Sic Transit Gloria Mundi
The collapse of the economy of British imperialism is one of the most dramatic events in the history of the world. In the year 1900 Britain produced over 15% of the entire industrial output of the world. It produced over 20% of all coal, pig iron, steel and cotton. Over 20% of all world trade was in British goods. The British Empire was the greatest the world had ever seen. Lord Curzon could rest assured as Viceroy of India that if trouble were brewing anywhere in the world then the British navy, maintained at a two to one superiority to any other navy, would swiftly put an end to it. Even this was a slight decline from the position of total domination that Britain achieved earlier in the nineteenth century. Both Germany and the United States had passed Britain in the production of steel by the early 1890s, and as early as the 1870s Britain's share in steam power had fallen to less than a quarter. Nevertheless, the late Victorians, basking in their Imperial glory, could never have imagined even in their wildest dreams that within one life span Britain would have become the 'sick man of Europe', its industrial supremacy shattered, and having to beg on the most humiliating terms to enter an economic Cartel of 'Continentals'. This unprecidented collapse has, of course, had tremendous effects on the political life of Britain, these effects continue to increase in intensity and can only find a violent outcome.
The first revelation of the precarious position of British Imperialism came with the First World War. Comparing the pre-war period to 1929, we find that the volume of imports had risen by 20% and the volume of exports had fallen by 20%. British exports had fallen from 13.11% of the world's total in 1913 to 11% in 1927-29.(1) Although the United States had greatly increased its share of world trade, Britain's recovery was still slower than the rest of Europe. In 1927 the value of Europe's exports was 45% higher than in 1913, but Britain's exports were only 35% higher.(2) In fact, in real terms Britain's export trade had declined. Britain was selling less, compared to pre-war, than any other country. Britain was only saved from extreme problems then by a movement in the terms of trade of 14% in her favour. (This of course being largely at the expense of the suppliers of raw materials, ice. her colonies. Trotsky was absolutely right when he wrote that 'The 'peaceful' English and French democracies rest on the suppression of national - democratic movements of hundreds of millions in Asia and Africa for the sake of the super profits derived from them').
During the decade before the 2nd World War, Britain was helped by another move of 19 points of the terms of trade in her favour. However, despite this, her trading position still deteriorated rapidly. Taking 1927 as index number 100, by 1937 the value of British imports had fallen to 84.4, but the value of exports had fallen to 71.7. Not until 1935 did a real surplus on the Balance of Payments reappear after the collapse into defecit in the early 30s. Mowatt summarises the situation as follows:
'Danger signals were ... there for those who would read them: the export of gold, and the decline in new overseas capital issues, which was all the greater if the sums coming in as repayment of past loans and investments were placed alongside... More than ever the country was living off its fat.(3)
It was the disparity between the enormous Empire of Britain and its relative economic weakness that was one of the contributory features leading to the Second World War. As Trotsky put it:
'The flagrant and ever-growing disproportion between the specific weight of France and England ... in world economy, and the collosal dimension of their colonial possessions are as much the source of world conflicts and of new wars as the insatiable greed of the 'fascist' aggressors ... A new partition of the world is on the order of the day.'(4)
But of course given the specific weights of the countries involved, neither France, Germany, Japan, Britain or Italy could emerge as the victors. Instead '... the United States is heading towards an imperialist explosion such as the world has never seen.'(5)
Economically, the war smashed the Western European economies. By 1945 they were in a state of almost total ruin. American imperialism could have finished off its competitors for good. Unfortunately for it however, two states had emerged victorious from the holocaust. The Soviet Union was a more dangerous rival in an economic, and above all, in a political sense, than any possible rival imperialism. In this struggle the U.S. required allies. It began to revitalise the shattered European economies. In addition, the rearmament boom directed against the Soviet Union created the conditions for a boom that was later reinforced and deepened by the increased use of technological innovation. Stalin having kept his side of the Yalta bargain, and prevented the French and Italian C.P.s from seizing power, was now to find the economies of these states, and that of Britain, were built up to be used against the USSR. The theory of 'socialism in one country' had shown yet again that it was incapable of defending the USSR. As far as Britain was concerned, however, the immediate post war period was to be a fool's paradise followed by a long drawn out nightmare.
The roots of the boom
The initial conditions for the post war boom in capitalism were created by the conjuncture of a high rate of profit and conditions for the realisation of that high rate of profit in terms of a steadily growing market. This made possible high rates of capital accumulation and a period of rapid technological change. More specifically, we can identify the following factors as underlying the period of capitalist expansion.
1. The defeat of the German, Italian, Japanese, and French working classes produced an upward shift in the rate of surplus and, in consequence, a high rate of profit. The defeats of these imperialisms in the war, and the betrayals of Stalinism after the war, enabled this high rate of surplus value to be maintained. In the long term, it was made possible by a massive restructuring of the reserve army of labour through an expanding labour population and the gradual absorption of an expanding rural surplus population (and in the case of Germany by the existence of more than 10 million refugees).
2. The need to rebuild materially destroyed towns and industries.
3. An enormous potential for profit created by the furious arming of imperialism throughout the late 1940s, 50s and 60s. This, together with the other features mentioned, both created the conditions for the introduction of technological innovations discovered at an earlier period, and itself stimulated a series of technological innovations.
4. A decline in the price of raw materials.
These features are obviously interrelated and by no means exhaust the features of the capitalist boom (see Ernest Mandel's paper to the Tilbury Conference: 'History of Capitalism and the Laws of Motion of Capitalism' - to be published).
The nature of capitalist change
The conditions creating the post war boom were complex and the existence of the boom itself came as a great shock even to a number, or indeed the great majority, of Marxists. However, nothing that has occurred defies explanation in terms of a Marxist analysis of the economy. Marx's analysis of capitalism did not lead to the conclusion that it was only possible for capitalism to develop in one direction - for example, towards ever increasing slumps. On the contrary, the fundamental formulae of 'Capital' are algebraic, that is to say, they express relationships and not directions of change. It is, in fact, impossible for capitalism simply to develop in one direction only. For example, with relation to the question of slump, Marx noted that:
'The periodic depreciation of existing capital - one of the means imminent in the capitalist mode of production to check the fall of the rate of profit and hasten accumulations of capital - value through formation of new capital - disturbs the given conditions, within which the process of circulation and reproduction of capital takes place, and is therefore accompanied by sudden stoppages and crises in the production process ... The ensuing stagnation of production would have prepared - within capitalist limits - a subsequent expansion of production. (6)
What however determines the change in the capitalist system or any other economic system, including most fundamentally of all its capacity for expansion, is its basic structural features. Or, as Marx puts it:
'... capitalist production meets in the development of its productive forces a barrier which has nothing to do with the production of wealth as such; and this peculiar barrier testifies to the limitations and to the merely historical, transitory character of the capitalist mode of production: testifies that for the production of wealth, it is not an absolute mode, moreover, that a certain stage it rather conflicts with its further development.'
and that:
'Capitalist production seeks continually to overcome these imminent barriers, but overcomes them only by means which again place these barriers in its way and on a more formidable scale. The real barrier of capitalist production is capital itself, (7)
Marx's critique of capitalism in fact consists of showing not that capitalism must proceed along only one path, but that regardless of its line of development, the system could not survive. (Which is not to say, of course, that Marx did not regard some lines of development as much more likely than others).
Because Marx saw many possibilities of lines of development of capitalism, and in fact noted that contradictory tendencies were at work to determine its development, it is wrong in principle to attempt to argue for example that Marx is contradicting himself when he simultaneously talks about the grinding down of the proletariat, the raising of its cultural level, its atomisation, its concentration in large numbers, its relative emiseration, its absolute emiseration, its increasing its share in the total product, etc. All these are different aspects of the same process. The task of analysis is not to attempt to see these elements as mutually exclusive, but to see the relation between the different processes, and from this to derive the law of motion of the system over different periods of time. An example of the type of contradictory processes involved is illustrated in the following passage from the Grundrisse:
'... although every capitalist demands that his workers should save, he means only his own workers, because they relate to him as workers; and by no means does this apply to the remainder of the workers, because these relate to him as consumers. In spite of all the pious talk of frugality he therefore searches for all possible ways of stimulating them to consume , by making his commodities more attractive, by filling their ears with babble about new needs.'(8)
Here Marx gives a clear example of the contradictory development of the capitalist system.
If Marx's formulae (as opposed to his total analysis which does delimit the laws of development with great precision) do not express the general tendency of development, they do state very exactly the effects of change in one part of the system on the rest of the system. Consider for example the most basic equation of Capital (most basic in that it defines the relations of all the basic elements of economic analysis), that for the rate of profit me e+ V.
Here clearly, if the organic composition of capital rises, then unless the rate of exploitation rises in proportion, the rate of profit will fall. As the rate of profit (absolute and relative) is the determinant of investment, the change in the rate of profit affects the entire system, including of course the organic composition of capital. All of the elements in the equation are determined by a complex of (contradictory) relations. Some of these are very directly related to the overt class struggle - to raise the rate of exploitation for example can be done by simple wage cutting (although it can also be done more subtly by 'improved' job planning, rearrangement of work, etc.). Other determinants have a relative autonomy from the overt class struggle.
One of the most important of these is the cheapening of the elements of constant capital by technological change.
It is a characteristic of capitalism that it continually increases the mass of machinery and other forms of capital set in motion by the worker. This does not necessarily mean that the value set in motion increases. If it does mean this then certain unpleasant consequences for the capitalist follow. The most important of these is that unless the rate of exploitation can be raised then profits will decline. To raise the rate of exploitation is however, as we have noted, an action which typically involves overt class struggle. It is particularly difficult therefore in countries where the proletariat is able to organise. For this reason (a) the rate of exploitation tends to be higher in countries where the economy, and therefore usually the organisations of the proletariat, are not well developed(9), (b) in countries with a developed and organised proletariat, the working class usually maintains or even increases its share of the economic product(10). For this reason increased exploitation is difficult and politically risky. A more satisfactory solution is therefore to increase the mass of capital without increasing its value. This is the process described by Marx as 'cheapening the constant elements of capital,' and is known to bourgeois economists as 'capital saving technological change.' This process is one which prevents falls in the rate of profit by maintaining the organic composition of capital at a constant level. It is a Process which appears to have caused a relative stabilisation in the organic composition of capital since at least 1945.(11) This is not to say that there has not been a fall in the rate of profit, but this has been largely due to the combativity of the working class and not to change in the organic composition of capital - see Sutcliffe & Glyn op.cit.
The problem for capitalism in this type of solution is that it requires an unprecedentedly high level of investment in order to sustain the change necessary. The system therefore works best in harness with other methods of keeping up the rate of profit (arms expenditure, government intervention, monopoly control of the market).(12)
This latter point is of key significance when the Marxist theory of the rate of profit is considered. It is generally thought that Marx identified as one of the crucial contradictions of capitalism a tendency for the rate of profit to fall. This is however only partially correct. What Marx in fact identified was a contradiction between an increasing mass of profit and a declining rate of profit. This is outlined in many places in the sections of the third volume of 'Capital' devoted to the declining rate of profit. Thus, for example, Marx writes that:
'the same causes that bring about a tendency for the general rate of profit to fall necessitate an accelerated accumulation of capital and, consequently, an increase in the absolute magnitude, or total mass, of the surplus-labour (surplus value, profit) appropriated by it.',
and concerning capitalism's tendency to decrease the amount of socially necessary labour time involved in producing any commodity, he writes that:
'The fall in the commodity-prices and the rise in the mass of profit on the augmented mass of these cheapened commodities is, in fact, but another expression for the law of the falling rate of profit attended by a simultaneously increasing mass of profit.'
What has occurred since the war is that the mass of profit has grown remorselessly, but the rate of profit has not declined in the way it has done in previous periods of capitalist expansion, (or more accurately, it has not declined to the same extent because it has declined for different reasons!). What has occurred however, is that the increased mass of profit actually becomes a threat to the stability of the system if profitable outlets cannot be found for it. A general decline in the rate of profit decreases the number of such profitable outlets, and in this situation the enormous increase in the mass of profit becomes one of the main elements undermining the possibility of capitalist expansion.
Changes in the position of British imperialism since 1945
The features of the boom just discussed have been common to all imperialist states. They are dialectically both a product and a cause of the political passivity of the working class. In Britain however the effects of the boom were determined by the specific peculiarities of Britain's economic history.
As a major economic power, British imperialism was, in an historical sense, smashed by World War II. Immediately after 1945 however it was revived by the needs of U.S. capitalism and by changes in the patterns of trade. In 1945-46 the Anglo-American and Anglo-Canadian Financial Agreements provided U.K. with long term loans of 3.75 billion dollars and 1.25 billion dollars respectively at rates of interest of only 2%. This helped the period of rebuilding British capitalism, but probably not as much as did the virtual extermination of the fastest growing rival imperialisms - Germany and Japan. Their share of world trade fell to less than half its pre-war value. In this situation Britain's share of 'world' exports of manufactures rose slightly. From 21.3% to 25.4% according to one estimate.(13) But despite a movement in the terms of trade of 19 points in Britain's favour in the period 1950-60 (taking 1938 as index number 100)(14), it soon became apparent that this was a purely short term improvement in Britain's position. Even the terms of trade advantage began to slow down by the 1960s. Between 1960 and the middle of 1968, although the terms of trade on goods improved by slightly less than 3% the deterioration on services was approximately 15%.(15) Even by the beginning of the 1950s it was obvious that British imperialism was undergoing a rapid decline.
The most obvious change is the decline of British imperialism relative to its 1900-60 competitors. This is reflected most obviously in its declining share in world trade. In 1955, the British share of exports of manufactures from the twelve main exporting nations was 19.8%. By 1967 it had fallen to 11.9%. This fall had been largely due to the continuation of the process at work before the war, i.e. the development of German and Japanese capitalism. In the same period, West Germany's share of this trade increased from 15.5% to 10.7%, and that of Japan rose from 5.1% to 9.9%.(16) From the late 1950s onwards, this process began to reveal itself in a fundamental disequilibrium in the Balance of Payments. The moving average in million of the balance of exports and imports was from 1955-57 to 1963-65 -96, +19, -38, -163, -223, -217, -109, -237, -296.(17)
What the changes in the position as regards foreign trade and payments indicates was the removal of the conjunctural factors which during the 1950s had hidden the decay of British capitalism. This decay was speeded up by a number of features, notably that the British working class suffered no major defeat during the 1950s which was comparable to, for example, De Gaulle's accession to power in France. This relative strength of the working class was reflected in a relatively low rate of surplus value when compared to competitors.
There was not the same need to rebuild afresh the British economy after war destruction, and so the archaic structure of British industry was not radically overhauled and the process of technological innovation, particularly in key industries such as steel - was not undertaken sufficiently early, if at all. Given these underlying features, the slow rate of growth of British industry generated its own 'Vicious circle' - low rates of capital accumulation and productivity growth meant that rising money wages cut deeply into profits or were reflected in higher prices that would price Britain out of world markets. Furthermore, the resultant uncompetitive nature of British industry led to periodic bouts of deflation as the government sought to restore balance of payments equilibrium, which further discouraged a high investment rate.
These features, and particularly the latter, reveal them in all indices of the performance of British imperialism. Taking the rise in gross national product over the period 1950-60, Britain's average increase was 2.6% compared to 3.2% in the United States, 4.4% in France, 5.9% in Italy, and 7.6% in West Germany.(19) The situation is the same in the perhaps more crucial figure of productivity per head. Over the period just dealt with, output per worker went up by 1.9% in Britain, 2.1% in the United States, 3.8% in France, 4.1% in Italy and 5.3% in West Germany.( ) The situation since 1960 shows little real change. Output per worker in the period 1960-68 was up just over 20% in Britain, whereas in Germany it was up by over 60% and in Japan by over 100%.(20)
Partly as a result of these changes and partly leading to them has been the effect of the policies dictated to British capitalist governments (as noted in point 3 above). Take, for example, the case of unemployment. This has a real effect on making worse Britain's competitive position (although its uncompetitiveness also makes it adopt it). The average unemployment for the post war cycles has been rising steadily. For 51-55 it was 1.5%, for 55-61 it was 1.6%, for 61-65 it was 1.8%. The peaks have also been increasing; 2% in 1952, 2.2% in 1959, 2.5% in 1963.(21) In terms of lost production, this is disastrous. This is difficult to calculate but M.C. Kennedy gives the example of the second quarter 1963 to second quarter 1964. Unemployment went down by 0.8% and Gross Domestic Product went up by 6%.
This shows the losses in terms of lost production. Perhaps even worse is the loss in productivity involved. This clearly went up more rapidly in periods of full employment than in unemployment (consider period 1956-67). For example in 1963-64 productivity went up by 4.7%, while in 1960-61 it only increased by 0.3%. If you consider the peaks, only in 59-60, 60-61, 62-63, 63-64 (all years of boom) did productivity go up by more than 3%. in 56 57, 57-58, 60-61, 61-62, all years of high unemployment, it went up by less than 1%.22) Of course some of this change simply reflects increased utilisation and plant, but to the extent that unemployment reflects changes in demand and therefore effects investment decisions, it can be seen that this necessity to periodically 'freeze' the economy will effect productivity due to this feature as well. Certainly the long term failure of productivity to grow at a commensurate rate with imperialist rivals cannot be explained in terms of changes in capital utilisation. The situation here is as follows:
Average annual rates of growth of productivity in manufacturing.(23)
1950-70 1965-70*
Belgium 3.84 5.68
France 5.64 7.84
Germany 4.72 6.28
Italy 6.88 4.78 (6.43)**
Netherlands 5.0 7.76
USA 3.16 1.56
UK 2.6 3.44
* The latest observation is mostly first quarter, 1970.
** 1965, first quarter to 1969, second quarter.
By the mid 1960's the conjunctural factors which had disguised the decline of the British economy had virtually disappeared. Also the possibilities of solving the crisis of foreign payments and trade by short term borrowing were becoming exhausted—the various exchange crisis of the Wilson government revealed this only too clearly. From then on the British bourgeoisie developed a strategy based on:-
1. A rapid process of horizontal mergers.
2. a) Experiments with Incomes Policy to deal at the national level with the workers' movement.
b) Donovan, In Place of Strife, productivity bargaining to deal at the local level with what Donovan termed 'the lower half of the dual industrial relations system' and cut away the power of a strongly entrenched shop stewards' movement. This tendency, has, of course, reached its furthest limit in the Industrial Relations Bill.
3. Devaluation.
4. Deflation and an increase in the level of unemployment, a) to restrict the demand for imports and 'set free' resources for import substitution and exports, b) to cut back the rate of increase of wage rates.
The Genesis of the Present Economic Situation.
As a result of the various measures mentioned above, the Balance of Payments went into surplus in 1969 and has remained in surplus since then. However, as we shall see later the actual nature of this surplus has changed radically. It is now mainly due to rapid rises in export prices and the slow growth in import prices which reflect a rapid decline in Britain's competitiveness. In 1969 and 1970 it was mainly due to increased competitiveness on world markets consequent upon devaluation and a rapid growth in world trade. Needless to say the present situation is very unstable (see below). The chief economic problem for the British bourgeoisie is still a very low rate of surplus value. This situation was intensified from mid 1969 by a rapid escalation of militancy on the part of the working-class. This was partly due to the very slow rise in real disposable incomes up to 1969, a factor of rising import prices, increased indirect taxes and monetary and fiscal restraint. Thus although average earnings increased at a rate of just over 3% in 1967, 8% in 1968 and just under 8% in 1969, personal disposable incomes rose by about 1%% in 1967, 1%% in 1968 and only about 4%. The massive increase in militancy that followed and which pushed up the wage costs of employers phenomenally nevertheless increased personal disposable incomes by only about 4% in 1970. The other factor in the so called 'wage explosion' was the subjective effect on the militants following from the governments withdrawal of 'In Place of Strife' in 1969. (24)
The strike wave and militancy has been across the board and in most industries. 'The broad picture that emerges is of a widely based increase in Strike action across most industries, the main characteristic being more strikes, not normally involving many more workers but lasting longer than in previous years. More specifically, many industries which have previously avoided major strikes over the last decade have all in the same year been faced with just such a strike. This tendency has not been counteracted by a reversal of the recent trend in lost days in the most traditionally strike prone industries.' (25).
The Present Economic Situation and the Economic Prospects for 1971-72
Wages: The rapid rise in wages is still the dominant feature of the economic landscape. The situation is changing from day to day but as at the end of April the rate of pay settlement in the UK were levelling out but not falling.
'The latest data on pay settlements are believed to show the rate of wage awards has levelled out in recent months around 10%4% to 11%. These figures refer to nationally negotiated weekly pay rates weighted for the time which has elapsed since the last increase. And the 2% has to be added to the figures to take account of wages drift'—i.e. about a 12% to 13% increase (Financial Times April 28). Since prices are rocketing up this does not totally come out of profit, but from the bourgeoisie's point of view this is a long way from satisfactory.
a) Because wages are going up too rapidly to allow them to reconstitute profit rates from their catastrophically low levels. b) Because the rapid increase in prices that is leading to declining competitiveness on world markets is being perpetuated.
It should always be kept in mind what was mentioned earlier that Britain has had a lower investment rate than her competitors and this partially reflects a lower share of profits in the national income than is the case in other imperialist countries. Thus the present situation has to be seen in the light of the long run need of the bourgeoisie not only to stop so called 'wage inflation', but to put it into reverse and increase the share of profit in the national income.
Share of profit as a % of value added by the company sector:-
1950-54 55-59 60-64 64 65 66 67 68 69
OS 2a, Jee akU 21-2. = 20.2 17.7 18.1 16.8 14.2
Post tax rate of profit:- (26)
8.1 8.4 43 7A 7.9 5.8 6.0 4.8 3.2
Although there has been some success in the public sector in bringing down wage rates, nevertheless the private corporate sector is undoubtedly 'letting the side down'. Additional measures to deal with the situation in the private sector are therefore likely. Amongst the 'solutions' being canvassed are a wage freeze and an 'excess wage settlements tax'.
If a wage freeze were introduced it could not be the sole measure used by the bourgeoisie. As one class conscious representative of the capitalist class has noted, 'It is a policy for a decade that we seek, rather than for a month or a year.' (27). More likely than a straight freeze (though this cannot be ruled out) would be a 'threshold' scheme which would not allow wages to rise more rapidly than prices. Then all increases in productivity would be reflected in a declining rate of increase of prices and/or in increased profit margins.
There appear to be two main schemes being canvassed for an 'excess wage settlements tax' (28). One, favoured by the 'Economist' and its acolytes, recommends a tax directly against employees. All wage increases above a certain level (say 6%) would be taken back by the state in increased National Insurance Contributions. There would thus be no point in trying to get more than the 6%. The political implications of that sort of measure are, of course, quite glaring. The other version is as a tax on employers who give 'Excess Wage Settlements' this would give them an added incentive to stand and fight.
On April 13 the Financial Times reported 'This was examined by the Treasury but discarded on the ground that it would be almost impossible to administer fairly and effectively'. (This article written by John Bowne, reports that the Government intends to press on with its present policy but if this policy does not work, 'Ministers will have to recognize that they are clutching at straws and then undertake a major review of their whole policy.' Such a major review must now be round the corner.)
The problem with an 'Excess Wages Settlements Tax' whatever its form (against employers or against employees) is that it would lack flexibility. The CBI opposed Incomes Policy because in some industries at least—employers want to attract labour and so put up the price of labour power to enable them to expand. Once, however, one allows exceptions to your policy—like 'Productivity Deals'. or 'low paid workers' or whatever, then the way is free for strong unions and/or acquiescent and weak management to drive a coach and horses through these exceptions. At the present time, however, it is a choice for the bourgeoisie between flexible ineffectiveness and a contrived catastrophic economic crisis—or a salvation at the price of some loss of flexibility in the long term. In any 'major review of their whole policy', therefore, the variant of 'Excess Wage Settlements Tax' are serious contenders.
A tax which made employees stand and fight would have the added advantage that the present strikes are not the localised short and official stoppages that the Industrial Relations Bill is primarily being brought in to deal with. They are national official stoppages in which the payment of strike pay is necessary. (29) There were a record 9.5 millions working days lost during the 1st 3 months of 1971 and this is not counting about 3 million days lost through strikes against the Industrial Relations Bill—these compare with 2.2million in the same period in 1970, themselves regarded as abnormally high. But if we compare the number of strikes then there were 1,212 in Jan-March 1970 and 595 in Jan-March 1971. Thus strikes are now fewer in number but last longer. Such strikes lead to massive payments in strike pay—which the Unions cannot sustain over a long period. From this fact some sections of the bourgeoisie led by the Economist' are developing a strategy. What however, the Ford strike has done is to draw off Mr. Jack Jone's fire from other industries notably the chemical industry which is due to talk wages with his T&GWU next week. The Union has paid out more than £1 million to the Ford strikers. Having done that it is in no position to mount another major strike until its strike fund recovers. (31) A tax which made employees stand and fight would wear down the Unions fairly rapidly in this respect, it is calculated. The problem for all these ingenious schemes is of course the resistance of the working class. In particular it is the problem of confronting a working class which has not suffered a really major defeat since 1945 and which has become accustomed to the changes in standards of living which were associated with the boom.
Another way of dealing with wages and a subject in itself is:
Unemployment: The classic Capitalist answers to rising wages is, of course, unemployment. Unemployment has risen more rapidly than the government envisaged last year. Output has grown less rapidly than it was thought it would because of:
(1) a less than expected level of investment;
(2) a rise in the savings ratio that has meant that rising wages have not been reflected as much as expected in rising consumption;
(3) a stagnation in export volume demand reflecting declining competitiveness (export values have risen rapidly as export prices have risen);
(4) a rising volume of imports.
In short, the system is responding automatically to rising wages - investment has stagnated because of declining profit rates and the acute liquidity position of companies; the savings of many workers have risen - probably due to the fear of unemployment and the possibility of being on strike. This has led to stagnating consumption. The volume of exports has not risen because of rapidly growing British export prices, and imports have risen rapidly in volume terms because price-wise they are more competitive than British goods.
As a somewhat distinct cause of rising unemployment, there is a rising tide of bankruptcies reflecting the very severe squeeze on company liquidity - with sales stagnant, wages rising and a fairly restrictive monetary policy. As it is there appears to have been a long run decline in corporate liquidity. The ratio of Total Current Liabilities to Total Current Assets (minus stock and work in progress) stood at 0.82 in 1954, 0.92 in 1960 and 1.01 in 1969. Since that time the situation has deteriorated seriously:
'Between the end of 1964 and the second quarter of 1970 the liquid assets of industrial and commercial companies grew by less than 6%, while their borrowing from banks increased by around 75% so that the ratio of liquid asset to bank borrowing fell from 1.16 to 0.70.' (Sutcliffe and Glyn).
The resulting rising tide of bankrupcies has been particularly among the smaller firms who have been viciously squeezed by their bigger brothers who are seeking thereby to resolve their own liquidity problem. There is a noticeable tendency however for the size of companied that crash to get larger, and the crashes receiving most publicity are, of course, among the larger firms, e.g. Hardley Page, V. & G., Rolls Royce, etc.
Added to all this there appears to have been a shift in productivity as firms 'shake out' labour in a desperate attempt to cut wage bills, and thus produce the same output with less labour. This represents an upward shift in the trend curve of productive potential thus widening the gap of unused capacity between output and productive potential. This is another way in which wage rises lead to rises in unemployment. It is noteworthy that the budgets calculations which Barber said would make output grow in line with the rate of growth in productive potential - i.e. about 3% - appeared to take no account of this shift and increase in productivity which would add to unemployment. However, more recent statements seem to indicate that the Treasury is now aware of this and also that unemployment is to become a major weapon to defeat the working class offensive.
The Budget: The Budget was, of course, designed to add extra demand into the economy, and to partially alleviate the unemployment situation. But (a) the budget's reflationary effects will operate with a time lag on output and unemployment only follows output with a time lag. Thus the unemployment trend upwards would be unaffected by the budget till very late 1971 or early 1972. (b) the most 'optimistic' view of the effects of the budget and for the economy are those of the Treasury and of the Government at the time. These were that output would grow at the rate of growth of productive potential. Now even if we discount the shift upwards in the productive potential trend mentioned earlier then unemployment at best would not increase. The Government had no place for a decrease in unemployment. In fact, there are other reasons for expecting the 3% rate of growth of output to be over-optimistic. The Treasury's forecast of a 5.3% rise in consumption has been widely questioned, and it seems to be premised on a large fall in the savings ratio. But, as pointed out above:
'British workers have become increasingly wary of big spending as the prospect of being unemployed or on strike has become very real.' (Economist, April 3rd, p.58).
Unless consumption expenditure does rise fairly healthily, it is unlikely that manufacturing investment will respond simply to cuts in Corporation Tax. Furthermore, the actual reflationary potential of the budget measures themselves are problematic. No one quite knows what the effect of cutting SET will be on output and employment.
To sum up, there are a whole series of reasons for believing that unemployment will continue to rise, and it is quite clearly being seen as a major weapon against the working class offensive. There are, of course, certain political advantages to this approach, as the Government can say: 'Well, it's your own fault. If you continue to push up wages you are only doing yourself harm.' Actual measures like 'wage freezes' are not quite the same here.
Unemployment will almost certainly rise to over 1 million. A lot depends on business confidence. In this respect, a survey reported by the Guardian (April 7th), drawn from 107 directors of Britain's largest companies seems significant. To the questions 'Have your output and investment plans over the next 12 months been changed as a result of recent measures?', the answers were as follows(%s):
output investment
upwards 8 13
downwards 2 2
no change 90 85
Hardly a significant response to the budget.
Balance of Payments: The Balance of Payments of Current Account has remained in substantial surplus over the past year, but this is less due to improved competitiveness of British exports following from devaluation and the growth of world trade - which was the reason for the surplus in 1969 and early 1970. In the first half of 1970 the volume of exports was virtually unchanged and the 4% increase in export prices accounted for the whole increase in the value of exports. By contrase, import prices were little changed, and, allowing for some bunching of arrivals in the first half of the year, the volume of imports rose by some 4 - 5% between the two half years. Long term capital movements have been roughly in balance. (Bank of England QB, March 71, 7-8). The trends mentioned above for 1970 have continued roughly to date. At the beginning of 1971 the fall in interest rates elsewhere in the world led to a massive inflow of short term capital - domestic firms have drawn heavily on the wash of dollars pouring out of the U.S. to ease their liquidity problems and get round restrictions on demestic borrowings. The recent reduction of Bank Rate should serve to discourage some of this inflow of 'Hot Money'. The outlook for the balance of payments in the short term is of a continuing surplus - though of a decreasing size. The volume of exports and imports can eventually be expected to respond more markedly to the trend in their prices.
'Imports are expected to continue to outstrip exports; between the first half of 1971 and the first half of 1972 their volume is expected to go up by 6.3% compared with export rise of 2.3% ... The clouds could be gathering again over the balance of payments before 1972 is out.'(3)
In fact, the clouds could gather over the balance of payments a lot sooner than the end of 1972 - what determines when the crunch comes will be when speculators - who are, of course, already well aware of the underlying trends - decide that it is time to get out.
In short, the balance of payments is in fact very unhealthy. The value balance of payment is following the trends in the volume balance with a time lag, and the timing of the crisis will be determined by the nerves of the speculators. It should be mentioned that the typical response to a balance of payments defecit in the 50s and '60s was to deflate the economy - to increase the level of unemployment. A balance of payments crisis in 1972 would occur with the level of unemployment already at a record height. It would occur only 3 - 4 years after a devaluation, and also at a time when the Government is seeking to enter the Common Market (which will itself impose a substantial balance of payments burden on Britain.)
Long Term Prospects for British Capitalism: This, of course, is a highly speculative subject, and a lot depends here on the Common Market question. We may, however, add that the prospects for a slow-down in the world capitalist economy consequent upon the contradictions inherent in the present stage of capitalism also face Britain. Previously, the reasons for the boom were analysed in terms of high rates of surplus value and hence of profit and a process of rapid technological change. The running down of the surplus agricultural population and the increased strength of the working class in the imperialist countries is undermining this, and making it difficult for the bourgeoisie to increase the rate of surplus value as the organic composition of capital rises. The result is a lowering of profit rates in all the imperialist countries. On top of this we must add that the interpenetration of the productive forces on a world scale tends towards a synchronization of recession in the imperialist countries, and makes the individual capitalist economies more difficult to control. Again the inflation that undermines the basis of the international monetary system also undermines the basis for a continually stable growth in world trade. In short, those factors which made for the simultaneous possibility of high profit rates and the conditions for their realisation through steadily growing markets domestic and foreign are being undermined. Britain, we have seen, was not fully able to exploit the advantages of the boom, but nevertheless its growth rate rose rapidly compared with the interwar years. Like the other imperialist countries it will share in the slow down. Rising wages and the cut in the rate of surplus value and profit that we have mentioned above has led to declining investment rates which must lead in the future to a lower rate of growth of productive potential (this is not to be confused with the once and for all shift upwards in the productive potential that was mentioned earlier as a cause of rising unemployment.)
(1) Close integration, the absence of tariff barriers, the integration of the monetary systems of Britain with the EEC and the inability of Britain to devalue (the Werner Plan) would considerably speed up the process of decline of certain economic sectors - the so called depressed areas: N.E., N. Ireland, Scotland, etc. Resources would be free to move to more dynamic and growing sectors on the Continent and out of British industry, fierce competition would hasten the demise of certain smaller industries.
(2) A substantial balance of payments burden would have to be borne.
(3) Only big capital stands to gain through the ability to participate in the interpenetration of capital within the EEC which will save it from being squeezed between the giants of a United Europe and the U'S.A. In short, the urge to enter the EEC cannot be understood as something which is looked for by the bourgeoisie as a whole.
J. Marshall and B. Davey
(1) GDH Cole 'British Trade and Industry', p.127, 129, 214-S.
(2) Mowatt 'Britain between the Wars', p.263.
(3) Ibid, p.435.
(4) Trotsky 'A Fresh Lesson on the Nature of the Coming War.'
(5) Ibid.
(6) 'Capital', Vol. 3, Chapter 15.
(7) Ibid, p.250.
(8) quoted in Nicolaus, NLR 48, p.56.
(9) Lloyds Bank Review, April, 1969.
(10) Ibid and Sutcliffe and Glyn, NLR 66.
(11) See for example Gilman 'The Declining Rate of Profit' and Blaug 'Technical Change and Marxian Economics' in 'Marx and Modern Economics', ed. Horowitz.
(12) It is these features of capitalism which are sometimes termed 'neo-capitalism'
(13) D.J. Coppock 'Foreign Trade and the Balance of Payments' in 'The U.K. Economy, a Manual of Applied Economics', ed. Prest, p. 103.
(14) D. Butler British Political Pacts 1900-60.
(15) Lloyd's Bank Review, April 1969.
(16) Coppock, op.cit.
(17) Economic Trends, June 1966.
(18) Madison 'Economic Growth in the West.'
(19) Ibid.
(20) Lloyd's Bank Review, July 1969.
(21) Kennedy in Prest, op.cit.
(22) Ibid.
(23) OECD.
(24) London & Cambridge Economic Bulletin - Times, 4th Feb., 1971.
(25) N.I.E.S.R.
(26) Sutcliffe and Glyn, op.cit.
(27) Prof. S. Wentrab, 'An Incomes Policy to Stop Inflation' - Lloyds Bank Review, Jan. 1971.
(28) See Wentrab Ibid., 'The Economist', 10.4.71. and 24.4.71, 'Sunday Times Business News', 11.4.71, 'Financial Times', 134.71.
(29) c.f. 'Financial Times', 29.4.71
(30) 'The Economist', 3.4.71.
(31) Sutcliffe and Glyn, op.cit.
(32) 'The Economist', 3.4.71.