The economyth of recovery
The experts on both sides of the Atlantic are busy spotting the 'green
shoots of economic recovery' again. Phil Murphy thinks that everything in
the garden is a lot less rosy
A fter more than two years of slump, the New Year brought many predictions
of recovery for 1993 on both sides of the Atlantic. In America, statistical
economic growth of nearly four per cent in the third quarter of 1992 was
interpreted as definite proof that the recovery had arrived. For many observers
it was then only a matter of setting the date for the official end of the
In Britain the discussion was a bit more tentative; there were no figures
for output growth in 1992 to encourage grand claims of recovery. Nevertheless,
the prognosis was firmly positive. John Major used his New Year interviews
to predict that 1993 would bring 'clear economic recovery' and could mark
the start of 'a virtuous circle of sustainable growth and prosperity'. Chancellor
Norman Lamont claimed in his holiday outings with the media that 'all the
conditions were now in place for recovery', a phrase remarkably reminiscent
of what he said at the beginning of 1992.
Most people in Britain approached these claims of recovery with holiday
jocularity and with more than the usual quantity of salt. Very few were
taken in by Lamont's devious but obvious manipulation of the statistics
to 'show' that British manufacturing performance was a 'source of confidence
and pride'. All Lamont's juggling of the figures cannot disguise the fact
that manufacturing output in Britain rose more slowly during the 1980s than
in any other leading industrialised country. Nor is his claim that the one
fifth drop in manufacturing's share of the British economy during the eighties
was a sign of dynamism likely to improve Lamont's reputation for accurate
Yet, despite the well-founded scepticism that greeted Major, Lamont &
Co in their economic projections, the stories about the Anglo-Saxon recovery
haven't died. While many agree that Japan, Germany and most of Continental
Europe will be joining the world slump in earnest this year, the emerging
supposition is that America and Britain are escaping it.
This sentiment does not reflect any significant improvements in the productive
dynamic of the world economy. Instead it is based on superficial factors,
none of which points to anything like the full-scale restructuring which
international capitalism would need to get out of the slump.
One such factor is the influence of wishful thinking. Messages of hope are
what politicians are supposed to give, especially at the start of each new
year. It is not considered good government for them to tell us that next
year things are going to get really bad, and that there is nothing they
can do about it.
In the case of America, talking up the recovery is particularly useful for
the new administration of president Bill Clinton. A professed belief in
recovery makes it easier to drop some of the more extravagant campaign rhetoric
which promised more federal spending to counter the crisis. If the recovery
has started, these plans for investment subsidies and building up the infrastructure
can be scaled down. This in turn reduces the threat of higher state expenditure
compounding government indebtedness, which is already burdensome enough
for US capitalism.
At a time when American and British politicians and their advisers have
no ideas for new effective counter-slump policies, talk of recovery having
already arrived comes as a cheap alternative. It postpones the need to come
up with answers and solutions.
Many politicians and economists believe their own publicity about recovery,
because of their underlying faith that economic history will eventually
repeat itself. They see economics as a repetitious cycle of ups and downs.
After having such a long 'down', we must be due, they figure, for an 'up'
sometime soon. There may be debate about the length of the dominant cycle - is
it 10, 30 or 60 years? etc - but they all agree that in the end economic
life repeats itself and downturns become upturns. Every time Lamont predicts
recovery he probably feels that, by this 'law of history', his chances of
being proved right must be improving.
This is story book stuff and has nothing to do with the real world and the
real economy. Like any other history, economic history never repeats itself
Economic booms - vigorous rises in national output - do not last forever.
Neither do recessions of continuously falling production. But there is nothing
which automatically dictates that recovery and boom must follow recession.
Things are not repeated because the condition of the production process
itself is always changing.
For example, the British economy has experienced three recessions in the
past 20 years: 1991-92, 1980-81 and 1974-75. Each one was different, because
the economy was different going into and coming out of each recession. The
British economies of the mid-1970s, the early 1980s and the early 1990s
had different structural features.
They had different sectoral make-ups between services and manufacturing,
different competitive relationships to the world economy, different volumes
of credit lubrication, and different levels of dependence on state intervention.
In each case the post-recession period of economic activity was coloured
by the particular structural features of the economy bequeathed by the previous
boom and recession. So every boom is unique, every recession is unique and
so is every end-of-recession period.
Living in the past
Sometimes recovery follows recession quite smoothly; sometimes it requires
extensive intervention of some form (as with government policy in the 1970s
and 1980s); sometimes (as today) the slump is so serious that a massive
scale of restructuring is the necessary precondition for a further phase
of steady expansion.
When John Major had his New Year vision of an upturn, it was based upon
looking for a rerun of the past. He anticipated a 'sustainable recovery'
by comparing Britain in 1993 with Britain at the beginning of the 1980s;
since things had gone from recession to boom back then, he implied, they
could do so again this time. But the historical comparison Major chose only
exposed the fallacy that economic history will repeat itself.
For a start, Major conveniently forgot that the 1980s period of growth was
anything but 'sustainable'; it ended in today's slump. More importantly,
he ignored the fact that the particular character of the eighties' expansion
has shaped today's recession. For example, the brief credit-fuelled boom
of the 1980s is not repeatable in the 1990s. Instead of credit offering
an escape route today, the high debt levels > accumulated over the past
decade act as an extra depressant on capitalism in the nineties. Far from
previous successes repeating themselves, it seems that yesterday's solutions
have become another of today's problems.
In both Britain and America the search for credible evidence of recovery
has only identified superficial factors. None of them points to the restoration
of profitable conditions for production, which remains the vital precondition
for a real capitalist recovery. In many cases the 'proof' of recovery only
reveals more about the depth of the slump.
Most of the discussion of an Anglo-American upturn has been concerned with
a bounce in consumer spending and retailing figures. It appears from the
initial reports that people on both sides of the Atlantic went on an end-of-year
shopping spree - buying Christmas presents and going to the sales. No doubt
this has helped to reduce warehouse stock levels, which is likely to prompt
some replacement factory production. But this does not substantiate the
notion of a recovery.
The slump is not caused by a lack of demand among consumers, but by a lack
of profitable investment opportunities for capitalists. A short spending
fling may stimulate a bit of production, but it can't kickstart a world recovery.
Capitalists are unlikely to be persuaded to invest heavily in new technology
by the fact that last year's goods have been sold off cheap in the sales.
Back to fundamentals
In any case, consumer spending is unlikely to really take off as long as
mass unemployment and the fear of losing your job remain major preoccupations.
And this can't change until there is a substantial boost to investment in
new plant and machinery to provide many more workplaces. Once more the problem
comes back to the need to restore profitable conditions for production, a
much more fundamental factor than the state of retail sales.
For Britain and America, the structural weaknesses of domestic industry
are such that higher consumption only leads to higher imports. This tends
to exacerbate the imbalances in trade and international payments which are
destabilising the world economy. Far from fostering recovery, this makes
the slump more intractable.
A recent rise in demand for personal credit has also been pointed to as
proof of a recovery. But this is just a corollary of higher consumer spending,
and an equally untrustworthy indicator of an economic upturn. The fact that
people have been prepared to use their credit cards means some of us got
more expensive presents than we might have expected. That is likely to lead
to a temporary boost to output or imports early this year. But it won't
alter the fundamental problems at the level of production.
If high-street spending isn't the lasting solution that capitalism needs,
the other favourite preoccupation of economic debate today, 'consumer and
business confidence', can make even less of an impact. In both Britain and
America confidence surveys turned upwards from about November, boosting commentators'
own confidence about the recovery. In America this coincided with the buzz
surrounding Clinton's election victory, reminiscent of the short-lived euphoria
which greeted the Tories' victory in Britain last April. But confidence doesn't
even have as much consequence as consumer spending. Consumer confidence doesn't
make the cash tills ring, never mind assist in restructuring the production
The fixation with confidence levels is itself a symptom of the ongoing slump.
The ineffectiveness of traditional economic theories and policies in solving
the crisis has contributed to today's obsession with psychology, confidence
and the feelgood factor. The focus on feelings and confidence has grown almost
by default as the last resort in trying to come to terms with an economy
which appears more and more outside the control of economic managers.
The other indices looked to for signs of the green shoots of recovery are
equally peripheral to the production process. For example, the slight rise
in the international value of the pound in January led some journalists
into flights of fantasy about currency speculators regaining confidence in
Britain. Some claimed this was because of a new recognition of the strength
of the British economy, which foreshadowed good news for the recovery.
In fact the rise in the value of sterling, like its earlier plunge, was
primarily caused by factors external to Britain - in particular the strains
in the Exchange Rate Mechanism of the European Monetary System. The money
markets were simply buying sterling as an overnight storage point for their
money, as they speculated against the Irish punt and the French franc. The
fact that the pound can suddenly rise and fall in value for no apparent
reason reveals how the British economy is now so weak that it can be buffeted
about on world markets like a piece of driftwood.
The New Year euphoria surrounding the rise of the London stock market was
equally false as a recovery indicator. Just because people put money into
company shares in Britain, does not mean that the corporations concerned
are in a healthy state. On the contrary, it means that the owners of the
surplus funds washing around the economy are unable to find lucrative real
investment opportunities in new plant and machinery. They turn to gambling
on the stock exchange instead.
Once share prices start to rise, other holders of spare cash will also buy
shares in the hope of making a killing. The bull market becomes a self-fulfilling
prophecy. All of this paper economic activity can be entirely divorced from
the real fortunes of the companies whose shares are being traded. The ups
and downs of stock markets provide no conclusive evidence of movements in
the real economy. All that a volatile stock market tells us is that the
lack of real investment possibilities means there is a lot of money around
for speculative wheeler-dealing.
Worse and worse
All in all, the trends and indices which economists have pointed to as evidence
of recovery are more indicative of the entrenched character of the slump.
Recessions do come to an end (as may be the case now in America). That means
the economy stops contracting, but it does not mean an escape from slump.
Instead we can expect production to fluctuate up and down, but without any
sustainable dynamic. The US economy remains in slump, bumping along at the
bottom. Even the more optimistic forecasts envisage mass unemployment in
America of above six per cent for years to come. And things in Britain remain
in an even more dire state.
No doubt factory closures, job cutbacks and lay-offs will boost productivity
figures, cut costs and widen profit margins. But these one-off boosts for
capitalists cannot create a sustainable economic dynamic towards recovery.
For most of us, they can only make things worse. *
Reproduced from Living Marxism issue 52, February 1993