed to the rich and the corporations. So it includes benefits, pensions, and the ‘social wage’ (mainly education and health).
To some degree, wages are always under attack in capitalist society. Employers want to cut wages, lower prices, and boost profits. But the pressure on them to do so is greater when competition is fiercer. And British capitalism – and Western capitalism more generally – is engaged in a competitive battle with the newly industrialised low-wage economies of the Global East. The result is ‘a race to the bottom’ where Western capitalists seek to drive down wages closer to the level of countries like Brazil, Russia, India, China, and South Africa (known as the BRICS).
Here is Osborne: ‘Western democracies are being outworked, outcompeted, and outsmarted by new economies … And the truth is, some Western countries won’t keep up, they won’t make the changes needed … They’ll fall further and further behind.’
British capitalism, the original ‘workshop of the world’, has been in relative decline since the late 19th century, when it was overtaken by Germany and the US. American capitalism peaked in 1945, when it accounted for about half of global production; its share has since fallen below 25%, perhaps now as low as 20%.
Contrast that with the BRICS, four of which now rank among the richest ten countries in the world. Most striking is the case of China. Now in second place, its annual GDP is expected to exceed that of the US before the end of this decade.
The exploitation of Chinese workers – and others across the newly industrialised economies – is comparable with that of the 19th century Industrial Revolution in Britain: 12-hour days, 60-hour weeks, relentless work pressure, mind-numbing boredom, gnawing fear of sudden dismissal, poverty pay, arbitrary stoppages, workplaces that collapse or turn into incinerators, slum accommodation where a dozen migrant workers sleep in a dormitory reeking of piss, and so on.
This can change – indeed, is changing. Recent strikes in some foreign-owned firms like Honda have resulted in Chinese workers winning wage increases of 10, even 20%. The Chinese ruling class is keen to increase domestic consumption to ‘rebalance’ their economy, so they sometimes take a relaxed attitude to strikes.
But the gap between the Global West and Global East remains huge, and the basic argument stands. Capitalism is a system of globalised competitive accumulation. This imposes an iron logic. To compete, capitalists must cut wages to reduce costs and prices. The alternative is they go bust. There is no middle way. That, in essence, is why the interests of labour and capital are incompatible.
Frame 4: the permanent debt economy
But wage cuts which are logical for individual capitalists are illogical for the capitalist class as a whole. All capitalists want low wages in their own factory, but high demand in the market-place. This contradiction has been the story of neoliberal capitalism since the 1970s.
Annual growth rates provide the measure. I focus here on the US because, reaching Frame 4, we are now concerned with what is happening to world capitalism as a whole.
The stimulus of arms production during the Second World War raised the US growth rate to 5.9%. At the height of the Great Boom in the 1960s, it remained at 4.4%. During the 1980s and 1990s, however, it fell to 3.1%. And in the 2000s, it was just 2.6%.
That was not all. Most growth in the 1960s was in the real economy – in the production of goods and services for actual use. Most recorded growth in the 2000s was fictitious, because the problem of flagging demand – due to the neoliberal assault on wages – had been ‘solved’ by a vast increase in debt.
Artificial demand had been generated by ‘financialisation’ of the economy. Market deregulation, low interest rates (‘cheap money’), financial ‘innovation’, and rising household debt eventually created the biggest bubble in the history of the system. The economy was flooded with electronic loan-money. So demand was stoked up, prices increased, and profiteers scrambled for a slice of the action. This turned into a gigantic bubble of fake wealth.
The economy kept growing simply because people were spending money that did not exist. Loans were secured against assets that were rising in value only because of the availability of loans: a classic, self-feeding, speculative frenzy. Workers in many parts of the developed world became heavily indebted because of stagnant incomes, easy credit, and rising house prices. And workers buying on credit then became the basis of a vast inverted pyramid of financial derivatives, unsecured debts, and inflated asset values.
Average US household debt more than doubled between the late 1970s and 2006. Total debt grew from about 1.5 times US national output in the early 1980s to nearly 3.5 in 2007. The financial sector’s share of US profits increased from about 15% in the early 1950s to almost 50% in 2001.
The neoliberal boom depended on debt. Neoliberal capital is a debt-junkie. In 2008, when the debt bubble burst, something even more serious for the system also happened: the primary motor of growth choked on its own toxic by-products. A deeply pathological system had exhausted itself and shuddered to a halt.
Ever since, Western leaders have been trying to re-start the motor by flooding the system with liquidity (electronic money, of which bank bailouts and ‘quantitative easing’ are primary examples). The effect has been minimal, but in so far as there has been effect, it has amounted to bubble blowing.
Frame 5: world monopoly capitalism
Capitalism has been pathological since at least the 1870s. The Long Depression of 1873-1896 was ended by imperialism, an arms race, and the First World War. Between the wars, the system first slumped, then crashed, and the Great Depression gave us fascism, rearmament, and the Second World War. The post-war boom of 1948-1973 depended upon US hegemony, a world awash with dollars, and the stimulus of Cold War arms-expenditure; the Great Boom rested on the cone of a nuclear missile.
The crisis of the 1970s triggered the neoliberal counter-offensive against the working class and welfare state, and, by sucking demand out of the economy, halved the growth rate and made what little there was dependent on debt. Now the same insanity has been writ large by austerity.
Only once in its history has the system functioned in some sense ‘normally’. Between 1848 and 1873, capitalism expanded rapidly through the competition of many small and medium-sized firms operating mainly in local, national, and regulated colonial markets. This, of course, was the system analysed by Marx.
But Marx understood that ‘the centralisation and concentration of capital’ was a basic feature of the system’s historical development. Competition meant that the average unit of capital – the typical factory and firm – tended to get larger as more cost-effective big business drove smaller operators out of the market.
By the late 19th century, key industrial sectors were dominated by a small number of giant firms in each country, and increasingly these firms were international in their reach. Terms like ‘monopoly capitalism’, ‘finance-capital’, and ‘imperialism’ were used at the time to describe what was happening.
The process of centralisation and concentration of capital continues. Today, 51 of the world’s largest economic units are corporations, not countries. The top 200 global corporations account for 28% of global GDP. The combined wealth of these corporations is twice the combined wealth of the poorest four-fifths of humanity.
The dominant global corporations have immense power to shape and manage markets. Unlike medium-sized firms in competitive markets, which are forced to invest to cut costs and remain competitive, today’s corporate giants collude to reduce uncertainty and minimise risks.
Market shares are stabilised. Prices get fixed. Monopolies are entrenched. Competition is restricted to relative side-channels like branding and advertising. As the cost of investment on the scale necessary to compete in global markets rises, therefore, the pressure on corporations to make such investment, and their willingness to do so, diminishes.
Capitalism becomes risk-averse and stagnant. Markets become ‘sticky’. The industrial system becomes clogged with surplus capital. This seeks outlets in mergers and acquisitions, in buying up state assets (privatisation), in financial speculation, and in the accumulation of vast pools of electronic money in tax-havens. The banks, awash with this surplus capital, are thereby transformed into gigantic casinos for the super-rich.
Frame 6: the finite Earth
Growth, of course, is unsustainable. The Earth is running out of minerals, most obviously oil, and but also a series of other essential raw materials. The new ‘Scramble for Africa’ is powered not just by energy-hunger but by fast-rising demand for bauxite, chromium, cobalt, copper, platinum, titanium, and uranium.
And, of course, the planet is burning and the numerous impacts of climate change are escalating. Drought in Russia that cuts the grain harvest by a quarter. Drought in the Mid-West that adds 40% to the price of maize. Floods in Pakistan that destroy half a billion hectares of food crops.
Each year the official estimates of what is coming get more chilling. Because of climate change, of the children borne last year, 25 million more will face malnourishment, and 100 million more food insecurity, than would otherwise have been the case. With the global temperature rise set to pass the 2°C mark, up to 200 million people will be forced to abandon their homes. And so on.
We once thought of the economic and ecological crises as co-existing in separate registers, following their own, essentially independent trajectories. Not any more. It now makes more sense to think in terms of frames within frames, where all dimensions of the compound crisis of world capitalism are interacting in dynamic, unpredictable, and increasingly dangerous ways.
Where are we going?
We do not need endless, unplanned, unsustainable growth. Capitalism needs it – because it is a system of competitive accumulation, of self-expansion, of growth for its own sake forever and ever. But working people do not. What we need is planned and rational use of the Earth’s resources and humanity’s productive capacity to provide everyone with the goods and services they need to live full, healthy, interesting, and creative lives.
The system is failing at every level. Osborne’s boom is a bubble. The fabric of British society is rotting. The welfare state is being destroyed in a race to the bottom with the low-wage East. The system, a debt-junkie of zombie banks and parasitic conglomerates, has choked on its own greed.
Stagnation-slump has been its modus operandi for more than a century, save when it has been ‘saved’ by arms spending and war. And now it is burning the planet, threatening the very survival of industrial civilisation in the century ahead.
It’s them or us: the rich, whose wealth depends on the survival of the system, or the mass of humanity, whose well-being depends on the overthrow of the austerity regimes, finance-capital, and the global corporations.
The implications are dizzying. Knowing the next step is the way to remain grounded despite the scale of the crisis. The central task for British activists this autumn is to build the People’s Assembly movement – the rallies, the Manchester demonstration, and the 5 November day of action.
Looking forwards, we have to work to turn the People’s Assembly into a nationwide mass movement capable of mobilising millions in what is bound to become in the years and decades ahead a struggle for the highest imaginable historical stakes.