Have Gordon Brown
and New Labour
managed to eliminate the possibility of crisis from British capitalism? Are we looking at an indefinite scenario of prolonged steady growth? ANDY KILMISTER reports. In 2004 the British economy grew by 3.2%, seemingly banishing finally the fears of a recession which were prevalent two years ago. The growth forecasts made by Gordon Brown in his budget speech in April, widely regarded as over-optimistic at the time, were realised more or less exactly.
The reality is more complex. Behind the placid headline figures conventionally used to describe the British economy lie deep structural imbalances.
Also, the results of the last year depend on a particular set of global economic circumstances which dECI unlikely to last. Marxist accounts of economic crisis can still help us in understanding the deeper tensions shaping the fortunes of capital in the UK.
The central economic problem for British capital
historically has been to
achieve two conflicting goals
simultaneously: obtaining
sufficient profits through production and then realising
these profits by selling goods
and services in the market.
The difficulty has been that
the strategies adopted to raise
productive profits, for example driving down wages,
undercut the second objective, by reducing the level of
demand.
On the other hand, the long-term weakness of that section of British business located in the UK has meant that any sustained expansion of the economy has led to capacity constraints or distributional struggles which have threatened to lower the rate of profit. Borrowing, boom and property
Over the last decade this conflict has been temporarily resolved through a combination of an employers' offensive covering both wages and the intensification of work. This is combined with low commodity and energy prices, Which have raised productive profits, and a variety of factors which have allowed those profits to be realised.
In the early and mid 1990s a crucial development was the low exchange rate following the exit from the European exchange rate mechanism in 1992.
In the late 1990s through to
All the indications are
that the growth of the
last few years has
done nothing to
eliminate the inherent
instability of capitalism. the first years of this decade consumer borrowing, fuelled first by a stock market boom and then by rising property prices, has played a more important role.
The problem for capital here is that the importance of debt in maintaining demand stems directly from the fact that workers' incomes are not large enough to sustain stable growth on their own.
At the same time the longweakness of British industry in export markets and the reluctance of UK business to invest at home has meant that consumption demand is crucial for the realisation of profits.
So, capitalism in the UK has come to depend on continuing borrowing, while at Andrew Wiard
the same time recognising
that debt levels cannot rise
indefinitely.
Over the last six months
borrowing and consumption
have slowed as interest rates
have edged up and as the
extent of the pensions crisis
has become apparent.
Christmas retail sales
appear to have been the lowest
in real terms for two decades.
The maintenance of growth,
despite this slowdown has
depended on two developments, both of which carry potential dangers.
Breaking the "golden rule"
The first of these is a big upsurge in government borrowing. Despite Brown's growth predictions appearing to be on target, the government budget deficit is set to exceed that originally planned, by £10 billion. OECD estimates now place it at 3.2% of GDP, above the Maastricht limit of 3%.
Brown has been forced to break his self-imposed golden rule according to which government borrowing should be to finance investment not consumption, and the budget should balance over the course of an economic cycle.
With interest rates now outside government control, the Treasury cannot simply attract more funds to finance borrowing by raising rates.
If borrowing rises beyond
compared to 2.2% in 2003 and
1.6% in 2002. More broadly,
global economic growth in
2004 was the fastest for almost
three decades.
The UK economy has partly maintained its rate of
growth because the long-term
external orientation of British
capital has led to favourable results at a time of international expansion.
But this expansion rests on / a very special set of relationships which themselves are unlikely to last for long.
In particular, growth has depended hugely on demand from the USA, which has led to a record balance of payments deficit and a sharply increasing government budget deficit there.
US demand has fuelled much of the boom in China which in turn has encouraged growth in Japan and elsewhere in Asia.
A slowdown in the US could throw this delicate set of relationships into turmoil, and if such a slump were to be coupled with a sharp decline in the dollar (former IMF chief economist Kenneth Rogoff has talked about a possible fall of 40%) then the pound and euro could soar upwards, threatening both the UK and European economies. Outlook uncertain
The British economy, then, currently depends both on rising government borrowing