There are other ways of encouraging growth. As noted earlier, Ireland attracted multinational companies by offering low rates of Corporation Tax. However, that goes against the proposals of Blue Labour, Liberals and Greens to raise Corporation Tax. Moreover, any such attempt would be seen by the EU as a hostile act, likely to provoke a response that would not be favourable, and would be particularly problematic for a Blue Labour government trying to sell the snake oil of a “Labour Brexit” in which it would gain the benefits of EU membership without any of the costs or obligations.
Another measure that could be adopted would be to give a substantial, one-off, grant to local authorities to repair roads. This is literally, a shovel ready project that would pump a significant impulse into local economies, employing labour and creating demand for materials. It would generate a positive, feel-good response from voters. In addition, because such projects are capable of being completed in weeks rather than years, there is a strong multiplier effect, and the cost of the projects is quickly recovered, as well as giving a boost to national productivity.
However, the problem, here, as with many other such projects is that it arises at a time of existing relative labour shortages that have, themselves, largely, been created by Brexit, and exacerbated by lockdowns, and consequent effects on healthcare etc. Would local authorities be able to recruit the additional workers to carry out the work; would suppliers and contractors be able to recruit the labour they required? If so, at what cost in higher wages? Local authorities already lost workers, who have gone to higher paid jobs in the private sector. The economy is still suffering from the fact that for forty years, there was a relative shift away from wage labour in large-scale industry, to self-employment, and employment in small businesses, where productivity is very low, and that shake-out of that small private capital has not yet reversed, to provide the required labour supplies.
The response of Starmer in the health service is instructive. He has point blank said he will not meet doctor's demands even to restore real wages to their 2008 level. So doctors are moving to the private sector, which Blue Labour doesn't mind as it plans to privatise the NHS, in favour of all the private healthcare companies many of its MP's and Shadow Ministers are associated with. But, many are also moving overseas. As a result of Brexit and the ending of free movement, which Starmer also will not reverse, its impossible to recruit the necessary workforce. Starmer makes pie in the sky promises to reduce waiting lists, provide more GP appointments and so on, but how without the doctors to provide it?
Moreover, the main reason that governments have not engaged in such obvious projects – the Tories could easily have funded and improved their approval by ensuring that all the potholes were filled over the last several years – not just in Britain, but all developed economies, but rather implemented austerity, was to constrain economic growth, so as to constrain employment and wages, to boost profits, and to constrain the demand for capital, so as to hold down interest rates, in order to avoid another crash in asset prices.
As with all developed economies, Britain's slow growth in the last fifteen years has been part of a deliberate strategy aimed at holding back the demand for labour and capital so as to hold back wages, boost profits, and reduce interest rates to defend inflated asset prices. But, even with that deliberate policy by governments and central banks, the model of conservative social-democracy of the last forty years ensures that slow growth. There is no reason for the company executives who act in the interests of shareholders, rather than the company, to use profits to accumulate real, industrial capital, when using those profits to buy back shares, or buy the existing shares of other companies results in a greater return from capital gains. When the state underwrites that via QE, that is even more the case.
It is then only the smaller private capitals that have an incentive to fill gaps in the market, and to accumulate capital, as well as the capital in those newly industrialising economies. Hence the growth of the petty-bourgeoisie, on the one hand, and of China etc., on the other, over that period. So long as governments and central banks seek to keep interest rates at artificially low levels, so as to try to prevent another huge crash in asset prices, that will continue, thereby, further sharpening the underlying contradiction, and making such a crash even more inevitable, and on an even larger scale.
But, again, as 2008 demonstrated, when such a crash inevitably materialises – in 2018, as global growth and interest rates rose, asset prices fell by 20%, and last year, as, again global interest rates rose, asset prices fell around 20-30%, in nominal terms, and 40% in real terms, before recovering on the hope of slower growth and central bank rate cuts – it will require co-ordinated action on a multinational basis. Large economies, like the US – itself part of the larger bloc with Canada and Mexico – China, and the EU will be able to address that, but the relatively small UK economy will be left on the sidelines, and suffer as a result.
The problem for the UK economy is similar to that of emerging economies of being able to access adequate capital, leading to its description as a submerging economy. Its not that industrial capital operating in Britain does not produce enough profit to fund such real capital accumulation, but that the profit is diverted, by shareholders, and the executives acting on their behalf, into unproductive activity to buy back shares, hand money to shareholders in inflated dividends and so on. Former Bank of England Chief Economist, Andy Haldane, noted that in the 1970's, dividends accounted for 10% of profits, and now account for 70%. Similarly, the rise in asset prices means that an increasing proportion of surplus value is tied up unproductively.
Land accounted for only 10%, after WWII, of the price of a house, but now accounts for 70%. That, also, impacts rents, meaning a large part of surplus value goes to fund higher wages to cover those housing costs of workers, as well as into tax to fund Housing Benefits, all of which drains profit that would, otherwise, have funded real capital accumulation, and, so, growth. Blue Labour's plans to artificially boost housing demand by underwriting mortgage deposits, along with its proposals on planning reform, which if they have any effect would further boost demand for building land, only exacerbates that problem.
Moreover, even if the housing problem could be resolved by simply building more houses – it can't because the problem is the price of those houses, which is a function of inflated land and asset prices, not supply per se – the consequence of Brexit is that there are insufficient skilled workers to build them. Nor is that addressed, certainly in the short-term, by training British workers. In the early 2000's, as the effects of the onset of the new long wave upswing took hold, Britain also found itself short of skilled labour. Plumbers, electricians, joiners, bricklayers and plasterers could not be found for love nor money. So wages for such workers rose sharply, and as is normal in such trades, there was an even greater rise in the number that became self-employed, or started their own small business, taking advantage of the soaring prices that could be charged for such work.
Significant numbers of workers from other jobs, including teachers, trained to become plumbers etc., but, the consequence of that was, then, to mean that there was an outflow of labour from these other areas, creating new shortages. That was at a time when there was a greater supply of labour than there is now, because, at that time, there were still reserves built up from the previous period of stagnation and unemployment in the 1980's, and 90's. Even so, the solution to the problem came in the form of the immigration of the “Polish plumbers”. Britain saw immigration from the EU of 2 million workers, most of them young and already skilled. But, contrary to the claims of Fartage and other nationalists, the consequence was that the economy was able to grow as the frictions were removed, and unemployment also fell as the economy grew. Indeed, that growth is precisely what created the conditions for higher interest rates that sparked the crash of asset prices in 2007/8.
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