The UK’s productivity puzzle

This was originally published on the NEF blog at: http://www.neweconomics.org/blog/entry/the-uks-productivity-puzzle

You might have missed the ONS’ latest estimates for UK productivity – they crept out late last year on Christmas Eve. They tell a familiar but not especially pretty story: output per hour worked fell by 0.3% over the middle part of 2013. In production industries, it’s down 1.2%. This means whatever economic growth occurred over the last year was not the result of people working better, or more efficiently. It was the result of an increase in the total number of hours worked. Productivity, over the whole year, barely improved.

Yellow, orange and blue

It’s idle speculation on my part, or latter-day Kremlinology, but this appears to bring the prospect of Cameron government that little bit closer:

The Liberal Democrats are planning to rule out forming a coalition government with either the Conservatives or Labour if Nick Clegg holds the balance of power in a hung parliament after the general election.

As Whitehall’s most senior civil servants and Buckingham Palace make detailed preparations to clarify the Queen’s role in the event of a hung parliament, senior Lib Dems are making clear that Clegg has no interest in taking cabinet posts and would focus instead on winning support for four key Lib Dem demands.

Clegg is an Orange Book Lib Dem (remember them?) with no great ideological qualms about backing Tories[*] – quite the opposite, if push comes to shove. He may have problems selling Liberal support for a national Tory government to chunks of his own membership, and I suspect he lacks the bottle to confront them directly. This proposal neatly avoids that issue.

On Cameron’s side, he can – as and when needed – blame his uppity Lib Dem supporters for having to push through whatever pro-Europe measures the saner elements of British capital decide are necessary.

It could be all very convenient, in the short term. But it will compound the feebleness of the Cameron leadership. It’s not guaranteed – Clegg’s options remain open, to say nothing of the general election result itself – but the prospect of a weak, minority Tory government having to drive through major spending cuts lies open. A Very Public Sociologist has more on minority administrations.

[*] do Lib Dems do “ideological qualms”? Ever?

Financial Times uncovers anticapitalist mood

Opinon poll, Financial Times yesterday:

Three in four people want the government to go further in its crackdown on bankers’ pay and impose a cap on salaries, according to the results of the latest Financial Times/Harris poll.

Almost four in five said they agreed with the supertax on bankers’ bonuses announced by Alistair Darling, the chancellor, last month. But three-quarters of those polled said there should be an additional ceiling on pay.

Perhaps no great surprises, there. Investment bankers rank somewhere around bubonic plague and anthrax in the public’s affections at present. And it’s good to see such widespread aversion to fat corporate paycheques. Making a few pips squeak in a few bloated lemons with a new, higher rate of income tax would be both fair, and popular.

It’s the result the FT doesn’t comment on that is most interesting, however. From the graphic, thirteen per cent don’t just blame bankers for the crisis – the ‘economic system as a whole’ is at fault. That’s nearly six million voters nationally.

That doesn’t mean they’re all about to rush into the Left’s arms – blaming the ‘economic system as a whole’ is open to wide interpretation, left or right. But it does mean that an extraordinarily large number of people are open to the sort of system-wide critique an organised, effective Left can provide.

Peering into the gloom

Alex Callinicos has provided a brief summary of the state of the world economy, as revealed in recent statistics:

The National Institute for Economic and Social Research (NIESR) released its estimate for Britain’s Gross Domestic Product (GDP). It noted, “GDP fell by 4.8 percent in 2009. This is a bigger fall than in any year of the Great Depression and is Britain’s biggest contraction since 1921…

“The broader picture of the depression is that output fell sharply for 12 months until March and has not changed very much since then, although evidence of a recovery is starting to emerge.”

In other words, the British economy shrank more last year than it did in any one year of the Great Depression of the 1930s.

Callinicos also notes, however, that the future courses of the British and world economies are ‘shrouded in obscurity’.

He’s right to point out the uncertainties. What has happened in the recent past is, by itself, no guide to the future – as Gordon ‘no return to boom and bust’ Brown has discovered. The red faces in the economics mainstream tell their own story.

Nonetheless, stepping back from the statistical picture, it is possible to discern some shapes.

The most obvious is the pressure on the British economy from the vast costs of bailing out the financial system. Any attempt to substantially repay this borrowing within either the four years that Alastair Darling has offered, or the shorter timescale favoured by the Tories, will drag down the rest of the economy.

It represents a huge transfer from those spending money – either us as taxpayers, or the government through services – to those who save money: from those keeping the economy moving, to those hoarding cash.

Both the main parties are committed to repayment, squeezing workers and public services to please the financial markets. But repaying the debt does not necessarily benefit British capitalism in general. Other sections of capital need a robust domestic market to sell their products to – especially if markets overseas remain depressed, and competitive. Most UK companies do not export. If their domestic market is squashed by rising taxes or public spending cuts, they are in trouble.

So whilst all sections of British capital have a belief in the general necessity of keeping the financial markets sweet, the rate at which that debt should be repaid is a different matter.

Too fast, and domestic demand is squashed. Too slow, and the financial markets get jumpy. No-one can know for sure the best rate. And the different sections of British capital all have their own idea.

As the crisis revealed, no major part of British capitalism is prepared to countenance radical steps to overcome this dilemma – Adair Turner’s remarks notwithstanding. When the City of London was on its knees, the priority on all sides was to help it to its feet, through bailouts. No effort was made to seize the economic reins from the City.

Because the banks and the financial institutions were bailed out, and because there has been no real international agreement on how to discipline them in the future, they are liable to behave in exactly the same way as before: taking risks that could undermine the whole economy.

Combine this with the uncertain rate of debt repayment, and you have the potential for major instability. That’s even before considering the potential for resistance to major cuts. Whichever government is in place could run into a brick wall of opposition.

There is a way out of this bind. But it would mean posing a serious economic alternative to the domination of the City. It would mean building a movement able to do this.

They think it’s all over

Well, it isn’t.

First, the numbers don’t support it. Behind a certain amount of excitable flapping and squawking over a few decentish headline stock prices, much of the underlying data is grim: unemployment here continuing to rise, foreclosures in the US and late UK mortgage payments still rising, and wage settlements grinding to a halt.

All these matter hugely for both economies, since – with credit lines still jammed – they’ll directly affect consumption. And with consumption spending driving 80 per cent of US demand growth during the boom years[*], that’s a big blow to growth across the whole economy.

Coupled with the immense pressure now being exerted on government spending as a result of the bailouts, and it should be clear that future prospects for capitalism in its neoliberal heartlands remain somewhat shaky. The trillions now sloshing around the financial institutions may, eventually, trickle into the rest of the economy, stimulating a boom. But the underlying weaknesses remain.

That’s the real story here. The numbers are only part of it – and, really, only a fairly small part. The truth of the last 18 months or so is that the entire existing economic order, “neoliberalism”, the economic rules of the game we’ve lived under for twenty or more years now, suffered a massive seizure. But instead of changing that order, even in capital’s own terms, rejigging the institutions, rewriting the rules, doing everything just a little bit differently – we’ve placed the sickly patient on a drip.

That’s the meaning of the bank profits and the bonuses. Zombie neoliberalism is still with us, lumbering on as if nothing had happened. Yet it is far weaker than previously: without a purge of the banks and the financial institutions, killing off the insolvent and the incompetent, there is no reason whatsoever for any of them to reform. And without reforms, they will expose capitalism to the same illnesses it contracted last time: contagion, the spread of financial plague from economy to economy, and systemic risk.

But of course, the banks and the institutions couldn’t be allowed to collapse, whatever Mervyn King may have wished. They were peering into the abyss after Lehman Brothers collapsed. The grim prospect of an almighty domino effect loomed, with the ties between collapsing banks pulling more and more of the economy down behind them.

So the bailouts. The patient is hardly cured; more drugged to the eyeballs, and weakened.

[*] figure from Glynn (2004), Capitalism Unleashed, p.53

A Very British self-pity

Chris Mullin, MP for Sunderland South, author of A Very British Coup, writing in the London Review of Books, myopically unable to conceive any (Labour) MP had done anything much wrong in the expenses scandal:

The damage is incalculable. Not just to us, but to the entire parliamentary system. We are sinking in a great swamp of derision and loathing. No matter that the guardians of public morality at the Telegraph appear to have paid a large – and so far undisclosed – sum of money for discs that seem to have been stolen, open season has been declared on we wretched, despised servants of the people.

Self-pitying whinging aside, the sheer blinkeredness of Mullin – and close to every other MP asked to comment on the issue – reminds me of the standard Labour Party reaction to the Iraq protests.

Opposition to the war on Iraq, we were told, was just a problem of communication on this one issue; that voters were otherwise happy; that the Parliamentary system was fundamentally sound. New Labour loyalists either could not or would not grasp that the ferocity of the opposition to the invasion was the bubbling to the surface of many, other, much deeper-rooted discontents: with Labour’s steady abandonment of its core support; with the ill-concealed contempt Westminster held for opinions in the rest of the country; and with the casual, blase attitude to the truth Blair and Campbell evinced, in particular. All these separate complaints and irritations fuelled the anger. Underneath it all was a withering of political legitimacy in this country – as noted by the unjustly (if predictably) ignored Power Inquiry.

That withering has become a near-collapse, in the wake of economic crisis. Scarcely an institution exists  that has not been damaged in the last eight months: the police, the City of London, Parliament, the Treasury: either directly, or indirectly, the economic crisis has had extraordinary political effects.

(The last of the above, for many reasons, interests me especially: from secretly running the country under Brown, the Treasury  has been pushed into a  position of  what must be almost unprecedented weakness – certainly nothing like this has been seen since the war. Take Mervyn King’s continued insubordination, for example, unthinkable even a few years ago, “independent” central bank or not; whilst Darling and his mandarins have been wholly unable to prevent Mandelson creating a new super-department overseeing key economic functions.)

Save the tossers

Potlatch has a financial haiku…

Banks began to sink

So we bankrupted the state

To save the tossers

…that I rather liked. Pinteresque.