Thursday, 21 October 2010

Victims Of Their Own Incompetence - Part 3

As I said at the beginning, I haven't had time to analyse the data properly, but from what I can see, the Tories have attempted push some of this down the road. The cuts in Welfare are savage, and no surprise. But, before they can be fully implemented a variety of administrative changes will have to introduced. That will push the actual economic hit to the economy down the road. Moreover, changes to Benefits are notoriously difficult to quantify. Moving large numbers of people off ESA, and on to JSA, for example, is likely to only result in a large number of people qualifying for Income Support, because with jobs in many areas already hard to come by, the increased unemployment resulting from the Tories measures will make it even more difficult to find work. The main effect is likely to be in relation to Housing Benefit for people living in London, and other high-cost areas.

The other main area affected is Local Government, but the actual cuts there will not begin happening until after the start of the next financial year in April 2011. The strategy there has already been seen, and is likely to be used in other parts of the Public Sector. Workers have been issued redundancy notices and told to re-apply for their jobs on lower wages.
That appears to be the strategy, to offer workers the option of retaining their jobs provided they take a pay cut. Although, again the effect of that is to take demand out of the economy in lower wages, it spreads it out over a longer period. It places a heavier burden on the actual workers in the Public sector than would an actual removal or cut in a service, which would affect those receiving the service as well. The Tories obviously believe that many Public sector workers will go along with that in order to keep their jobs, and it will reduce the potential for workers to combine to resist.

Looking at it purely from an economics point of view, the Tories probably could have got away with this without significant economic damage. The UK economy was growing by around 2% p.a., and possibly a bit more on the basis of the Q2 data. At a rough estimate, I calculate the Tories Cuts would take immediately around 1 – 1.5% out of GDP for the current year, and slightly more in the next 3 years. That means that even this year growth could have been achieved of around 0.5%. Although, the cuts would have taken out more in the next three years, I expected that on the existing trends, UK growth could have risen to around 3.5 – 4%, in coming years, such that even with the effects of the Cuts, growth would have been around 2 – 2.5%. However, the Tories have been running the narrative for many months now of an age of austerity. Consumers have cut back, and businesses have retrenched. The latest figures show that economic activity has slowed down markedly. It looks as though it is now at best around 1%, and may even be zero. Deducting the effect of the Cuts means that the likely figure for the coming year is that the UK will have gone back into recession with output falling by between 0.5% - 1.5%. And, under those conditions, the effects on the housing market are likely to be severe, and in turn a collapsing housing market is likely to have a seriously depressing effect on the wider economy. It is likely that instead of steadily rising growth over the next 3-4 years, we are likely to see at best stagnation, and at worse prolonged recession. The extent of that will be determined by what happens in the rest of Europe, and by the success of the Tea Partiers in the US in lumbering the US economy with similar policies.

It is under those conditions, and with an already existing Currency War in progress that the recent comments of Mervyn King, Governor of the Bank of England that we risk a re-run of the Great Depression should be taken seriously. As I have written elsewhere, even were that the case i.e. that we went into a 40 month deep decline, I do not believe that it would be a lie for like situation. It would mean a significant and rapid drop in incomes, and a serious deflation, most particularly of asset prices i.e. property prices down 90%, stock markets down 75%-90%, and a brutal restructuring of western Capital, with many sectors such as in retail, and other low status service industries being annihilated, whilst other sectors such as high-technology grew rapidly, but not rapidly enough to soak up the vast numbers made unemployed. It would provide the basis for a very rapid upturn on the basis of that restructuring, with high rates of profit generating rapid Capital Accumulation, and growth rates probably approaching those of China currently. But, Harold Wilson said that a week is a long time in politics. Forty months of such conditions, and the inevitable social and industrial unrest it would bring would seem like an eternity to Big Capital. As I wrote in the past at the onset of the crisis in 2008, the decision Capital, particularly Big Capital has to make is this. In large part, the capitalist system hinges upon the belief by the majority of workers and the middle class that it is capable of generally meeting their needs, of in general enabling them to enjoy steadily rising living standards with only the minor, short-lived disruption along the road. That is the material basis of that Social-Democratic consensus. The consensus could be easily shattered if that material basis is destroyed. If large numbers of workers and sections of the middle class find that living standards are falling for a prolonged period, that the disruption is not just a minor short-lived inconvenience, but a prolonged period of uncertainty, then the illusion is shattered, and along with it the basis of bourgeois ideology. It is, of course, not necessary that such an eventuality is of benefit to the left, it is more likely to benefit some Right-wing populist demagogues. But, the experience of Fascism in the 1930's for Big capital is not likely to be one they want to repeat. It is not at all the conditions under which long-term Capital accumulation can proceed efficiently, and the loss of political influence it brings is not one that Big Capital would relish.

There is an alternative, and we need concerted working-class action to force Governments to take it.

Back To Part 2

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