11/4/99
7:09 AM BST
Recession over - slump continuesThe statistics seem to suggest that the British economy is on the up. But that is far from the whole story. Phil Murphy explains the facts behind the figuresWhat a difference a half of one per cent can make to assessments of the British economy. One week in April it was all doom and gloom about the longest recession since the Second World War. The next week, most commentators were finally agreeing with chancellor Norman Lamont's vision of the green shoots of recovery. Within days the shoots seemed to have become branches and then trees of sturdy growth.What occasioned this dramatic change of mood? A 0.6 per cent rise in national output during the first three months of 1993. This miserable increase in national wealth made possible the official triumphant declaration that 'the recession is over' - a claim quickly followed by assertions that Britain is back on the road to boom. The fact that a minor statistical movement could cause such exuberance reflects the persistently weak and unstable character of British capitalism. The volatility of economic assessments stems from the frailty of the real economy. Unable to point to any substantial revival of productive capacity, desperate commentators and politicians exaggerate the importance of small statistical changes. They are so nervous about an economy which, over the past couple of years, has proved to be beyond their control that they are prone to bouts of animated confidence based upon the flimsiest of evidence. Such euphoria couldn't last long. But it was replaced by an even more bizarre mood. Within days the tenor of public discussion changed from an unsubstantiated celebration of recovery to the surreal expression of concern about a runaway boom that could 'overheat' the economy. These mood swings indicate that, although it's easy enough to write headlines declaring that a recession is over, it is far harder to tackle the deep-rooted nature of the slump. The publication of a series of more positive spring statistics - for retail sales, manufacturing output, unemployment, exports, house building, and a few others - might have exhilarated economists, but they don't impress much when set against the long-term structural decay of the British economy. A few healthier-looking figures cannot change the fact that British industry remains well down the league table of international competitiveness (a weakness which led to sterling's embarrassing exit from the European Exchange Rate Mechanism only last September). Nor do they alter the reality of Britain's current trade deficit - its biggest ever at the end of a recession. 'Fatuous boast' April's positive statistics are evidence of only one thing; that a capitalist economy cannot shrink for ever. The problem with capitalism in a time of crisis is not that it will never expand again. But what growth there is will be uneven and sporadic and, in the process, will create more destabilising imbalances to disrupt steady growth. As Financial Times columnist Samuel Brittan has correctly pointed out, 'the tendency in modern capitalist economies is for output to grow in most years - which enables the governing political party to make the fatuous boast of record output' (15 April 1993). It also means that they are guaranteed to be able to boast about recessions ending. This is especially so when they give 'recession' the narrow technical definition of two or more successive quarters of falling output, rather than its more literal meaning of receding or slackening economic activity. Even during an era of slump like today, capitalism cannot experience constant decline. This is not due to any 'natural' powers of dynamic revival. It is because of the effect created by the economic crisis itself. The crisis is more than a symptom of capitalism's problems; it is also a partial cure. By closing down the least efficient factories and boosting unemployment, the crisis clears the way for production to rise again. However, what the crisis can't necessarily do is create the conditions for durable and sustained growth. The last recession failed to do so in America; it has also failed to do so in Britain. It has not been able to overcome the slump. Nothing resolved The statistical end of a recession tells us nothing about the prospects for sustainable growth. All it means is that the economy has entered a different phase of the business cycle. But the most striking feature of the business cycle in the 1990s is that its positive effects are swamped by the severity of the crisis. The underlying root of the tendencies to stagnation in a capitalist economy is falling profitability; capitalists will not invest in production or labour if they cannot get a satisfactory return. Nothing has happened during the latest recession to resolve the fundamental problem of poor profitability today, so the main features of the slump will continue. The British economy (and most other economies with the exceptions of Japan and Germany) will remain sluggish. The artificial mechanisms which have long been used to keep economic activity going - most notably credit expansion and state spending - have become less and less effective. And the recession hasn't restored the vitality of these capitalist survival measures either. When an economy is in slump it's not like a bout of bad weather which will pass naturally, to be replaced by sunshine. The slump expresses the severity of the crisis of profitability. It can only end if conditions for profitable production are re-established. This entails a critical period of capitalist restructuring, both domestically and in the international sphere. Winners and losers Governments and capitalists everywhere sense that such a radical shake-up in their economic and political affairs would be an extremely destructive and disruptive process, producing both winners and losers, with no certainty as to who will survive. Hence the leaders of the Western nations are doing what they can to postpone this destructive phase for as long as possible. It is impossible to predict how long the slump will last in the interim. But we can be sure that there will be much more bumping along at the bottom. This is why it is illegitimate to translate the end of the technical recession in Britain and the publication of some positive economic statistics into signs of a genuine upturn. Doubtless more numerical indicators will 'turn upwards' in coming months, but these should not be confused with signs of a restored capitalist vitality. A good indication of what's in store in Britain can be seen in the lacklustre character of the American 'recovery'. Three months ago, buoyed by Bill Clinton's election victory, all the talk there was of a strong and sustainable economic upturn. Now the discussion is of relapse, of recovery petering out. In some places they are even saying that the US recession never really ended. In California, where a quarter of a million military-related jobs have gone, with possibly more than that number still to go, the prognosis is especially gloomy. Across the USA, business construction, residential building, retail sales and consumer durable orders have all experienced renewed downturns recently. The deficit in America's foreign trade has widened, as exports fall further than imports. At under 2 per cent, first quarter growth in 1993 is less than half of that recorded in the final quarter of 1992. No take off It is now almost two years from the official date given as the end of the US recession. Yet economic activity remains sluggish and uneven. In comparison with previous upturns, the impact on employment has been marginal. Since the US recession ended, the economy has generated less than a million jobs, compared with an average of about eight million in the first two years of previous recoveries. This is the type of recovery we can expect for Britain too: one in which apparently positive statistics are interspersed with setbacks, and things never seem to take off. Such a performance indicates that there has been no revival of economic dynamism. The recession has formally ended, but in conditions where the business cycle is dominated by stagnationary tendencies. The sort of progress we can expect in a slump-constrained economy can be likened to a clapped-out car. It can move but it will never pick up much speed. From time to time it will slow down and may even stop occasionally. The end of recession suggests that the car is moving again, but it doesn't mean that the car has been rebuilt with a new engine. A lot of wind The end of the British recession corresponds to what happens when you push your old car to the top of a hill with the wind behind it, and then start rolling down the other side while keeping the accelerator flat on the floor. By the force of economic circumstances, rather than design, the government has had every artificial stimulus in the textbooks working to push the economy forward over the past few months: a lower exchange rate, lower interest rates, and a high level of government borrowing. It should come as no surprise that these stimuli can have the same temporary effect on the economy as the forces of gravity and wind power have on the car. Indeed, in the circumstances, it would have been truly shocking if British capitalism had continued to contract. The devaluation of sterling, after it became impossible to defend its exchange rate inside the ERM, has given a temporary boost to the competitiveness of British exports. (When the government tries to claim credit for this improvement, it is worth recalling how, as the storm clouds gathered over sterling last summer, the Tories declared that the ERM and opposition to devaluation were 'at the centre' of economic policy.) The forced deprioritising of a high exchange rate also allowed the government to cut interest rates by 4 per cent between September and January. On top of this, public sector borrowing figures have shot through even the enormous levels targeted by the government. Although all these measures were contrary to what the government wanted, together they have been enough to get output moving slowly again. The dilemma for the authorities now is that, with the British economy growing, more imbalances are going to appear, probably in the form of accelerating inflation or a balance of payments crisis. Too fast! One indicator of the unusually stunted and irregular character of today's statistical upturn is the way in which mainstream debate has moved so swiftly from the prospects for recovery to concern about recovery being too fast. Commentators talk of the dangers of a return to the boom-and-bust cycle. To worry about a boom-bust scenario in Britain even before the recession has been officially declared over suggests more than pessimism. It is a recognition of how weak is the productive sector of the economy. What do they mean by recovery being 'too fast' or 'too heated'? There are no technical constraints on increasing output. It is not as if factories are working to their capacity, or people have all the goods and services that they need. In April's Living Marxism BBC economics editor Peter Jay estimated that the statistical GDP gap - the gap between the present level of output and a healthy level - is between three and seven per cent of total output. Most factories' production lines have plenty of unused capability and there are, of course, more than enough workers on the dole to fill any jobs that might be created now the recession is over. Behind their empty talk about the danger of too rapid recovery is the fear that British industry is no longer competitive enough to make enough profit to sustain an upturn. No upturn for us The surreal-sounding preoccupation with expansion coming too fast leads to another distinctive feature of the current discussion: the call for us to make sacrifices. The problem of a weak, low-profit capitalist economy is being portrayed as a spurious problem of too much high living by the British public. The Financial Times summed up the case for austerity even before the recession was officially declared over: 'Too many [British recoveries] have ended in the same painful way, with excess consumption, balance of payments crises and rising inflation....The way out must be export-led growth. But export-led growth means growth without soaring real wages. It means resisting excessive appreciation of sterling, if necessary by cutting interest rates again. It means closing the fiscal deficit aggressively.' (24 April 1993) In case the first point of advice hadn't sunk home sufficiently to its readers within the establishment, the editorial reiterated that 'above all, it means that this recovery must not end in a spurt of wage inflation' . The biggest indictment of capitalism as a slump system today is that the discussion of a recovery has not tempered demands for more wage cuts and immiseration - it has reinforced them. Whatever the statistics might say about output or inflation, it is clear that there is to be no upturn in the living standards of working people. Indeed we seem set for a boom in attempts by employers and ministers to cut wages, slash welfare spending and reduce living standards. Reproduced from Living Marxism issue 56, June 1993
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