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BRITISH ECONOMY The imposition of drastic restrictions on the British economy means the utter collapse of the Tory government's policies, and the end of the feverish boom that gripped the economy over the past year or so. A payments deficit £350 million in a single month, a minimum lending rate of 13%, a slump in share prices, a further slide in the value of sterling - this is the face of the "boom that went bust". A new recession is inevitable, coming on top of the other problems of British capitalism - a record balance-of-payments deficit, roaring inflation and The British economy has been rather like a battered old motor-car careering down a hill at 90 mph towards a brick wall. The chauffeur, Ted Heath, and his co-driver, Sir Michael Clapham of the CBI were proclaiming loudly with forced smiles on their faces, that if they kept accelerating they could crash straight through the wall (of 'stop-go'), and the economy would 'take-off' into a period of trouble-free growth. In the back seat sat the experts, the strategists of British capitalism. They knew the state of the car and had seen what brick walls can do on previous occasions. They shook their heads in disbelief; only a firm touch on the brakes could save the plained about the back-seat driver who had no faith in his policies and hopes. Even his own advisors, like Lord Rothschild, had to be disciplined for suggesting that Britain is just being relegated to the lower divisions of the Yet there was no basis for the Tories' optimism about growth in the British economy. Since mid-1972, the growth rate has been about 5% in real terms. Investment in manufacturing industry has risen by 7% in real terms. Exports have risen sharply, unemployment has fallen by 30%, profits have risen by 40% and money wages by nearly 15%. Ronnie Macintosh, Director General of the National Economic Development Council claims that there has been "a significant increase in the under-lying growth potential of the UK economy in recent years." Sir Michael Clapham, of the CBI, believes Britain can go for a 6% per annum real growth rate and "there are sound reasons for us to expect that growth will continue at a higher level and that investment will be rewarded... The much-publicised boom during 1972 and 1973 was not new in the British economy since the war. It is usually followed by a persistent and damaging period of stagnation. As it is, since the war, the UK economy has the Table 1 shows that the boom was even more based on expenditure on consumer goods than previous booms in the economy and even less based on real productive expansion of investment, vital to future long-term growth. The expansion of consumer expenditure has mainly been achieved by borrowing on credit and not by increased While it is true that investment has risen in the last 12 months, it would have to rise by 20% in real terms to make up for the severe decline in manufacturing investment suffered in the previous two years. Compared to other western capitalist countries, British capital investment as a share of Gross National. Product remains one of the lowest. According to the NEDC pamphlet "Industrial Review to 1977", the investment/employee ratio in the UK is significantly lower than competitor countries. Amongst the major West German vehicle manufacturers, gross fixed assets per man were 80% higher than UK manufacturers' during the period 1967-71. Increasingly, the British IN CRISIS bitter industrial confrontations.
economy from a crushing stop when they met that wall.
So while Ted Heath told us how well the economic league in world production.
The economy is well placed for a take-off."
Table 1 1962-mid 67 1966-68 1971-mid 73 value created by the economy.
lowest growth rate in Western capitalism, averaging about 2.6 % p.a.
(NEDC Report, Sept. 1973) Growth in total expenditure created by upturn in economy :
private consumption 40% 40% 51% BY BOB McKEE economy was growing and how much better off we all were, he compublic & private investment 23.3% 20% 6.8% 21
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cnpitalist class has been unwilling to invest in new machinery and plant, or in new methods of organisation and technique, and as a result, production has not responded. More and more British capitalists would rather invest in speculative ventures like land, stock exchange speculation or in foreign investment. In 1972, investment overseas doubled so that it has nearly reached the figure for total manufacturing investment in Britain as a whole! So much for the patriotic calls to "Back Britain" _ "Buy British" that we heard such a lot about in adverts in the Tory press just a few years ago. For the capitalist, patriotism stops where the profits dry up. And it is the failure of profits to increase which is the cause of the increased unwillingness of British industry to invest. The Marxist theory of the tendency for the rate of profit to fall over a time, has been graphivally demonstrated in the case of the British post-war economy. In 1960 the rate of profit on capital assets employed was 16.5%, now it is below 12%. Profits in the company sector in 1972 were only 68% of 1963 levels, when price inflation is taken into account. The share of national income going to manufacturing profits has declined from 13.1% in 1948, to only 6.7% in 1972. While total profits have risen in real terms by 18% in 1972-73, there has been no change in the rate of profit at all (according to CBI report, Oct. 1973). The CBI estimate that to recover to the level of 1963 profits, in real terms, there must be a rise of over 50%.
Thus it is not surprising that British capitalism will not invest. But above all, these figures show the serious crisis with which the British capitalist is faced. Unless it can drastically alter the state of profit levels, Britain will be unable to survive on world markets for manufacturing goods. But a revival can only be done at the expense When the Tories came to power in 1970, they initially attempted to solve this problem by direct policies, confrontation with the working class, and drastic slimming down of British industry. With the Industrial Relations Act, increased social service charges, cuts in taxation for the rich, they hoped to shackle the unions and shift incomes in favour of the receivers of profit. With the policy of ending investment grants and regional subsidies, they attempted to dispense with the 'lame ducks' of industry and allow unemployment to rise, to weaken the As we know, all these initial policies failed, because far from weakening and demoralising the working class, 1971 and 1972 were the most militant years in post-war British labour history. The strength of the trade union movement represented by the miners, the railmen, dockers and others threw the Tory government back on its heels. The Industrial Relations Act has been effectively paralysed, at least as far as its general use is concerned; the "lame duck' policy has been quietly forgotten, in the wake of UCS and Rolls Royce. The Tory policy of direct attack on the real wage levels of the working class in order to raise real profit levels, was abandoned. The Heath government now aims indirect attacks on workers living standards, through an incomes policy, rent and price increases. The Tory government now attempt to guarantee profits for the capitalist class, giving big hand-outs to industry and removing restrictions on credit facilities to buy consumer goods and services. But these big hand-outs to industry have still not restored the magical 'confidence' necessary to revive investment and long term growth. Since the Treasury began economic forecasts in 1968, they have regularly predicted higher increases in capital investment than have actually been realised - on average almost twice as high. Now. they predict a 15% increase for 1974. Even if this was met, it would only restore the levels achieved in 1965! Meanwhile, British industry continues to founder in the competitive world markets. As it is, since 1950, Britain's share of world manufacturing exports has fallen from 25% to about 8%, and this share continued to fall during the present "boom'. The motor vehicle industry particularly suffered. For the first time in British industrial history, the UK became a net importer of cars, as the share of foreign cars in home markets rose to 31.6%. Not only could British industry not compete in overseas markets, it could not defend its own markets from competition. Thus we had the pitiful spectacle of Lord Stokes, the great supporter of free trade and the Common Market, demanding that the government introduce an import ban for foreign cars, TV, radios and electrical equipment to protect British industry. In the year of the world boom, British car production exports actually fell in absolute terms! The main reason for British industry's failure to compete was, simply, that their goods cost more. The government spent over £2000 m more than they received in revenue from taxes in 1972, in order to revive production. This year the deficit will be at least another £2,500m - the biggest in budget history. But far from a real revival in growth and investment, this expenditure, not backed up by a real increase in production of commodities, has growth of production has been lower than any major industrial country, while prices have been increasing faster. of the living standards of the working class.
CLASS CONFRONTATION resolve of the workers to fight.
by bigger and better investment allowances and subsidies to the regions.
merely fuelled the fire of inflation, now running at (See Table 2).
22 of Unemployment has been reduced by near 10% p.a. Since 1970, when the Tories came to power,
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That this inflation is being fuelled by government expenditure financed by the printing of paper money, is Only Japan and Italy can rival the British government in this spending spree, not backed up by any real growth This is the key to the inflationary spiral that is gripping the economy at the moment and is creating a massive balance of payments for 1973 - approaching £1,500m (without any effects of the impending oil crisis being consid- The Tories tell us that it is the unfortunate rise in world commodity prices which has driven up the cost of our imports and created the deficit. As soon as world prices steady, our deficit will begin to disappear. Yet this argument is falsely based. The government's Stage 3 Consultative document argued: "World price increases have ... turned the terms of trade sharply against us at heavy cost to the balance of payments and the effect of this Yet on the evidence of last year, it was really the poor state of the balance of payments for the UK which led to the drastically sinking pound (now devalued by 30% since 1967) which also led to the worsening terms of trade. ie, the value of exports that have to be sold to meet the cost of imports. In fact, if world prices had been lower, imports would probably have been larger, not smaller, and exports lower because British industry is so weak it would not have been able to combat even cheaper foreign imports. An explosion of world prices should affect all alike, unless you already have a major inflation problem, in which case, it will speed up prices and add to the deficit on the balance of payments. As the Financial Times remarked:" rather more than half the trade deficit The bogus reasoning that Britain's inflation problems are mainly due to the world situation: the wheat harvest internationally, the trade winds in Peru, sun spots etc, that Heath has been stating in Parliament, was exposed "It is simply false to regard the payments deficit as reflecting just the explosion of import prices. The National Institute has just published an interesting chart showing the ratio of export to import volume completely independent of price changes. This shows that the physical export-import ratio has improved, as Ministers claim, only if one makes a particularly near-sighted comparison with 1972. Over the whole period since 1969, the trend of this ratio has been downwards, and it is extremely unlikely that the exceptionally favourable terms of trade of early 1972, which allowed us to get away with such a low ratio, will be typical of the future." What this all means is that the balance of payments will get worse, while government-stimulated inflation continues, even if the acceleration in world prices slackens off. If and when that happens, the Tories are certain to turn to their favourite whipping-boy for inflation: the trade unions. 'Wage increases for one man are price increases , so the argument goes — à la Harold Wilson. Even some Marxist economists have been prepared to Table 2 W. Ciermany France Britain Italy USI Japan Table 3 of commodity production.
ered).
by the argument of the Financial Times in August:
for another'.
lust re minths Production 8'2 114 123 6'= 117 15 126 18 128 18'2 (from Economist) demonstrated by the dramatic rise in the money supply since 1970:
W. Germany 145 France 176 Britain 165 Italy 139 USA 145 Japan 168 on the exchange rate has added to the menace...."
was the inevitable result of the government deficit". (Nov. 1, '73) accept this Tory argument. And yet it does not bear up to the truth.
Production & Prices 1970 to July "73.
increase Prices last 12 mnths 119 7'2 117 6'2 912 127 120 10!2 113 2 121 5'2 Money Supply to July 1973 last 12 mihs.
17 25 21½ 12 25½ (1970 = 100) (1970 = 100) 23
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Average earnings for the British worker are by no means the highest in Europe. For working longer hours than his European brothers, with shorter holiday's and less benefits, the average British worker received £38.96 in But that is not the argument, say the Tories, it is that the British worker has increased his wages to0 fast compared to others and thus forced up prices. Again this does not bear up to the truth: % increase in man. export prices, hourly earnings & wage costs per unit output since 1967 As Table 4 shows, hourly earnings have risen more slowly in the UK than in most other competitor nations, yet export prices have risen nearly as fast as countries with higher hourly earnings increases. This is explained by the fact that wage costs per unit of output produced have risen faster since 1967 than every country except Italy. And since the Tories came to power, it has risen by 24%, faster than any other industrial country, while in the same period, export prices have increased by 26% in the UK compared to Germany (4 %), France (4%), or Italy (2%). This means that it is not wage increases which are causing inflation in Britain, but inefficient British industry which, rather than invest and raise the productivity of the labour force, merely raise prices and preserve wages which has made us more inflation-prone than other countries." (4/11. '72).
So it is not the greedy workers who are creating inflation by asking for too much; or even uncontrollable world prices. It is the basic inefficiency of British capitalism compounded by increased government expenditure not backed up by any real increase in investment used as a vain attempt to raise productivity. As it is, despite post-war 'affluence', nearly 40% of the British population continue to live in either overcrowded accomodation, or dwellings without hot water, bath or exclusive WC. Four out of every 5 households while the rest of us would be dwarfs. Over 10m people live below the official poverty line. In 1886, the lowpaid worker got 68.6% of average earnings. In 1920 he got only 67.3%. In 1949 the poorest 30% of wage earners received 14.6% of national income; in 1972 they only received 12.5%. In the meantime, the power and wealth in society have been concentrated in fewer and fewer hands. Now 100 companies control two-thirds of the net assets of industry and 300 control 87%. It is these companies which maintain the inequalities in British society The Tories, in representing the monopolies' interests, have now reverted to a policy of statutory wage restraint in an effort to boost profit levels and hold down the workers' share. Of course, prices have continued to rise when wage increases have been curbed. Since the beginning of Phase 1 to August 1973, earnings rose 9.5%, while prices rose by 6.8%. When you remove tax and other deductions, it means that even on official figures, under Phase 3 means that some women workers at the Co-op can be refused an increase by the courts, which would only increase the total wage bill by £130 a week while one person, Sir John Stratton, managing director of And there can be no respite in the future for the working class under capitalism. While Heath and the Tories ignore the signs of the disaster for the economy that lies ahead, their economists continue their warnings. A group of ten economists, some Conservatives, issued a statement recently which said: "if inflation continues at its present rate, it will lead to a complete breakdown not only in the monetary system, but in the political system as we know it." (my emphasis -B.Mc). Thus the danger is made clear that a serious economic crisis could lead to a confrontation of classes which would end the political rule of capitalism in Britain. The very economic situation will force the Tories to apply the brakes, or that brick wall will stop the economy in its tracks. And this could happen at the same time as the other major industrial countries enter a period of "recession' or small slump also. Already the international trade body, GATT, is warning that severe financial stringency within each country in 1974 "could bring about a spreading and cumulative deflationary effect capable 1972, compared to:
Belgians French Germans Only the Italian worker did less well.
Table + France W. Germany Japan Italy Britain USA their profit levels. As the Economist have less than the average income.
and dictate workers' lives.
there has been no rise in real incomes FMC, can receive over £300 a week without question!
24 £54.70 .$40.35 £59.00 Prices Earnings 17 67 30 62 29 101 62 23 26 58 18 31 (Economist 1/7/72) Wage-costs 18 21 23 32 27 13 put it: "After all, it has been Britain's failure of productivity rather than If we were as tall as our incomes, the richest 1% would be 10 miles high, since the Tories introduced their incomes policy. Fair treatment for all
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of setting back world trade, production and unemployment." In Germany, where unemployment has been steadily rising during this year, utilisation of industrial capacity is falling, and during the boom period of 1972 to early 1973, still only reached 92% of the previous boom level. Various German bankers have predicted a "full-scale , with half a million unemployed early next year. In the USA, the purchasing power of the American working class actually fell during 1973, and recession fears are also growing. There has been no real lasting solution to the world monetary crisis which crystallised in early 1971 and has been smouldering since (see Militant International Review, no. 5). So Britain's industry, given its already weak state, will face a narrowing export market and world-wide slump in 1974, which will crush the Tory dream of free enter- In this situation, only a bold programme of socialist action designed to really take over the economic levers of power, the big monopolies and banks, to plan and control production through public ownership and workers' management, could avoid the inevitable decline in living standards, redundancies, cuts in social services and increases in taxation, which even a small slump of 1921-22 proportions, would bring.
And yet the Labour leaders seem as blind to the dangers that lie ahead, as the Tories. They continue to talk in terms of more housing, more schools, better wages, an end to inflation, better pensions etc, without any clear idea how this is to be achieved. The Labour Party is committed to increasing pensions to f10 a week at 1973 prices, when returned to power. This miserly sum would nevertheless be an advance. But when the practical details of how it is to be paid for, are worked out in the pamphlet "Financing Labour's Programme', it becomes clear that it will be done by increased taxation, and some utopian hope that the economy will continue to grow at 4% a year. And even then, the pamphlet makes clear that having done this, there will be precious little left over But even this reform for pensions, small as it is, will be in jeopardy if Labour comes to power in late 1974, faced with a severe run on sterling, a massive balance of payments deficit, large foreign loans to pay back, a slump in investment and the beginnings of rising unemployment. It will be a situation many times worse than the heritage the Tories left Wilson in 1964. And then he and Jenkins, following orthodox capitalist policies of higher taxation, devaluation, cuts in social services, wage restraint etc, took six years to get British industry prepared again to consider even a small amount of investment - all at the expense of working people who had elected them. Wilson and the Labour government had the choice then to break the power of private monopolies, take them all into public ownership and plan the economy for need and not profit, but they chose to follow the dictates of the City of London to try and make capitalism work. If they do so again, then the convulsions that it will produce in the Labour Party, would not only probably end the reign of the next Labour government before the end of their term, but split and rend the party itself apart. That can only be avoided if, instead of back-pedalling on even the limited and inadequate programme of public ownership adopted at the 1973 Conference, at the first signs of hostility, the leadership firmly grasped the nettle and launched a full-blooded socialist programme to capture the imagination and direct the fight of the working people to a successful transformation of society. EDITOR'S NOTE - Developments since this article was written in November 1973 confirm the prognoses on the MILITANT IRISH MONTHLY le MILITANT-IRISH MONTHLY is an invaluable source of facts, reports and analysis for the Briti bour movement. The question of Ireland has loomed large in the history of the British Labo lovement and never more than today. The destinies of the Irish and British working classes ar ndissolubly linked. This is why every reader of the British MILITANT must have the opportunit We carry articles on the everyday life and struggles of the workers; we will analyse in detail the current situation in Ireland. We will carry important historical and theoretical articles which are indispensable to the understanding of the present problems and perspectives facing the Irish working We urge every seller and subscriber to take out a bulk order or subscription to MILITANT - IRISH 32, Brickfield Drive Dublin 12 6 ISSUES.
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