This January saw two pieces of bad news for the British economy. While orthodox commentators and the press treated them separately there is a link between them which is significant for socialists. It shows how Marxism can make sense of changes in capitalism in a way which conventional economics fails to do, reports Andy Kilmister. THE FIRST development was the collapse in so-called 'gilt yields' and its effect on pension fund deficits. To understana inis it ls necessary first to look a bit more closely at what gilts are and at how they are valued.
Gilts (or more precisely 'gilt-edged bonds') are bonds issued by the government which promise to pay the holder a certain amount of money eacn year in tne ruture until the end of the lifetime of the bond.
Since this payment is fixed, the profit which the bondholder obtains, known as the 'yield', depends on how much they pay for the bond in the first place. The higher the price of the bond the lower the profit and vice versa.
What has happened this month is that gilt prices have soared, reducing yields to very low levels. The reason for the rise in prices is that pension funds have been buying gilts in large quantities owing to low returns on shares. But the effect of this has been to raise the very deficits in these funds which their managers have been trying to close.
lhe reason for this is that the value of pension liabilities depends upon gilt yields. Pension funds are legally required to assess the payments they expect to make in the future and convert these future payments to their current monelary equivalent. These liabilities can then be compared with the assets held by the fund.
Making this conversion involves a process known as discounting, which necessitates choosing an appropriate rate of interest as the discount rate. The rate which is used is the rate of interest or yield obtained by gilts.
So, a fall in this yield reduces the discount rate used to value pension liabilities and this has had the effect of pushing up the value of these Ilabllitles aramanically.
Pension funds have been caught in a downward spiral, where in order to reduce their deficits they have rushed to purchase what appear to be the safest and most reliable assets, namely gilts. But this has reduced the profit they can expect to earn on these asses ano rasco me dencir
To understand the underlying reasons why British capinas encountered the series started in 1992." problem, however, we need to look at the second piece of bad news to emerge this January. This is the latest set of productivity tigures. As The Economist reported in its January 21 issue "output per hour worked went precisely nowhere in the year to the third quarter of 2005: the zero growth in hourly productivity was the worst performance since ine series starlea In 1992. Output per worker rose by a mere 0.4 per cent over the same period, the slowest rate for 15 years."
This cannot just be attributed to the current slowdown in growth rates. There is evidence of a deeper structural change. Annual productivity growth averaged 2.3 per cent from early 1992 to the third quarter of 2001, since then the growth rate has fallen to 1.7 per cent per year.
Productivity growth absolutely central to capitalist strategies and has been a major priority for Gordon Brown and for New Labour. Consequently the continued failure to raise productivity growth has resulted in a large amount of debate among analysts.
However, reviewing various explanations in the Financial Times last November Martin Wolf concluded that "the broad conclusion is that the UK's mediocre productivity performance is not easy to explain. But this is almost certainly because we know so As The Economist reported in its January 21 issue "output per hour worked went precisely nowhere in the year to the third quarter of 2005: the zero growth in hourly productivity was the worst performance since little about what determines productivity grow lil advanced economies."
None of the explanations canvassed by Wolf - excessive regulation and public spending, low investment and skill levels, poor infrastructure, and lack of innovation - appear able to explain the full extent of the productivity downturn.
It is here that Marxist ideas can help to resolve some of the questions left unanswered by ormodox economics.
Firstly, the relatively high rate of growth in productivity during the 1990s can be traced back to the employers' offensive of that decade, backed up the introduction of a raft of new management techniques, centred on notions of flexibility. Many of the techniques used, based on approaches such as team-working and just-in-time production denven mom me wave ol
STA Japanese overseas investment during the 1980s.
The new management techniques had effect in raising the intensity of work.
But such approaches cannot lead to permanently higher rates of productivity growth unless there is a continual change in working practices and this has not been the case.
Workers have not been able to reverse the impact of the techniques, but 1n recent vears there has not been a large-scale introduction of new approaches, and so the continued intensification of work has slowed.
Secondly, Marxism can explain the link between the two developments in British capitalism outlined above. It is the poor performance of productivity in UK companies, especially as compared with American firms, that is at the root of the slump in snare prices ana ine move to bonds.
A large part of the valuation of pension funds, like other financial investors, consists of an estimate of the future profits which can be generated by the companies they have invested in. The deficits run Dy tne lunas ultimately renecu a loss of confidence in the ability of British capitalism to generate such profits and this results in large part from the failure of New Labour to raise productivity growth.
In this way we can see that the problems of the financial SecTor anol of producuve enterprises are not separate from each other and each reflect underlying characteristics of the British economy. But what are the likely consequences of this for capital in Britain?
The most likely scenario at present 1s a concerted attempt to renew the introduction of new management techniques, drawing this time on US examples rather than Japan, and focusing on retailing, distribution and finance rather Than manufacturing, since these are the sectors where productivity differentials are highest. The Financial Times of January 25 set out the backgrouna in aclall and concluded that "US companies use technology better and their hire-and-fire culture Keeps workers on theartoes.
Europe WanTS its productivity levels. it seems. it must accept tougher management, the emergence of new and much more productive shopping centres and the death of many companies. The same lessons apply to Japan."
This amounts to a manifesto for a rejuvenated bosses' offensive which will pose major challenges for the British and European labour movement
However, it will also present great opportunities for socialists, who can argue that the attacks both on pensions and on workplace conditons. spring trom a single source -the workings of capitalism as a system and its inability to salisty numan necas