(en) afed.org.uk: POST-ELECTION REFLECTIONS: HOW THE TORIES
WRECKED THE ECONOMY AND WHY LABOUR COULDN'T TAKE ADVANTAGE
An Anarchist Federation member gives a breakdown of the current UK economic situation and
how no political party can hope to save it. ---- Now the election is over, it seems time
to take stock of the last 5 years. A lot has been written about the horrific social
reforms of the Tory-Lib Dem coalition government, on tuition fees, workfare, sanctions,
privatisations and cuts - but the mainstream analysis, and public opinion, seems to be
that for all that the Tories were at least competent from a macroeconomic perspective.
This couldn't be further from the truth. ---- Deficit ---- Let's start with the deficit,
the conservatives' preferred measure of the success of the government. When the previous
coalition government came to power in 2010 the deficit stood at £153 billion and public
sector debt around £1 trillion. In his first year George Osborne pledged to elimate the
deficit by 2015. At each subsequent budget this promise was slowly relaxed, so that by the
time of the most recent election campaign the Tories were boasting of having reduced the
deficit by half (as a percentage of GDP, the deficit will be around £90 billion this year,
a reduction of around 40% in nominal terms). The Office of Budgetary Responsibility (OBR)
now predicts the deficit will be eliminated by 2018, though other predictions are less
optimistic.
Of course when bonds are as cheap for the government as they are today (a ten year gilt
pays around 2% interest) reducing spending this quickly is almost certainly a bad idea,
purely from an economic perspective - let alone from a social one. Indeed, although you
wouldn't know it from most of the media coverage, the treasury itself accepts that the
Tories' original plan was a failure; although punitive social reforms continued, austerity
per se was put on hold in 2012, though is likely to return with a vengeance in the coming
years.
Growth
Although most of the media won't inform you that austerity was delayed, they will be quick
to trumpet its success, usually in terms of restoring GDP growth.
The normal narrative is that although Labour profligacy/the Global Financial Crisis led to
a deep recession, austerity has been justified by a return to growth in the final years of
the previous parliament. GDP is back above the pre-crisis peak and is on the rise.
The truth is that rises have been mediocre by historical standards. In 2014 GDP rose by
around 3%, around average for the post-war period but lower than would be expected for a
"strong recovery", whilst in the last few months GDP growth has fallen again.
Even that growth is in fact simply a reflection of a growing population. Real GDP per
capita, remains around 1.5% below the pre-crisis peak and is not expected to overtake that
level until next year, a full 8 years after the crisis.
Productivity
Fundamental to long-term growth is productivity growth - the ability to produce more goods
and services with the same labour input. Productivity in the UK has fallen off a cliff
since the crisis. GDP per hour worked is 27% lower than in France and even worse when
compared to the G7 average excluding the UK.
The "productivity puzzle" is a key point of discussion in economic circles, but barely
registers amongst politicians or the political media. Whether this is a reflection of
cyclical factors from the crisis which will disappear by themselves, or of longer term
secular (and global) trends remains an open question, but one of pivotal importance for
economic prospects.
Unemployment
Lower productivity can be partially explained by higher employment in the UK. Unemployment
has fallen considerably from its peak and is lower than in much of Europe. But
underemployement is still high: people may have jobs, but many of them are part-time and
around 3 million people, or around 11% of the workforce, currently work fewer hours than
they want - by an average of around 11 hours per week. Workfare schemes also reduce the
official employment statistic and may be contributing to low productivity.
These caveats aside, total hours worked has risen, so let's examine the
unemployment-productivity hypothesis. The theory goes that rather than fire employees and
increase unemployment, companies instead held on to workers and, as demand, and hence
output, fell, so did productivity - lower output with the same workers means lower output
per worker. This fits the macroeconomic data, to a degree, but does it fit with anyone's
subjective experience? Who feels like they've had less work to do while at work over the
last five years? And why would companies in the UK, with it's far more 'flexible' labour
market (for which read precarious, casualised and lacking labour protection), adopt that
policy compared to other countries?
Wages
Regardless of the reasons for higher employment, capital has nevertheless found ways to
reduce costs, primarily by simply paying us less. Real wages have experienced their
longest continual fall in decades. From January 2010 to January 2015 average weekly
earnings (excluding bonuses, which are negligible for most workers) fell in real terms
every single quarter (using RPI to measure inflation). This year wages have finally
started to edge up, however even this is due almost entirely to falling inflation rather
than higher nominal increases.
If we consider the way in which headline inflation numbers, whether CPI or RPI, mask the
problems of inequality, the impact is even starker. Inflation for essentials such as
housing, food and energy has been much higher than for electronics or clothing - so
disposable income for people on low wages has fallen even further than average real
earnings suggests.
Private Debt
It should be no surprise that with falling wages private household debt has increased for
many people. The government and the media like to talk about public sector debt, but the
flip side to that equation is private debt, both corporate and household. One party's
liability is another's asset. If the public sector reduces its net debt, someone else is
probably increasing theirs.
Another early claim of the previous government was that "export-led growth" would power
the UK out of recession. Rising exports and a positive current account for the UK would
mean government debt could be reduced without burdening the UK population (though at the
expense of people elsewhere). Osborne wanted exports of £1 trillion a year by 2020.
Currently exports are around half that, and would have to grow by over 10% a year to meet
his target. In 2012 they grew 0.5% and in 2013 just over 2%. The UK's trade deficit
(export minus imports) is staunchly negative and the current account deficit(which also
takes into account capital transfers) is at a record high. An export-led recovery seems a
long way off.
So how does Osborne plan to grow the economy? if not by exports and not by government
investment. An examination of the OBR projections shows that household debt is expected to
expand by nearly £800 billion over the next 5 years - to put that in perspective that's
over £30,000 for every household in the UK. Largely that debt growth will be in "secured
debt", mostly mortgages, but unsecured debt is also expected to grow by £239 billion. So
pray house prices keep increasing by 6% a year, fuck anyone who can't afford that and
saddle them with more credit card, student and personal loan debt. A sustainable future.
The Alternative
Given the perilous state of the UK economy and the dire projections for the years ahead,
Labour should have achieved a landslide. But instead of presenting a clear critique of the
Tories, they vacillated presenting a few token suggestions on rent control and taxes but
refusing to tackle to central logic of austerity, pleding instead to continue the cuts and
ruling out reversing any measures for Osborne's budgets.
Labour lost because they have no alternative, they have no solution to falling
productivity or secular stagnation. A real "export-led recovery" would mean competing with
East Asia and require currency deflation and further real wage cuts. Autarky, or
self-sufficiency, and re-industrialisation is barely possible in a world of global
logistics and freely movable capital and would in any case require its own form of severe
austerity for many years. A return to post-war compromise social democracy is no longer
possible. Capitalism is reverting to type, revanchist, openly hostile to the working
class, highly unequal and crisis prone. A real movement to abolish the present state is
necessary if we want a different future.
https://afed.org.uk/post-election-reflections-how-the-tories-wrecked-the-economy-and-why-labour-couldnt-take-advantage/
