by Michael Roberts
The finance ministers of the top 20 economies of the world met
in Chengdu, China this weekend and they were worried. Global economic
growth continues to slow and monetary policy (central bank easing
through cutting interest rates and engaging in ‘quantitative easing’)
does not seem to be working in restoring levels of economic growth
achieved before the Great Recession.
And the decision of the British people to vote to leave the European
Union is an extra shock to world capital economy. Brexit implies further
slowdown in world trade expansion; one way that the G20 financial
authorities hoped could get global growth going again. The prospect
(still unlikely) that Donald Trump could win the US presidential
election in November also raises the risk that the largest and most
important economy in the world could move towards protectionism on trade
and finance, as well as imposing and supporting tighter restrictions on
the free movement of labour. The great days of globalisation could be
Prior to the meeting, the IMF had to announce yet another reduction in its forecast of global growth.
The reduction was not much, but it was the fifth time in 15 months.
The IMF now expects global GDP to grow at 3.1 percent in 2016 and at
3.4 percent in 2017 — down 0.1 percentage point for each year from
estimates issued in April. And this forecast is still well above the
much more pessimistic June forecast of the World Bank, which is
expecting only 2.4% growth in 2016 from the 2.9 percent pace projected
The G20 leaders said they were opposed to trade protectionism “in all its forms” and were committed to further monetary and fiscal measures to “strengthen growth”, but there was again no commitment to common action. US Treasury Secretary Jacob Lew said ahead of the meeting that it was “not
the right time for coordinated action similar to that in 2008-09
following the global crisis because economies face different
conditions.” So basically, they are doing nothing and relying on already failing policy methods.
But the strategists of global capital are worried. First, nothing
appears to be working and real GDP and trade growth are slowing. Look
at the latest data on world trade growth by the Dutch research group CPB.
World trade contracted yet again in May and is now up only 0.75% from
May 2015 in volume (that’s excluding price effects). Growth in 2016 is
well below the post-Great Recession average of 2.7% a year, which in
turn is less than half the rate of world trade growth before the global
financial crash (at 5.7%).
And it is not just trade. World industrial production, the best
measure of growth in the productive sectors of the world economy, is
hardly moving and is actually falling in advanced capitalist economies,
according to CPD. Again industrial production growth is below even the
post-crash average, which in turn is below the pre-crash average.
But it is not just the economic performance of the global economy
that worries the G20 leaders; it is the political effect that this is
having on the people of the major economies. They are losing confidence
in mainstream politicians because they cannot deliver on better living
standards and any recovery for the majority since the Great Recession.
The leaders talk big about recovery and improving conditions but the
majority don’t see it. This partly explains the Brexit vote in Britain
and the rise of so-called populist parties in Europe and Trump in the
Three recent reports by mainstream economic experts show that the
perception of the majority that they have not seen any ‘recovery’ is
based on reality. McKinsey, the international management consultants,
published a report called Poorer than their parents? A new perspective on income inequality,
which showed that the real incomes of about two-thirds of households in
25 advanced economies were flat or fell between 2005 and 2014!
McKinsey concludes that “Most people growing up in advanced
economies since World War II have been able to assume they will be
better off than their parents. For much of the time, that assumption has
proved correct: except for a brief hiatus in the 1970s, buoyant global
economic and employment growth over the past 70 years saw all households
experience rising incomes, both before and after taxes and transfers.
As recently as between 1993 and 2005, all but 2 percent of households in
25 advanced economies saw real incomes rise.
Yet this overwhelmingly positive income trend has ended. “between
2005 and 2014, real incomes in those same advanced economies were flat
or fell for 65 to 70 percent of households, or more than 540 million
people (exhibit). And while government transfers and lower tax rates
mitigated some of the impact, up to a quarter of all households still
saw disposable income stall or fall in that decade.”
McKinsey forecasts that: “If the low economic growth of the past
decade continues, the proportion of households in income segments with
flat or falling incomes could rise as high as 70 to 80 percent over the
next decade. Even if economic growth accelerates, the issue will not go
away: the proportion of households affected would decrease, to between
about 10 and 20 percent—but that share could double if the growth is
accompanied by a rapid uptake of workplace automation.” Who says this is not A Long Depression!
Last week, Andy Haldane, chief economist at the Bank of England,
published a speech of his that he made in Port Talbot, Wales, in June.
Port Talbot is the home of the British steel industry, now owned by the
Indian steel giant, Tata. Tata has announced that it wants to sell the
business there or close it down, putting thousands of steel workers out
Now Haldane has been a bit of a maverick in central bank circles in
the past. I have already pointed out in previous posts that he
considers that the finance sector in capitalism adds ‘no value’ whatsoever and can be even negative for the global economy – that is very ‘off message’ for a bank official!
At Port Talbot, he made a speech called “Whose recovery?”. In it, says that, when he visited a community centre in Nottingham in the middle of England: “I
was stopped in my tracks by a forest of furrowed brows and a phalanx of
probing questions, not all of them gentle. “What exactly do you mean by
recovery?” one asked. “My charity is dealing with 50% more homeless
people than three years ago.” Every other charity in the room had
similar stories to tell. Whether it was food banks, mental health
problems or drug addiction, all of the numbers were up. The language of
“recovery” simply did not fit their facts.”
In the UK’s very weak economic recovery since 2009, it is the rich,
those in the south and those who are older than have ‘recovered’. The
rest have not at all. Haldane commented. “At least as measured by
GDP, the economy and society as a whole is 5% better off. But is it? The
income of the already-rich has risen by just over 10%, while the income
of the already-poor as fallen by 50%. Does the former really swamp the
latter when it comes to the well-being of society?”
Haldane found that in only two regions – London and the South-East –
is GDP per head in 2015 estimated to be above its pre-crisis peak. In
other UK regions, GDP per head still lies below its pre-crisis peak, in
some cases strikingly so. For example, in Northern Ireland GDP per head
remains 11% below its peak, in Yorkshire and Humberside 6% below and
here in Wales 2% below.
Since the end of the Great Recession, the largest gains in income
have come in regions where income was already high – London (incomes
more than 30% above the UK average) and the South-East (14% higher).
Contrarily, some of the larger losses have been in regions where income
was already-low – Northern Ireland (18% lower than the UK average) and
Yorkshire and Humberside (14% lower). Haldane concluded that “it is
clear that recovery has been associated with both the incomes and, more
strikingly, the wealth of the least well-off having broadly flat-lined.
Recovery has not lifted all boats, especially some of the smaller ones.
This pattern may go some further way towards solving the recovery
puzzle. Whose recovery? To a significant extent, those already
asset-rich.” And this is the UK, which has supposedly recovered better than the rest of Europe.
Then there is the report by Macquarie, the Australian based investment firm (WhatCaughtMyEye200716e248606).
Macquarie reckons that the structure of the labour force is shifting
towards the modern equivalent of ‘lumpenproletariat’ (they use the
Marxist term). Most people are increasingly employed in more precarious
and low-paid occupations. This applied to “as much as 40%-45% of the labour force”.
The same trend is evident in most other developed economies. Macquarie
have not have got the concept of lumpenproletariat right. What the
investment firm describes is really the normal position of the labour
force under capitalism: continual tendency to join the ‘reserve army’ of
This is why the ‘recovery’ has not been felt by the majority as they
are locked into insecure jobs with low incomes. Inequality of income and
wealth continues to worsen, while the productivity of the labour force
languishes across the board. US labour productivity has stagnated from
the 1980s onwards. “Over subsequent decades, stagnant productivity
was pretty much replicated across most economies. Declining productivity
growth reflects that an increasing proportion of the labour force and
employment is essentially “warehoused” in lower productivity
occupations, pending either their final elimination and replacement”, says Macquarie.
The last six years represented essentially a continuation of a trend
towards lower-end jobs in the US, which started in the mid-to-late
1980s. “On our estimates, low end/contingent jobs represented ~36%
of the total labour force in 1990 and today it is ~42% (or around 52m
jobs vs. 33m in similar occupations in 1990) whilst the high end jobs
used to be 45%-46% and today the number is closer to 43.5%.”
So the world economy has still not recovered to pre-crisis levels.
More important, the majority of households in the major economies have
seen no ‘recovery’ at all. The great jobs expansion is been mainly in
low-paid, low productivity sectors or in self-employment where incomes
are relatively lower.
The solution to this depression of incomes, output and productivity
from mainstream economics varies from the Keynesians, who yet again
advocate more government spending as monetary policy is exhausted (see
this latest piece by Summers and Eggertsson) to the Austrian monetarists who reckon the problem is excessive monetary easing
by central banks that has created a credit bubble without any impact on
the real economy. The Keynesians want more government spending and the
Austrians want less credit expansion. As I and my co-author G Carchedi
showed in a The long roots of the present crisis, neither policy solution will work.
What worries the strategists of capital is that their failure to get
capitalism going again or reduce the burden for the majority to pay for
it is beginning to end their political control of the majority. Brexit,
the rise of Trump and other ‘populist’ leaders now threaten the end of
the neoliberal ‘free trade, cheap labour’ agenda of globalisation.
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