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International Socialism, October 1977


Notes of the Month


What Oil Boom?


From International Socialism (1st series), No.102, October 1977, p.4.
Transcribed & marked up by Einde O’Callaghan for ETOL.


If one were to believe the Labour government, a British economic miracle is in progress. Callaghan has compared himself to a Moses pointing to the Promised land. Healey attended the IMF not as a penitent debtor, but to bask in the praise of the Fund's managing director, Witteveen.

According to the government, the principal factor in this miracle is the effect of North Sea oil. Already the balance of payments has shifted in surplus as a result of the fall in oil imports which have been replaced by British oil. The surplus has helped to stimulate a rising pound and a stock market boom.

But this 'revival' has not affected production. Industrial output fell in July to a level lower than that reached during the three-day week in early 1974. One industrialist was quoted as saying of the rise in share prices, “they are playing with Monopoly money.” (Sunday Times 18 September 1977)

More seriously still, there is no prospect of any recovery in the world economy in the near future. The two miracle economies of the post-war boom, Germany and Japan, are sluggish, and the reflation packages adopted almost simultaneously by both governments are unlikely to change matters radically. US industrial output fell in August (Financial Times September 19 1977). The secretary-general of the Organisation for Economic Co-operation and Development recently announced that

“it will be necessary to revise downwards our earlier forecast of 4-4½ per cent growth in the OECD area from mid-1977 to mid-1978. In Western Europe the new forecasts seem likely to yield a growth rate significantly lower than that needed to raise capacity utilisation and reduce unemployment.” (ibid., September 26 1977)


As for North Sea oil, there is a quiet debate going on in the columns of various newspapers like the Financial Times and the Guardian concerning ways to prevent it ruining the British economy! On one recent prediction, based on the Treasury's own forecasting model,

“... unemployment could rise to 2-2.5 million. Strangely enough, North Sea oil would be largely to blame ... Manufacturing exports would show no increase from now on. Private investment would collapse.” (Euromoney quoted in Financial Times September 8 1977)

North Sea oil, on this prognosis, will undermine the competitiveness of British capital. The exchange rate of sterling with other currencies will continue to rise thanks to the effect of the oil on the balance of payments. As a result, the prices of British exports will rise in comparison with the prices of foreign competitors. Fewer British goods will be sold abroad and the country's industrial base will be undermined even further.

A more fundamental danger is suggested by Samuel Brittan in the Financial Times. He argues that if all the oil money were invested in British industry there would not be enough profitable projects to go round:

“The most profitable domestic capital investment was already being undertaken before North Sea oil arrived. Companies give top priority to the projects with the best payoff prospects and move down the list as more resources become available. In the case of North Sea oil, we are talking about a really large increase in resources, equivalent to more than the whole of existing manufacturing investment. An attempt to invest all the gain n the UK would mean putting resources into less and less profitable projects and ultimately investing at a negative rate of return.” (September 15 1977)

This analysis could have taken from a textbook of Marxist economics. It shows that the present crisis is one of overproduction of capital. In other words, there is no shortage of resources – money, raw materials, machinery, workers – but they cannot be employed profitably and so they are not employed at all. Investing North Sea oil in the production of wealth in Britain would simply make things worse by vastly increasing the amount of capital seeking profitable employment. Or, as Marx put it,

“... not too much wealth is produced. But at times too much wealth is produced in its capitalistic, self-contradictory forms.” (Capital Volume III p. 258)

Brittan concludes by arguing that the oil money should be invested overseas!

British capital is still facing a chronic crisis of profitability. Despite a considerable rise in profits last year, financed by a massive fall in real wages, the real rate of return on capital was only 3½ per cent, less than half the rate of return in 1970, the low point of the previous economic cycle (Financial Times September 16 1976). North Sea oil will not solve that crisis of profitability, even though it may cushion British capital from some of its effects. It can only be solved on the backs of the working class, by a drastic increase in the rate of surplus-value. Attacks on working-class living standards will continue, North Sea oil or no North Sea oil.

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