Great Piece from Marxist economist Michael Roberts. Any serious efforts to increase the share of the national wealth going to workers and the middle class is met with cries of class war, fantasy, and that it's "going too far." The reality is that failure in these situations is not because the solutions are on the wrong track, but because they don't go far enough. As Michael Roberts explains here, the danger of failure is not taking capital and its allocation in society, out of the hands of the capitalists and their institutions. Venezuela, Bolivia and countless historical examples confirm that any serious encroachment on the rights of capital will be met with ferocious resistance. The response must not be to shrink back in fear but to be fully prepared for war. RM.
by Michael Roberts
Whatever government is formed in the UK after the 12 December
election, it faces an immense challenge. The British economy is in a
mess and its society is riven with division.
After ten years of austerity measures under Conservative/Liberal
Democrat governments, public services and welfare benefits have been cut
to the bone and beneath. The British state pension is the lowest in
Europe! The NHS, after being hollowed out by outsourcing and internal
privatisation and then starved of funds, is on its knees. Social care
for the old and infirm has been decimated and/or hideously expensive.
School classroom sizes are higher than ever, higher education colleges
are going bust and students are racking up huge debts. The housing
shortage is so bad that young people are forced to live at home with
parents or in crowded, unfit private rental accommodation. Transport is
an expensive nightmare: rail, energy and fuel prices are the among the
highest in Europe.
Inequality of wealth and incomes are as high as in the 1930s. While
Britain boasts of 135 billionaires, 14 million are officially classed as
poor and 4 million children are living in poverty. Regional
disparities in living standards between London and the south east and
the rest of the UK are the widest in northern Europe. Millions work in
the poorly paid self-employed ‘gig’ economy, and one million people work
on zero-hours contracts often for wages below the official minimum
wage; while the disabled and ill are forced back into low wage work
through the removal of benefits.
All this while people of Britain are divided over whether it is
better to leave the European Union or not; whether Scotland and Northern
Ireland should break with the Union; and whether immigration is good or
bad for the economy and society.
Most important, on the economic front, Britain’s growth of national
output is slowing as the population expands, making it increasingly
difficult to provide the resources to meet these challenges. Britain’s
economic growth is disappearing fast. The capitalist sector of the
British economy has failed to deliver for the needs of people, although
it has delivered higher profits and house prices and a booming stock
market for the rich. Real disposable income per head has more or less
stagnated since the end of the Great Recession, the longest period in
167 years!
That is because investment by big business is contracting, partly
because of the uncertainty of what will happen after Brexit and partly
because both domestic and foreign investors no longer expect much of a
return from investment in Britain. With falling investment comes low
growth in what each worker in Britain can produce. And low productivity growth means permanent low economic growth.
Real output per hour worked rose just 1.4% between 2007 and 2016.
Within the G7, only Italy performed worse (-1.7%). Excluding the UK, the
G7 countries have experienced a 7.5% productivity increase over this
period, led by the US, Canada and Japan. In addition, the ‘productivity
gap’ for the UK – the difference between output per hour in 2016 and its
pre-crisis trend – is minus 15.8%; while the productivity gap for the
G7 ex-UK countries is minus 8.8%.
British capitalism is a ‘rentier economy’,
concentrated on finance, property and business services, more than any
other major economy. Having helped trigger the global financial crash
and the huge slump in 2008-9, the City of London has done nothing since
to support UK businesses, particularly smaller ones. Loans to smaller
companies have fallen. Instead, bank loans have poured into real
estate. Britain’s productive sectors (manufacturing, professional
scientific & technical activities, information & communication
and administrative & support services) account for 28.7% of real
GDP. But bank loans to these four sectors total just 5.5% of GDP. This
is less than the total of loans outstanding to companies engaged in the
buying, selling & renting of real estate (6.9% of GDP).
So what is to be done? The UK Labour party’s election manifesto
takes on the challenge. The key underlying issue on which all depends
is finding a way to increase investment in more productivity-enhancing
projects and in a better trained and skilled workforce, employed in
decent conditions and paid living wages. In this regard, Labour is
making serious attempts to reverse British industry’s decline.
First, it looks to launch a Green New Deal which will direct
resources away from unproductive activities and instead focus on curbing
the acceleration in global warming by investing in renewable energy
projects and offering hundreds of thousands of apprenticeships for
skilled jobs in green projects.
Second, it looks to bring back into public ownership the key energy
and water companies, ending the rip-off of the public by the current
private monopolies. Rail and bus transport will also return to the
public sector, thus ending the wasteful anarchy of franchised routes and
inefficient and expensive local bus services. And Labour will aim to
deliver free super-fast broadband internet to every household within ten
years, at half the cost that the private sector would spend, by taking
over the broadband division of BT. And it would bring the Royal Mail
back into public ownership. The largest companies would be expected to
give their workers shares in the company with rights to representation
on company boards. And collective bargaining rights would be restored,
reversing Thatcher’s anti-trade union laws. These measures would
provide new impetus for investment and jobs.
And third, Labour would expand public investment to compensate for
the failure of businesses to invest. Labour would set up a Strategic
Investment Board to coordinate R&D, commercial services and
information flows. It would set up a state investment bank to invest
£25bn year in projects and infrastructure. It would start a new banking
service for small businesses based on the Post Office.
How will all this be paid for? Well, under the existing conditions,
Labour plans to raise income taxes for the highest 5% of earners (ie
more than £80,000 a year); and it aims to capture missing taxes
currently unpaid by big business and the rich through tax havens and
evasion – that is estimated at $25bn a year! Labour would be prepared
to increase government borrowing to fund more spending on health,
education and some of the longer-term projects. Given that interest
rates are at their lowest in 60 years, the cost of borrowing would add
little to annual budget costs. Also planned investments should deliver
increased productivity and growth and thus more tax revenues. It
is estimated that the cost of nationalising energy, rail, water and
telecoms would be covered from the revenues of these sectors within
seven years.
Contrary to the media reaction, this would not make the UK have the biggest state spending of major economies. As the Resolution Foundation shows,
it would take the size of government expenditure as a share of total
annual spending to around 45% of GDP, in the middle of the range within
OECD economies.
As Simon Wren-Lewis says, in his comprehensive post, “another
way of putting it is that the UK will become closer to the European
average, and further away from the US/Canada level.”
Can this plan work to turn Britain into a more prosperous, more equal
and more united society? Much depends on three things. First, can
just one state bank and investment board really be enough to re-direct
Britain’s rentier economy into more productive areas for employment? Labour
does not propose to bring into public ownership and control the big
five banks or the major insurance companies and pension funds. Yet
these will continue to provide the bulk of potential investment funding
(some 15% of GDP compared to the state’s 4%, at best). That will weaken the ability of a Labour government to deliver real improvements in investment, services and incomes.
Labour’s tax and other measures to redistribute income and wealth from
the super-rich to the rest are also very limited. Indeed, although
Labour plans to raise the annual increase on spending on the NHS by 4% a
year, that is still less than under the Blair government and is barely
enough to meet the needs of an ageing population. And Labour’s measures
will only make a small dent in the extreme levels of inequality.
Second, there is the inevitable reaction from big business and the
media. They will go hell for leather to block and reverse Labour plans
and any sign of failure will be seized upon. And so there is a serious
risk that Labour’s relatively modest plans to rebalance the wealth and
power within the country may falter. Big business and the rich have
already threatened to take their investment and money elsewhere and the
coming to power of a radical Labour government may well provoke what is
called ‘capital flight’, inducing a run on the value of the pound and
driving up interest rates. Labour may have to take more drastic
measures like capital controls. But without control of the major banks,
the currency would be under threat from this financial terrorism.
And third, and most important, is the high likelihood of a new global
slump in production, investment and employment. It has been ten years
since the end of the Great Recession, the biggest global slump since the
1930s. Another recession is well overdue and there are signs that is coming, as the major economies are slowing down significantly and the trade and technology war between the US and China is intensifying,
destroying world trade growth. By this time next year, the new British
government could be faced with British businesses going bust, laying
off workers and imposing an investment strike.
The only way the impact of such a recession could be reduced would be
for Labour to take control of what used to be called the ‘commanding
heights of the economy’: the banks, insurance companies, pension funds,
and the key strategic companies in Britain’s main manufacturing, energy
and other productive sectors. Only then could a national plan for
investment and jobs and to combat climate change be possible because it
would not rely on capitalist investment. Labour’s current economic
policies fall short of that. Instead, Labour’s leaders and advisers
rule out such drastic measures because they think they will not be
necessary and instead ‘a regulated and managed capitalism’ can still
deliver the needs of British people. History tells us otherwise.
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