Exploitation on the rise as recession deepens

Today’s forlorn protest by the TUC designed to put “pressure on chancellor George Osborne to change course” as he puts his final touches to next week’s budget will fall on deaf ears.

Prime minister Cameron last week insisted that the austerity programme would continue. It was brought in to deal with the spiralling increase in government debt which became unsustainable when the financial system crashed and recession followed.

The aim is to pass the burden of the debt on to backs of millions of ordinary people who have no say in government policy, not any influence on the contents of the budget.

Naturally, the austerity programme has failed. The debt has continued to soar as a result, claims Cameron, of external factors beyond the government’s control, like the ongoing crisis in Europe. But the Office for Budget Responsibility also made clear that deep spending cuts had contributed to the recession in the UK.

Despite extreme, unconventional measures taken by governments and central banks, the world economic system – aka global capitalism – shows no sign of recovering to anything like its pre-crash level. The sharp decline in UK manufacturing reported yesterday is a case in point.  

An almost covert, but massive devaluation of the pound has driven the cost of imports up but had minimal impact on exports. The Bank of England, unable to explain declining productivity, is abandoning its duty to keep inflation below 2%. By “looking through” the target, it is admitting that continuing with the attempt to slow price increases threatens to tip the economy into a new, more catastrophic slump.

Instead it will focus on its attempts to stimulate the economy, with low interest rates, issuing itself with the money to buy more government bonds and more lending. It is encouraging the government to do the same, even though the ConDems Funding for Lending scheme has flopped.

The BoE has floated the idea of negative interest rates, whilst those to the right of the ConDem coalition are pushing for even more stringent cuts. The Tory right want to intensify the current programme which, designed with absurdly optimistic expectations of a return to growth, is not even a third of the way through. People like Liam Fox have health and welfare budgets in their sights, combined with tax cuts. It’s all adding to the pressure on Cameron, whose political future looks less rosy by the day.  

But the real story is that the recession is deepening, confirmed by the so-called “productivity puzzle”. The mystery is that productivity measured both by output per worker, and output per hour has fallen by as much as 14% since the crash.

The pre-budget report from the Institute for Fiscal Studies thinks it has an explanation. In a simplified form it is clear that in the wake of the crash, investment in capital goods has fallen because, with no sign of a return to growth, investors are holding on to their cash.

Wages have fallen as unemployment has risen, but unemployment hasn’t increased as much as might have been expected.  Employers have forced wages down, turned to cheaper labour associated with part-time working and more labour intensive forms of production.

In summary then, the capitalist imperative of increasing productivity is operating in reverse. In terms that Marx might have used, the rate of exploitation of labour is increasing. And as the crisis worsens the impoverishment of the masses is certain to increase.

So the TUC’s shock headline figure, that within two years, almost 7.1m of the nation’s 13m youngsters will be in homes with incomes judged to be less than the minimum necessary for a decent standard of living, will prove to be a monstrous understatement. As for the TUC itself, fewer words and action against the government is needed if we are not to conclude that Congress House is actually a mausoleum.

Gerry Gold

Economics editor

Leaving cloud cuckoo land

The International Monetary Fund is amongst the most influential institutions on the planet. It has a membership of 188 countries and employs 2,400 staff. Half of them are economists. If anyone should know about the state of the global  economy and its likely trajectory, you might think it was the IMF.

But you’d be wrong. The IMF has just had to “revise” its growth forecasts downwards, not for the first time. Fear not, Britain has its own forecasters. But they’re no better.

The Office for Budget Responsibility was created by the Coalition in 2010 to provide as its website proclaims “independent and authoritative analysis of the UK’s public finances. It is one of a growing number of official independent fiscal watchdogs around the world”.

It too got it’s forecast wrong. Badly. And now it’s own up time.

In its latest Forecast Evaluation Report, the OBR says: “Following the Coalition’s first Budget in June 2010 we forecast that the recovery would be slower than its predecessors, but nowhere near as slow as it has been. We forecast that GDP would rise by 5.7% from the first quarter of 2010 to the second quarter of 2012, but the latest data suggest it has grown by only 0.9%.”

Ask virtually anyone on the street whether the economy is going to improve and they’d give it the thumbs down. Nothing could be more obvious.

How is it that these highly paid experts got it so wrong?

Are they, perhaps, living in cloud cuckoo land, in “an unrealistically idealistic state where everything is perfect”? Are they perhaps unaware of reality or deranged in holding such an optimistic belief’?

The truth is the OBR, like the IMF, is collectively blinded to reality by the views held by all in common and expressed recently by an eminent political figure, who said: “21st-century politics is, in fact, increasingly post-ideological. The biggest challenges we face are similar in most countries: growing our economies in a way that creates opportunities for everyone, providing high-quality health and education services, ensuring safety and security.”  [my emphasis]

This was former New Labour prime minister Tony Blair in a collection of essays on  "Government for New Times”. The extract is from the first of five lessons Blair claims to have learnt from his period as PM. It’s not surprising that Blair remains wedded to the growth that has brought the planet’s ecological systems to the limits of their ability to support life.

But you might find his second lesson a bit of a shocker: "The second lesson is that you have to aim for systemic change. The pace of change in the modern world is incredible, with the emergence of new powers, such as China, India, and Brazil; new technologies in communications, energy, and medicine; and new global challenges like climate change and the financial crisis. Only systemic change, as opposed to incremental or piecemeal reform, will allow government to keep pace in a rapidly changing world.”

Has Blair suddenly become a revolutionary?

We might even agree with his third lesson that “the best systemic change and delivery begins with the right conceptual analysis”. But Blair, the IMF and the OBR share the same foundational concept held by the 1% – there is no alternative to the capitalist system of production.

And they’ll do anything to preserve it. Like destroying the productive infrastructure of Iraq, and causing the death of more than 1 million people in order to give contracts to the oil corporations for its reconstruction and exploitation.

Or driving down living standards, cutting public services and reducing real wages in Europe and North America to compete with emerging powers.

These are the kinds of things that Blair and his co-thinkers mean by “systemic change”.

Real system change requires new forms of democratic ownership and control, a switch from production for profit to sustainable production to meet socially-determined priorities and the removal of the political elites that act as proxies for corporate power. We need, therefore, an Agreement of the People, a constitution that puts the majority in charge. Please come to the assembly on November 17 to work on this very strategy.

Gerry Gold

Economics editor

A panic Budget as economy worsens

Figures published by the Office for Budget Responsibility on the morning of the Budget statement, and the Office for National Statistics today tell us more about the state of the economy than George Osborne did.

The austerity programme introduced to reduce government debt and attract investment has so far failed. Savage cuts in public sector services and jobs were supposed to lead to a resurgence of the private sector, and pave the way for the growth that capitalism feeds off. It hasn’t worked.

According to the OBR's pre-Budget forecast in June 2010 growth in the UK was supposed to be driven by business investment, which was predicted to grow by 8% in 2011, 9.8% in 2012 and in double digits after that. It turns out that in 2011 it grew by 0.2% and in the new, equally over-optimistic forecast the OBR expects investment to in 2012 to grow by only 0.7%.

Government borrowing hit a record for the month of February, rising to £15.18 billion, double what many expected.

UK retail sales volumes fell by 0.8% in February compared with the previous month, according to the ONS, and January's unexpectedly strong growth in sales volumes of 0.9% was also revised down to show an expansion of only 0.3% compared with December.

The lack of growth has meant that tax receipts are down 2.7% on a year ago, principally from declining income tax receipts. Government spending is up by 8.3% on a year ago, because of higher social benefits due to rising unemployment.

So the immediate 1% additional reduction in corporation tax, whilst the increase in personal allowances for those fortunate to be still in work is deferred for a year, shows something of the panic behind the confident bluster of the Coalition’s Budget.

The wrecking of the planning system (reducing more than 1000 pages of controls to 50), combined with measures to further drive down wages is designed to encourage investment from international capital markets into low wage areas of the UK.

Reducing the 50 pence top rate of tax will have no impact on the rich, but the reduction in age-related allowances will further reduce living standards for millions of older people who already receive amongst the lowest pensions in Europe.

The 2012 programme of Budget measures are a precursor for a far more brutal assault on living standards as global economic conditions continue to deteriorate. As astute Tory commentator Peter Oborne puts it today, “the risks ahead are immense – eurozone collapse, war with Iran, economic stagnation. It must be said that Mr Osborne does not have the air of a man who is fully in control.”

Gerry Gold
Economics editor