Cooking the Books 1 – The best laid schemes
Before the budget on 26 November speculation was rife as to what might be in it. In opposition Rachel Reeves, as Shadow Chancellor, had promised that the priority of a future Labour government would be growth, growth, growth.
But what is ‘growth’? She seems to mean a growth in Gross Domestic Product which is a measure of the inflation-adjusted price of all the goods and services produced in a year. The trouble is that this is not something that a government can bring about. As she herself pointed out in her budget speech, ‘private investment is the lifeblood of economic growth’. So, her plan is to create the best conditions for private investment for profit, one of which in her view is government investment in infrastructure projects. This, however, has to be paid for. As she doesn’t want to rely too much on borrowing she has had to increase taxes. Not that increased government investment will necessarily encourage more private investment; it might for a short while but in the end the only encouragement is the prospect of making a profit.
Capitalism is a system of production for profit where the aim is not growth as such but making profits which, when reinvested, bring about an increase in the production of wealth. It is a result of what Marx called ‘the accumulation of capital’.
Marx himself pointed out that, when it occurs, the more rapid the accumulation of capital, the more jobs there are and the higher are wages due to employers competing for workers. These days, it would also mean an increase in tax income for governments. Reeves seemed to be making the same point when she described ‘economic growth’ as ‘the best means to improve wages, create jobs, and support public services’.
But there is a difference. Marx never expected the accumulation of capital to be continuously onwards and upwards. He saw the process of capital accumulation as ‘a series of periods of moderate activity, prosperity, over-production, crisis and stagnation’ (Capital, vol 1, ch. 15, section 7). Despite all the evidence to the contrary, Reeves believes — and not only her but all the parties that aspire to manage capitalism — that, if the government gets it right, there can be a permanent boom.
A government might be lucky and be in office during the ‘prosperity’ phase of the cycle but not even the government’s own advisers at the Office for Budgetary Responsibility are predicting that. They are currently estimating that ‘growth’ over the next four or five years will be only 1.5 percent a year. Which is slow by previous capitalist standards and won’t bring about many more jobs or higher wages or enough tax revenue to honour Labour’s promises to improve public services.
In any event, the OBR forecasts are little more than a guess. The fact is that economic forecasts, especially over a longer period, are hardly worth the paper they are printed on as nobody can foretell how the capitalist economy will move. If they turn out to be correct, it will have been a lucky guess.
What will happen in practice over the next few years is that the government will merely react to whatever the workings of capitalism present it with. They will just be muddling through, or, to use the nautical language governments do when they seek to explain their failure by having to ‘face strong headwinds’ or being ‘blown off course’, they will just be navigating by sight.