Recession over - slump continues
The 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
What 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.
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 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
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
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.
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
Reproduced from Living Marxism issue 56, June 1993