by Michael Roberts
This week, the UK’s Office for National Statistics announced
that the British economy had expanded by 0.6% in the three months May to
June. All the main sectors of the economy contributed to growth –
manufacturing, services and construction. The media greeted the news
with some open euphoria, but secretly tinged with caution. And caution
would be right. These preliminary figures could easily be revised
down. And even though it appears that the UK economy has not slipped
back into a technical recession (defined as two consecutive quarters of
contraction), the recovery, just as in many other advanced capitalist
economies since the trough of the Great Recession in mid-2009, has been
pitifully poor.
Even if we take out the fall in North Sea oil and gas production, the
average annual growth rate in the UK over the past four years has been
just 1.3%. That compares with the credit and property fuelled annual
growth of 3.3% in the decade before the financial crash and a
longer-term trend growth rate of around 2.5%. And in the productive
sector of the economy, the situation remains bad. Manufacturing output
is still over 10% below its 2008 peak, whereas the services sector has
nearly recovered all the ground lost in the recession. But the overall
economy is still 3.3% below its 2008 peak, some five years on.
Exports remain very weak, the budget deficit remains large (and yet
to reduce this remains the main aim of this ‘austerity’ government
coalition). At best, the UK economy will grow about 1% in real terms
this year. That is half the rate of the US and much the same as the
core of Europe, if better than the depression-struck economies of
southern Europe. Median incomes in real terms have declined sharply in
the two years to 2011-12 and are back to the levels of 2001-02. Benefits
and tax credits are being cut. So real incomes will likely fall
further. At best, they could stabilise at the ten-year low they have
reached.
There is one overriding cause of the failure of the major capitalist
economies to engineer a significant recovery in economic fortunes and
thus begin to create jobs (full-time ones) and improve real incomes. It
is the lack of investment. Government investment has been slashed
everywhere as the easy sacrifice on the altar of austerity.
But investment in the capitalist sector also remains anywhere between
15-25% below the peak level in 2008 in most leading economies, including
the UK (-24.8%). And that is despite a record high mass of profits in
the US and large cash hoards in the major companies across Europe. The
capitalist sector would prefer to hold cash, or buy back its shares or
pay record high dividends rather that invest in new equipment, plants or
employees, even though everywhere governments have slashed corporate
tax rates and introduced more allowances. Why?
Well, as I have shown in previous posts, the mass of profits may have
improved but the rate of profit for UK companies is well below peak.
The return on investment in risky productive capital does not match the
returns to be made in driving up the share price or in buying safe and
guaranteed government paper. As long as that lasts, there will be no
sustained recovery, just a crawl.
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