Tuesday 26 July 2011

Special Factors?

The ONS, has just released the GDP figures for Q2. It shows that growth fell from the 0.5% figure for Q1, to just 0.2%. In other words, in the last nine months, which is the period from when the Liberal-Tories introduced their austerity Budget, growth has been just 0.2%!!! Given that there is a 0.2% margin of error on the figures, that means that in reality the economy has not grown at all. Were it not for the growth that was continuing from the measures introduced by Labour, the economy would not have grown even in the last year. The real picture of that can be seen by looking at the graph of how growth hyas proceeded under Labour and under the Liberal-Tories.


According to the ONS, had it not been for the special factors such as thye Royal Wedding, and the effects of the Japanese Tsunami the figure would have been 0.5% higher for the quarter at 0.7%. That quite honestly is not believable. The effects of the Japanese Tsunami on production in Britain can only have been minimal, because Britain's manufacturing sector as a whole accounts for only 12% of GDP, and the other parts of the economy, in services would not have been affected at all.

As for the Royal Wedding,we were being told beforehand that it would act as a significant stimulus to the economy, because of all the crap memoribilia that would be produced around it. Now we are being told it actually cost the economy up to 0.5% of total production!!!
Given that UK GDP is £1.4 trillion, then if the Royal Wedding cost the country 0.5% of that I think we should be sending the Royals a very big big for them to pay!!!

In fact, every economist and business representative interviewed has poured scorn on the idea that these special factors could have had such a large negative effect. Even Ruth Lea, who can hardly be described as a Left-wing critic of the Government, called the 0.7% figure "bizarre".
Not only is there little to suggest these effects could have had that size of effect - essentially 2.5 times the effect that three months other economic activity had - but all of the survey data points in exactly the opposite direction.

The survey data shows that in the last three months, business and consumer confidence has continued to fall, and is continuing to fall. Inflation is pressing down on disposable incomes, as wages are frozen. Businesses faced with falling sales are cutting back their own spending. The Japanese tsunami, and the Royal Wedding are not responsible for the increasing number of shops that are closing on every high street.

If you want to knwo what is happening to the economy it is necessary to look at that actual survey data of how the trend is developing, and the graph above shows that trend in its reflection in GDP, it is a steadily downward trend dating from when the Liberal-Tories began to talk down the economy, and frighten people with their proposals for austerity.
In fact, the reason the economy is tanking, and is set to get much worse as the real effects of the Liberal-Tory spending cuts come into effect, is precisely those policies of austerity and cutting. In fact, the same policies that Vince Cable described as those of "right-wing nutters", when he was referring to their application in the US!!

Apparently, even Cameron has been running scared of just how much damage his Chancellor is doing to the economy, the same Chancellor who it seems from reports has already done him considerable damage, as it was him that advised Cameron to take on Andy Coulson.
Yet, Osbourne having lashed himself to the mast is standing firm, in sending the economy onwards towards the storm, and the reefs that lie just below the water. And, given their atatcks on much of the State apparatus, they are heading for the storm with a mutinous crew.

Business has joined Labour in demanding selective VAT cuts, and other economists are calling for a cut in Income Tax to stimulate demand. Cable is arguing for more Quantitative Easing. But, these measures are doomed to failure.
The dynamic which the Liberal-Tory economic policy has set in motion is one of decline and retrenchment. If you think you are about to lose your job, if you see your wages falling in real terms, the sensible course of action is to batten down the hatches, put money to one side for whatever might come. A cut in VAT, will, under those conditions mean that people take advantage of a temporarily lower price, and put the savings to one side, to be used should an emergency arise. The same is true with an Income Tax cut, the extra money in your pocket will go into the bank, even at such low interest rates, just in case its needed. And, Quantitative easing is only any use, if there is demand for the money that is printed.

There is no shortage of money circulating in the economy. In fact, there is so much of it compared with the demand for it, that interest rates are at record low levels, and large chunks of it sits in Banks, and on the Balance Sheets of large companies unused. Simply printing more of it, will not mean more gets circulated, it will just mean more gets hoarded, or gets shipped overseas to pay for imports of Chinese goods. Keynes describes this phenomena as "pushing on a string".
If you want the additional money to circulate to create additional demand, then its first necessary to create an amount of additional demand, by increasing Government Expenditure. Then, as the economy begins to grow, and confidence is restored, money in people's pockets causes them to be more prepared to spend than to save. The Liberal-Tory policies are bound to result in the exact opposite no matter how much money they print.

Can the Liberal-Tories change course? Well they have been forced to do U-Turns on pretty much all the rest of their policies due to their inherent incompetence, and the fact that they appear to have created a climate of sullen resentment, and opposition within the ranks of the Permanent State Bureaucracy, which is not surprising when those very people are being told they may lose their job, they will definitely see their pay cut, and will have to pay more into their pension, work longer, and get less pension when they retire. Divisions in the ranks of the Tories has now seen Health Minister, Andrew Lansley, whose Health Service reforms were roundly attacked by other Ministers, come out and attack the proposals for cutting Pensions in the NHS. You scratch my back, and I'll scratch yours, which is the usual method by which decision making occurs in Cabinets and other bureaucracies, also works in reverse. But, the austerity measures are central to the Liberal-Tory narrative. If they reversed course now, their raison d'etre would disappear, and an election could not be far away.

Its possible that, under those conditions, Labour could win an election on a programme of bringing growth back to the economy, and such a programme could also win the support of important sections of Capital, worried at the damage that the austerity measures in the UK, and Europe is doing. Social-Democracy has always been the real ideological representation of the interests of Big Capital, whereas the Conservative policies of the Tory Right, or the Republicans in the US have always been more closely a reflection of the interests of small capital, of the petit-bourgeoisie, and more backward sections of society. The undermining of the Murdoch Empire, which has also championed that set of ideas in Britain, the US, and elsewhere, could be the beginning of a turn away against them, and a reassertion of the interests of Big Capital.

4 comments:

Jacob Richter said...

"Social-Democracy has always been the real ideological representation of the interests of Big Capital, whereas the Conservative policies of the Tory Right, or the Republicans in the US have always been more closely a reflection of the interests of small capital, of the petit-bourgeoisie, and more backward sections of society."

I somewhat disagree with that. There's no homogenous Big Capital support for *progressivism*/*liberalism* (not "social democracy"), and the same goes for any homogenous petit-bourgeois support for conservatism.

Going back to my previous post on industrial, trade, and financial capital, I think the real divide between any given Party of Order and any given Party of Liberty (the terms Mike Macnair uses to describe typical conservative and liberal politics, respectively) is the interests of Trade Capital vs. the interests of Industrial Capital.

Shopkeeping, non-industrial fishing, small farming, consulting, etc. do not exhibit an "industrial" character. They are all more involved in Trade. Bourgeois and petit-bourgeois elements that engage in their respective activities divide more along the industrial/trade lines.

Neoliberalism was a brief blimp whereby Industrial Capital's interests on the liberal side may not have been very well represented, with the fetish for free trade agreements.

Boffy said...

I obviously disagree. While I would agree that no mechanistic division, implying that Big Capital was homogenous is possible, I agree with Engels that the general interests of Big Capital as opposed to small Capital can be identified. And, as Engels sets out it was essentially that, and the need for the establishment of conditions of longer term economic and social peace and stability, which led them into the adoption of Social Democracy whether it be in the form of Fordism, or of Welfarism.

It is why as Engels says they began to embrace the Trades Unions. Iwas reading a piece in Capital and Class the other day from Richard Hyman from back in 1987, where he was making precisely that point even during those years, about the role that the Trade4s Unions played for Big capital, and that could be contrasted with the generally ant-trade union attitude of small capitalists, and reflected in the policies of Thatcherism.

To be honest I don't think the terms "Party of Order", and "Party of Liberty" have much meaning within this context. If anything, for instance it could be argued that New Labour, and to some extent Old Labour could be more described as a Party of Order than the Tories. There has always been a Libertarian wing within the Tories.

The interests of Big Commercial Capitalists such as Tesco are I would suggest far more in line with the interests of Big productive Capitalists such as Toyota than they are with the corner shop retailer. The latter will have little time for Trades Unions, because they will only get in the way of extracting Absolute Value from their workers, who they can,or would prefer to be able to sack at a minute's notice, in the knowledge that they can always get another. For Tesco and Toyota such relations are not only impractical but counter-productive. The existence of TU's and collective bargaining provides a rational labour relations environment, and means for controlling the workforce, whilst maintaining a degree of satisfaction amongst its workers by making affordable concessions on wages and conditions, whilst raising profits via the extraction of relative surplus value, which is far more effective than the miserly methods of Absolute Surplus Value.

Jacob Richter said...

"I was reading a piece in Capital and Class the other day from Richard Hyman from back in 1987, where he was making precisely that point even during those years, about the role that the Trades Unions played for Big capital, and that could be contrasted with the generally ant-trade union attitude of small capitalists, and reflected in the policies of Thatcherism... The interests of Big Commercial Capitalists such as Tesco are I would suggest far more in line with the interests of Big productive Capitalists such as Toyota than they are with the corner shop retailer."

Tesco is your UK equivalent to Wal-Mart, right? Well, Wal-Mart is the most notorious anti-union retail company, from management campaigns for "associates" to shutting down retail outlets that unionize. Their interests are far more in line with those of the corner shop retailer than with the more "industrial" suppliers the company tries to exercise bargaining power over. Both this and anti-unionism are employed in order to maintain their Cost Leadership business strategy. Only on the level of business strategy, I think, do Wal-Mart's interests differ from the corner shop retailers' Segmentation business strategy.

Boffy said...

But, Jacob, it would be a very crude mechanistic version of marxism that insisted that every large company acted in accordance with the way theory predicts wouldn't it. Theory predicts that all Capitalist enterprises will seek to maximise profits, but as well as this leaving options of how to achieve that, there are some companies that do not seek to maximise profits. Some Capitalists such as the Scott-Bader family handed over the enterprise to their workers to run as a Co-op.

In the UK TESCO has a close relation with the shopworkers union through which it controls the workforce. Wal-Mart in the UK is ASDA. It also has a union agreement. Wal-Mart developed how? Walton was what originally. He was a small shopkeeper, who grew his business to what it is now. It is still family run business, and so it is not at all surprising that the ideology that drove Walton as a small shopkeeper continues to form the basis of his idea today is it.