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Economic Focus
What
rospects
growth?
TS LOST THAT faltering feeling", declared The Financial
Times (22 May, 1993). The article's author believed that the British economy had finally pulled out of recession. But has it? And if it has, what are the prospects for growth?
In the depth of recession unemployment is high, prices and wages fall, and interest rates are typically low. The employers launch an offensive on jobs and wages to restore profit levels. Unprofitable plant is shut. Machinery is scrapped. Bank owners seek to get money capital working by reducing interest rates to encourage borrowing.
The economy comes out of recession when profits recover and the prospects for a sustained rate of return on investments are good enough for capitalism to start up production.
In the first phase overtime working would tend to increase and workers will be drawn off the dole particularly into consumer industries, making the goods that workers buy. With more jobs available, or at least the hope of a job in the future, spending rises. Sales in the shops and car showrooms pick up. Then investment into plant and machinery tends to increase, usually at a later stage.
How does the British economy
match up to this brief, and short-
hand, model of recovery?
Retail sales do not show a
strong recovery. While they rose
between January and March by
1.4%, they fell again in April
by 0.3%. In March net lending
to consumers from credit com-
24 • Economic Focus
By Pete Watson and David Kaplan
Kenneth Clarke - a new face with the same problems.
panies, building societies and finance houses did rise. At £232m it was the highest since April 1991. This may well however be a blip', as chronic indebtedness is holding back recovery throughout the advanced capitalist coun tries. There is no significant increase in overtime working. It fell in March compared to February.
This picture seems to be contradicted by the falling unemployment statistics. But no one can any longer believe the government's figures. The Unemployment Unit believes that the unemployment figure has only fallen because of performance targets set for the Employment Service for job placement and reducing new claims.
The Employment Service were asked to place 1.42m people from the register into jobs, compared to a target of 1.23m in 1991-92. They were set a tremendous 'employment target' of rejecting 500,000 applications for benefit - about 10% of the total. This
activity became especially feverish in the run up to the end of the financial year during the first quarter of 1993.
The reality is that unemployment is probably still rising. There are continuing falls in manufacturing employment and in weekly hours worked. The Engineering Employers Federation alone predicts another 99,000 jobs to go in engineering. There are now only 4.2m manufacturing jobs in Britain, compared to the peak of 7.89m in 1971.
A bosses' offensive was launched during the recession without an effective response by the trade union leadership. This resulted in worse conditions of work for many workers. Unit labour costs (the labour cost for each unit of output) fell 2.9% in the first quarter of 1993, compared to the same period in 1992. Manufacturing productivity rose 7.8% comparing the same periods. Investment has started to pick up. Capital spending on plant was
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rowing Require-
ment (PSBR) is
the money re-
quired to bridge
the gap. The bal-
ance of payments
deficit is the dif-
ference between
export receipts
and import pay-
ments for goods
and services com-
ing in and out
of Britain.
To restore the
confidence of the
capitalist class in
the Tories and
the British econ-
omy, Chancellor
Clarke must
tackle the budget
deficit. A failure
to do so will
likely lead to a
run on the pound
and rising inter-
est rates. To
tackle this deficit
will probably
mean tax in-
creases and cuts
in spending -
both will cut the
spending power
of society and
make recovery
more difficult.
The balance of payments deficit makes Britain a net importer of goods. This is despite the devaluation of the pound which cheapens British exports. This deficit underlines the weakness of British capitalism.
More expensive imports from abroad are sucked into the economy. In the six months since September industrial raw material costs rose by 15% (at an annual rate). By the end of the year it seems likely that Britain will be faced with rising inflation, probably beyond the government's target of 4%. The Tories may be forced into taking anti-inflationary measures such as raising interest rates. This would make borrowing more difficult and again cut the market, strangling recovery.
This fragile recovery be brought back with
HIM:
Flame
Intant Labout OFF
HANDS
THE PAY
FORMULA Firefighters are preparing to fight the 1.5% pay limit.
6.1% higher in the fourth quarter of 1992 compared to a year before. But the basis of rising profitablity for capitalism has largely been laid by the added sweat of the working class.
The British economy seems now to be slowly crawling out of recession. It grew by 1.4% in the last three months. A growth of 2.5% is predicted for this year. This is probably over-optimistic. By any measure it will be a weak and anaemic recovery.
The Tories and their class are haunted by the twin demons of a likely £50bn budget deficit and a £17bn current account balance of payments deficit.
A deficit is where more is spent than is received. The budget deficit is the difference between what the government receives in taxes and revenue and what it spends. The Public Sector Bor-
may also
a bump
by international factors. An expanding economy needs markets abroad. In the three months to June every major economy in Europe experienced a fall in production compared to the previous quarter except Britain. The European Community itself predicts no growth in 1993. The German economy, the powerhouse of Europe, shrank by 1.5% in the first quarter of 1993 and 3.2% over the year. Fifty-seven per cent of Britain's exports go to EC countries. Nor can the Japanese economy be seen as a saviour. In the last quarter, production contracted by 0.3%.
Only the United States shows any sustained growth. There may be signs of take off in the US economy after sluggish growth since 1991. Equipment investment rose 14% in real terms in the first quarter of 1993 against a year ago and after tax profits rose 10% in 1992.
The general international picture is however one of economic stagnation. An economic depression appears to have developed. A depression can be defined as when the normal cycle of booms and slumps or recessions gives way to a chronic and drawn out stagnation of the productive forces.
The OECD predicts 35m unemployed in the advanced capitalist countries in 1993 and 36m next year. The British economy will be unable to ease this world crisis. It may well be throttled by it.
The
working
week
HE EUROPEAN COM-
MUNITY (EC) have agreed
to a 48-hour maximum working week. All workers would welcome this, particularly if it was linked to a decent minimum wage. It will however have almost no impact because of the large number of exceptions to the rule. Those 'excused' from the proposed limit include air, rail, road, and sea transport workers. The Tories in Britain have won a 10-year opt-out from the 48-hour limit.
Economic Focus • 25
[page 27]
23997-94
ROSPACE
ASSUMILIO
LESOR BELTS
JET SIN
5000l
260 Ma
The European Time Lan
35 HOURS HIM
British workers have the longest hours
Somany Holland france
in the
37 hanurs 37 hours 38 howrs 38 hour EC.
More overtime is worked in Britain than any other EC country except Portugal. Only Britain and Denmark have no statutory controls on the working week, and in Denmark collective agreements extend to unorganised workers. Of all EC states, only Britain and Italy have no right to statutory paid leave.
British workers work longer hours than workers anywhere else in the EC. They put in four hours a week more than the average 40. More than 4m workers put in over 48 hours, averaging 60 hours a week.
Lengthening the working day is in the bosses' interests. The working day can be divided into two 'periods'. Firstly there is time spent producing the value of the workers' wages. Marx called this 'necessary labour time'.
The rest of the day is spent producing value over and above the value of their wages. This 'surplus value' is the unpaid labour of the working class. If
daily wages remain the same
and the working day is extended,
extra surplus value is produced for
the boss. This Marx called 'ab-
26 • Economic Focus
solute surplus value. In addition, the extra costs of administration and overheads from employing more workers are avoided.
The history of capitalism been one of struggle over working day.
A 35-hour maximum working week ig something the trade union movement must make a central demand.
Not a
Marshall plan
T A MEETING of the Group
A of Seven (G7) countries in
April this year, the US proposed a new $4bn multilateral fund to promote privatisation in Russia, thereby bolstering Yeltsin's 'reform programme'. ' This was on top of the $24bn promised just one year earlier. But how successful has the West been in giving financial support to the 'transition countries' of the former
USSR and Eastern Europe?
A large part of the UN's December 1992 Economic Bulletin for Europe examines whether in-
ternational financial support has
has the
meet the "huge need ance to help create a market economy".
Because of the "persistance of political uncertainty in the region," the report argues, including "armed conflict in certain areas and generally poor economic results, private creditors and other investors have generally remained cautious... this policy has tended to aggravate the financial weakness of the transition countries and make them virtually dependent on official lenders (eg, the IMF and World Bank)".
Credit guarantees and official bilateral credits and grants to the Soviet Union, for instance, amounted to $79bn between September 1990 and January 1991. But many of these credits were frozen throughout most of 1991, the year of the August coup against Gorbachev, when the future course of the Soviet Union became more uncertain.
While the financial facilities frozen in 1991 were reopened in 1992, in many cases they
were counted in the $24bn fin-
ancial package assembled for Rus-
sia by the G7. In the event
only $8bn of the $11bn in direct
aid promised has been received; just $1bn of the $4.5bn promised
from the IMF was received; and
the $6bn fund to stabilise the
rouble in relation to Western
currencies was not establised.
The commitment and release
of multilateral funds to Russia
will clearly be less than originally
planned, partly because of delays
in the implementation of a
'credible reform programme'
Aside from the Baltie republics,
the other states are even further
behind in this regard.
Borrowing from the IMF fell
in 1992 because certain countries
failed to meet agreed performance
criteria. Poland missed targets
relating to its budget deficit, in-
flation rate and foreign reserves.
As the report concludes, "given
the persistence of budgetary
pressures and poor economic con-
ditions and prospects, it is un-
likely that Western governments
will provide large additional
amounts of resources to the suc-
cessor states" П
for assistfunctioning
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