Friday, 21 March 2014

Labour will inherit a crisis not a recovery

By Michael Burke

For once it seems that the widespread reaction to a Budget was correct. Chancellors usually bury bad news in the detail of a Budget released long after their speech. However the dire electoral position of the Tories means that the main changes were announced with a flourish. The personal income tax rate threshold was raised to £10,500 a year, which the Institute for Public Policy Research has shown mainly benefits the highest earners. In addition, the annual amount of tax-free savings was boosted to £15,000 a year, which is actually close to the average (mean) disposable income in Britain. This was a Budget to shore up the Tory vote among higher earners and savers and staunch the defections to UKIP.

Osborne did nothing to address the economic crisis. This is not because the crisis is over or a self-sustaining recovery is underway. That is a dangerous delusion. Even the forecasts from Office for Budget Responsibility (OBR), which has proved to be significantly over-optimistic on growth since it was established, project only an annual average growth rate of approximately 2.5% over the next 5 years.

Embedding poverty

SEB has previously shown that a huge gap has accumulated between the current level of economic activity and the previous trend rate of growth. Even if 2.5% GDP growth materialises that gap will not close. At best it will not widen further. The poverty and misery arising from the current crisis will become embedded in the economy.

To arrive at its forecasts the OBR has made the following assumptions:-
  • Wages will only rise half as fast as GDP growth
  • Average real wages (after inflation) will not rise at all, yet
  • Non-wage incomes (salaries, interest and rent) will rise sharply
  • House prices will rise by over 30%, and
  • Stock markets will rise by 27%
Even under the OBR’s forecasts it is clear that all the benefits of projected growth are claimed by high earners, the rich and the owners of capital. Even if all these gains were spent by the rich (which is never the case) this would be insufficient to power the growth the OBR is projecting. The main contribution to growth envisaged by the OBR over the next period is a rise in household debt. This is shown in the chart below (Chart 3.33 in OBR data).

Fig1. OBR Projection of household debt

Reversing the post-crash trend, the OBR assumes that households will increase their debt on average from 142% of their incomes currently to 166% by 2019, close to levels preceding the crash. Under these officially-sanctioned forecasts most households will see no rise in incomes, only a rise in debt. They will be worse off in 5 years time than they are now.

It is not necessary to enumerate all the ways in which this forecast might be proven wrong, if for example there are increases in interest rates or inflation picks up because the currency falls, and so on. The key point to note is that for most people the crisis will be an enduring one, at least a decade long.

Causes unaddressed

The crisis will continue because its root cause has not been addressed. Currently the fall in investment is approximately three times as large as the entire fall in GDP since the begnning of 2008. Investment has fallen by £58bn and GDP is still £21bn below its previous peak in the 1st quarter of 2008.

In fact, while GDP inches ahead in the longest-ever recession, investment (Gross Fixed Capital Formation) continues to decline. In addition, as the statisticians refine their understanding the most accurate position, the data for investment has mainly been revised lower. This is shown in the chart below (Chart in the OBR data).

Fig. 2 Business investment & its revisions

Total investment in Britain is one of the lowest of all the industrialised economies over a prolonged period (as shown in Fig.3 below, Chart G in OBR data). Business investment is currently equivalent to just 8% of GDP, also one of the lowest. Yet the OBR is effectively forecasting that the problem will disappear.

Fig.3 Total investment as % of GDP in industrialised countries

The OBR forecasts that business investment will rise by 50% in the course of the next 5 years- which has never happened in Britain outside of war. This means investment will be growing approximately 5 times as fast as the rest of the economy- even though, according to the OBR, there will be a tremendous profits squeeze, with profits falling from 33% of GDP in 2012 to 27% in 2018. These are outlandish forecasts. Only a policy to control and direct investment could produce such results.

Meanwhile, minimal wage growth, rising household debt and the investment slump are all related. It is impossible to create new, high-skilled high pay jobs without investment. The government can boast that one million jobs have been created in the last two years. But less than half of these have been for full-time employees and many of those are on zero hours or minimum wages. In order to finance any increase in spending at all, workers whose real wages are falling are obliged to drawn down savings or take on new debt.

This is the mess that the Tories will bequeath to Labour. Only a thorough break from the policies of austerity can solve it.

Tuesday, 18 March 2014

That Tory recovery in perspective

By Michael Burke

This week George Osborne will announce his latest Budget. The specific measures in this Budget were not published at the time of writing. But it is a fairly safe assumption that he will boast that the economy is on track, and that there is a recovery. This is simply an exercise in redefinition.

The economy grew by just 1.9% in 2013. This is following a period of historically slow growth, the deepest recession in living memory and the weakest recovery on record. Yet many commentators and not just explicit supporters of austerity seem to believe this means we are automatically on track for a genuine recovery with all that means for growing jobs, rising real pay and improving living standards.

Unfortunately both the celebrations and the optimism are misplaced. Of course this does not mean that the economy will never grow again. It is even possible that growth will be a little better in 2014 than it was in 2013. But after most recessions the economic rebound is usually fairly strong. After a very steep recession the recovery should be very strong. That is not the case currently.

Annual growth in GDP of just 1.9% in 2013 is the best since 2007. But that is really a measure of the crisis of the economy and how badly policy has failed.

Prior to the current crisis, in the 20 years to 2008 the average annual growth rate of GDP was a little under 3%. In the same 20 year period from 1988 to 2008 only 3 years have seen worse growth for the British economy than last year’s 1.9% and all of those were associated with the recession under the Tories in the early 1990s (the ERM crisis).

So, a growth rate associated in the past with crisis is now redefined as recovery and heralded as success. Crisis is redefined as success; stagnation is now growth.

Current growth rates also remain well below the previous trend. That means the gap between where we are and where could or should have been is actually getting wider. It would take many years of sustained growth above that 3% rate in order to close the gap between the actual level of GDP and its previous trend. No major forecasting body suggests anything like that is going to happen over the next few years. The chart below shows the trend growth of Britain’s GDP in from 1988 to 2008.

Fig.1 Trend GDP Growth From 1998

This growing gap matters because it effectively means living standards cannot significantly recover without altering the current structure of the economy. Instead, the misery of the economic slump will become embedded as a long-term feature of the economy.

In all probability living standards for most people will not rise for several years and for many they will fall further unless growth accelerates significantly. Austerity policies have the effect of ensuring that the lion’s share of any recovery goes to a minority of the population.

Most Budget coverage is a deluge of minutiae about minor changes to the tax system. But the most important fact is this: talk of recovery is entirely misplaced. For the overwhelming majority of the population austerity policies mean that living standards will continue to decline.

Tuesday, 11 March 2014

The People's Assembly National Recall Conference 15 March 2014

The People's Assembly National Recall Conference

15 March 2014, 10AM - 5PM

Emmanuel Centre, London SW1P 3DW
Register for the conference:
Conference PackClick here

Motions Document: Click here
The final motions document will be available on the day. If we've missed anything out please

Conference Highlights include:

National Union of Teachers General Secretary, Christine Blower, will be discussing how we make the teachers' strikes a success and how we bring that energy into the demonstration on 21 June.
Kirstine Carbutt, a leading Unison member in Doncaster who has just organised a seven day strike against Care UK, will be relaying her experiences on how to organise successful workplace action.
PCS general secretary Mark Serwotka and the People's Charter will be proposing an alternative to austerity.

Francesca Martinez will be closing the conference talking about why we need a mass movement.
Steve Turner, Unite the Union Assistant General Secretary, will report from Unite's community membership strategy and will be chairing part of the day.

Natalie Bennett, leader of the Green Party, will be addressing the conference about how we bring climate change issues into the anti-austerity movement.

Dr Jackie Davis will propose plans to campaign against the sell off of our NHS.

Lindsey German from the Stop the War Coalition will talk about why the anti-war campaigns need to remain high on the agenda.

And trade unionists, community activists, students and pensioners will be debating the next steps in the campaign against austerity.

As well as being the democratic body of the People's Assembly, we want to use the conference as a way to strengthen and grow the organisation. So please do get in touch with trade union branches, campaigns and community groups locally and ask them to send delegates. We will be sending out a formal invitation and model motion which can be adapted to send to local organisations in a following email over the next few days.

We have set the delegate entitlement for local People's Assembly groups quite high to ensure newer activists are able to attend the conference.

Details in brief:

People's Assembly Delegate Conference
Date: 15 March 2014 Time: 10am - 5pm

Venue: Emmanuel Centre, Marsham Street, London, SW1P 3DW
Nearest tubes: Westminster, St. James’ Park, Pimlico
Buses: 88, 87, 3, 11, 24, 211, 148, 507, 53, 453, 12, 159

See the Emmanuel Centre website for detailed maps:

How to book your delegates places:
Book your places through our eventbrite page for the People’s Assembly Delegates Conference now:

Should you require another format please let us know.
Please do get in touch if you have any questions. We have set up a special email address for all communication to do with this event:

Google map and directions
CONTACT Clare · · 0208 5256988
TICKETS £5.00 GBP · Purchase tickets

Tuesday, 4 March 2014

Marx was right all along, says investment bank

By Michael Burke

Well, not quite. But a recent study by leading investment bank Credit Suisse shows that long-term growth rates of GDP in selected industrialised economies are negatively correlated with financial returns to shareholders. That is, the best returns for shareholders are from countries where GDP growth has been slowest, and vice versa. Where growth has been strongest, shareholder returns are weakest.

This is shown in the chart from Credit Suisse below.

Business Insider magazine carries a report of the research. It makes a series of bizarre arguments in an attempt to explain the correlation. The first is that stock markets anticipate future economic growth. But given that these data are based on the last 113 years, the stock markets must be very far-sighted indeed. The subsequent arguments do not get any stronger.

The negative correlation does not prove negative causality. But it does support the theory which suggests that the interests of shareholders are contrary to the interests of economic growth and the well-being of the population.

The clearest theory which this data supports, that the interests of shareholders are counterposed to that of economic growth, was formulated by Marx. In Capital he argues that the ‘development of the productive forces’ (the investment in the means of production and in education that are required to increase the productivity of labour and hence economic growth) runs up against the barrier of the private ownership of the means of production*.

Shareholders are not concerned with economic development but are driven by profits. Where those two conflict, the latter always win out. This is true in general, but becomes very evident in a period of crisis. Private capitalists could end the current economic slump by increasing their level of investment and they have the means to do so. They choose not to because they judge there are currently insufficient profits to be made.

So, either we wait until they deign to invest, perhaps cutting wages and corporate taxes to encourage them. Or we adopt policies that use their cash hoard to fund the investment that is necessary from growth and economic well-being.

*This contradiction is one of the central themes of the whole work. The following excerpt is a good example:

‘It is not that too much wealth is produced. But from time to time there is too much wealth produced in in its capitalist, antagonistic forms.

The barriers to the capitalist mode of production show themselves as follows:
  1. In the way that the development of labour productivity involves a law, in the form of the falling rate of profit, that at a certain point confronts this development itself in a most hostile way and has constantly to be overcome by crises;
  2. In the way that….a certain rate of profit…determines the expansion or contraction of production, instead of the proportion between production and social needs….Production comes to a standstill not at the point where needs are satisfied, but rather where the production and realisation of profit impose this.’ - Capital, Volume 3, Chapter 15, Development of the Law’s Internal Contradictions