And now, as if I have not already demonstrated my ignorance on most matters, I dip my toe in financial waters. What am I on about? I feel like one of those wilfully obscure French philosophers when I try to write about real-world economics.
I don’t know much about economics but I know what I don’t like the sound of…
1. The Bank of England raises interest rates by half a per cent; base rates are now at 5.5%. It remains to be seen if earlier rate rises have had the effect of cooling consumer spending and house price inflation. This latest rise may not be the last.
2. A widening of the already wide trade deficits of both the UK and US economies, said to be caused by energy prices, oil in particular. A trade deficit is when there are more visible imports than visible exports; which is to say that both the US and UK have become heavily dependent upon cheap imports from countries with low labour costs.
3. Rebounding of the Chinese trade surplus. A trade surplus is when there are more visible exports than imports; which is to say, the economy is dependent upon the dependence of other countries for its success. The total value of shares trading on the Chinese stock market exceeds that of the whole of Asia put together, including Japan.
4. In the UK, one in four wage settlements have been 4.2% wage increases in the private sector (inflation is officially 3.1%). The trend is towards wage settlements at 4%, and the wage freeze imposed on the public sector is sure to be resisted: there is greater unionisation in the public sector. There have already been strikes by workers in the public and civil services, which could be followed by postal workers and nursing staff. (In the latter case, a nurses’ strike in Ireland has demonstrated that it is possible to take action without impacting patient care.)
A note on wage inflation: it is highly unlikely that wage increases will be much higher than the increases in living costs faced by workers, or that they are currently a determining factor driving inflation. The phrase “one man’s wage rise is another man’s price rise” was always misleading and for good reason it has not been revived today. The labour market is now flexible, unionisation is lower, and workers’ rights have been drastically reduced.
The UK economy has shifted from manufacturing to services – from earning money to making it, is one quip I’ve heard. Manufacturing has been allowed to die out, which may be a mistake in the long term – but industrial capital has less political clout these days, financial capital calls the shots.
Which costs of living are increasing? Housing inflation is making buying your own home less affordable to most workers. Home ownership has been pushed by the Tories, then by Labour, since the early eighties. The lack of investment in new social housing was to gradually do away with council housing, following the general “hollowing out” of the state under neo-liberal capitalist development. The market will not provide low-cost housing for key sector workers, let alone the lowest earners, because it’s not profitable. The only corrective to this market failure is for the government to build more council houses. And will they do that?
Another pain in the wallet is energy and water costs, which would not have been so bad if the utilities were still state-owned. I remember Tony Benn pointing out in the eighties that energy prices would be higher if the country no longer bought as a bloc. Also, energy companies have been keen to pass on price increases, but slow passing on decreases in price. Their motive is profit, not public service.
The fact that energy companies are driven to produce a surplus value rather than meet the needs of the people has led to demands that energy companies be forced to provide lower rates for people on lower incomes. This misses the point, entirely, of course. It would make more sense to bring the utilities under public ownership once more.
You’ll observe that increased utility costs hit business, too – most especially in manufacturing. This increase can be a contributing factor in companies exporting jobs.
Outsourcing is raises a difficulty for bourgeois politicians, namely that you can’t call a factory a “lame duck” when it is being shut down only because its workers have more rights and get more pay than workers in other countries. What I mean is that the enterprise is still profitable – it’s not running at a loss – but that job losses are driven by greed rather than need.
Inflation has not yet reached the highs if the 1970s nor interest rates the levels of the early nineties. Factors external to the UK economy might cause the house of cards to fall. The US housing market is looking shaky and a collapse would impact negatively on the world economy. One UK bank, HSBC, has said profits have been hit by the troubles in the US housing market. There are also worries about the Chinese economy, which as it grows in wealth also grows in inequality; though the Chinese government has ended tax breaks for foreign investors, this is to repatriate profits to the national bourgeoisie rather than to increase social spending.
I want to be clear: I am not making the case for a catastrophic collapse of capitalism, though the world market could be in for some trouble, change does not come about inevitably. But the unstable nature of the capitalist system is inherent in its dependence on the exploitation of labour, especially workers in the oppressed countries, and natural resources, fossil fuels in particular.
Right, I better stop digging…