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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 US recession.

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 economic analysis.

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.

Cheap talk

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 exactly.

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.

Confidence fixation

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 process.

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.

Sterling fantasies

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.

Paper activity

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

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