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Andrew Glyn

Economic Recovery:

‘Now You See It, Now You Don’t’

(July 1982)

From Militant, No. 611, 23 July 1982.
Transcribed by Iain Dalton.
Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

Priests, and others who owe their place in society to alleged miraculous powers, usually play safe.

They either pray for something which will happen anyway, like the sun rising, or which cannot easily be checked on, like God’s grace. In this respect, Howe, Brittan, and the other Tory economists have given hostages to fortune with their repeated predictions that a “recovery” in the economy is just ahead.

Recoveries do not just happen anyway, despite Tory belief in the miraculous recuperative powers of the free market. And it is extremely difficult to persuade people that the economy is moving on ahead as the dole queues grow. But has the economic trauma to which industry has been subjected prepared the economy for better things ahead?

Massive decline in profits

Between 1971 and 1981 total output of goods and services fell by 5½%, slightly more than in the Great Depression of the early ’30s. Whilst the service sectors were relatively unaffected, manufacturing industry was ferociously squeezed.

The government’s high interest rate policy attracted a flood of ‘hot money’ which helped push the value of the pound up against other currencies. Between 1979 and early 1981, UK manufacturers suffered an unprecedented decline in competitiveness.

Their exports fell in volume by about 8%. Then in 1981 increases in taxation and cuts in public spending had their maximum effect, taking a further 3% out of the economy.

The overall effect was a squeeze on profits. The Bank of England reports that in the first half of 1981 the rate of profit of industrial and commercial companies had fallen 2¼% from 5¼% in 1979. This was much the lowest level ever recorded.

The combination of profit and credit squeeze led manufacturers to cut their labour force and slash production. Instead of producing as much as they were selling, they massively ran down their stocks of goods.

During 1980 and early 1981, industrial production fell by 15%. Industrial employment continued falling throughout 1981 although production stabilised. By the first quarter of 1982 employment in industry was nearly 18% below the level of 1979 when the Tory government was elected.

The torrent of redundancies has undoubtedly forced workers into accepting some deterioration in wages and conditions. Until the end of 1980 earnings rose faster than price increases, so that workers were about 5% better off than when the government was elected.

But during 1981 and the first months of 1982 all this was lost as wages rose by about 5% less than tax and price increases; many workers in the manufacturing sector suffered bigger cuts than this and of course these made the unemployed bear the worst brunt.

Just as important from the employers’ point of view productivity in manufacturing industry rose by about 8½% in 1981. This was quite unprecedented in a recession year.

Firms were concentrating production onto their plants and piling the pressure on workers in those plants to increase output by faster and more flexible working methods. The most spectacular example was in the steel industry where productivity rose 34% in 1981; in motors the rise was 14% (see the article on BL in Militant, April 23rd), in electrical engineering 12% and in chemicals 10%.

Whilst most of the increase in productivity in 1981 reflected this process of rationalisation and labour intensification, some part was due to the introduction of labour-saving investment. Admittedly, between 1979 and the beginning of 1981 manufacturing investment fell by 22%, but this fall was less than might have been expected given the slide in production, high interest rates and very low profitability.

No return to ’60s growth

Surveys report that virtually all new investment is directed towards cutting costs rather than expanding capacity. In the service sectors, like retailing and finance, investment has actually increased steadily since 1979, again pointing efforts to cut costs (and employment) with new technology.

It should not be concluded from this that the competitiveness of UK industry has been transformed. In most industries the productivity rise in 1981 only made up for the decline in 1980.

In motors, for example, productivity was a little lower at the end of 1981 than when the Tory government was elected, and for manufacturing industry as a whole, the productivity increase was only 2% a year. This is about the same as that achieved in France and Germany, but only about half as fast as in Italy and Japan.

The rapid increase of productivity of the past year would have to continue for a number of years to make a major impact on the huge backlog of low productivity accumulated over the past twenty years. But the Bank of England believes productivity growth has slowed down to 4% a year.

An enormous investment drive would be required to sustain a major increase in productivity. But for the crucial manufacturing sector only a slight rise in investment is expected this year and next, which will not even bring it back to the level of 1979, let alone 1970.

The Economist (1 May, 1982) pointed out “The Thatcher strategy depends upon boosting profits – not just marginally and temporarily, as happened in the Heath boom in 1972–3, but massively and permanently.” Profits did increase by nearly one half in the second half of 1981; but only to 3¼% of capital employed.

There is no possibility that pressure on workers will allow the employers to get back to the profit rates of 10% or so which were made in the sixties. Without such a radical improvement in competitiveness there is no prospect of basing an expansion on an export boom.

In the last two years the UK share of export markets has declined from 10.4% to 8.3%, and even if world trade picks up next year it is most unlikely to grow even half as much as in the sixties. So investment and exports will hardly rise.

The government is committed to keep its expenditure down. Workers managed to keep their spending level last year and this by cutting down their savings, but there is no possibility of a ‘consumer-led’ boom with employment declining and living standards slipping.

No wonder the Financial Times reports (5 July 1982) that on average the economic forecasters expect 1% growth this year. Their forecast of 2% for next year looks distinctly optimistic, hoping like Mr Micawber, that something (the economy in this case) will turn up to improve the situation.

Even this growth would see unemployment continue to rise during 1983. The pessimistic, and therefore usually accurate, Cambridge Economic Policy Group predicts a further rise in unemployment of half a million by the end of 1983.

The latest CBI survey shows firms even gloomier about production than in recent months. Sam Brittan commented (Financial Times 5 July) “a fresh wave of destocking and manpower reductions may be occurring – not on the scale of 1980–81, but enough to turn modest recovery into a renewed unemployment crisis.” Not many people even noticed Sam Brittan’s last “modest recovery”; you have to be a real believer to expect another, less elusive, one.

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