Changing times for the economy
On 7 January the Office of National Statistics (ONS) released a report showing that returns on capital for non-financial corporations had fallen from 13 percent in 1998 to 11 percent in the third quarter of 2002. These figures are heavily supported by companies investing in exploitation of the north-sea oil and gas fields, whose profits have shot up from 13.6 percent in 1998 to 34.2 percent in 2001.
Against the back-drop of such volatile returns on capital has been the Chancellor’s pre-budget report, in which he stated that, despite the fact that “twenty of the world’s biggest economies accounting for 60 percent of the world’s output – United States, Japan, much of Europe and Latin America – have been or are in recession” he believed that the UK economy was set to weather the storm.
That the overall fall in profit rates can be accounted for partly by a fall from 16.2 percent to 13.2 percent in the very service sector that kept the British economy as a whole from being classified as in recession whilst the manufacturing sector went into “negative growth”, does not bode well for Brown’s aspiration.
These profit figures are derived from the gross returns for firms (i.e. before payment of interest, dividends or taxes) less cost of capital depreciation over the period, on any activities based in the UK As such, they represent a key indicator, in capitalist terms, as to the health of capital invested in Britain.
The likelihood is, even if the UK does not itself immediately fall into recession, that we are all going to suffer the effects of the ongoing chaos of a world-wide economic system in turmoil. This turmoil is brought about by the inherently anarchic nature of capitalist, the reckless pursuit of profits at all costs.
That profits and the semblance of good economic times for some can continue even in times of high unemployment, crime, war and drought is testimony to the simple fact that capitalism is happy so long as the money rolls in for those who own capital. It is unconcerned with usefulness or human needs, only whether the goods can be flogged and the lucre counted afterwards. If profit isn’t sufficient to justify investment, then production will be cut back or will even cease.
This is illustrated by changes in industries producing useful goods in the UK over the last forty years. Three raw products which can be considered to be really useful for productive activity, and which have also been, historically, key to the British economy are steel, cotton and bricks. In 1962 there were 762 steel furnaces in the UK. By 1972 there were 546, and by 1999 this had fallen to 181. This decline in the number of furnaces producing steel contained within it the turmoil and community devastation of thousands of job losses and industrial disputes over the period.
Even more dramatic has been the decline of the British cotton industry. Told as raw figures, it shows that in 1963 there were 222,000 tonnes of raw cotton processed by the industry here. By 1973 this was down 131,000 tonnes and in 1993 it was just 24,000 tonnes. Official statistics do not have any entry for raw cotton after this time. Yet, people still need good clothes. The effects of this decline can be easily seen in the riots and elections of fascist councillors in Oldham, Bradford, Blackburn and other such former mill towns.
As for bricks, it has already been noted in this journal how the decline in their production relates to the chaos of the modern housing market (‘What right to housing?’, Socialist Standard, March 2002). In 1963 7,139 million tonnes of bricks were produced in the UK In 1973 it was up to 7,183 million tonnes. By 1999, however, this figure had plummeted to 2,939 million tonnes. Of course, this could mainly be accounted for by technical changes in housing production, but statistics for concrete show a fall too, going from 14 million tonnes in 1963 down to 12.6 million in 1999.
Even industries which have not been devastated, or at least have remained relatively consistent in their output, have been hit by periodic changes. The car industry remains a bedrock of the manufacturing sector. In 1965 it made 1.72 million cars, compared to 1.9m in 1972 and 1.8m in 1999 (although it hit a low of 1.3 in 1989). Although it has only shifted, up and down, by a few hundred thousand cars over the years, in terms of capitalist profits – and more importantly workers lives and careers being thrown on the scrap heap – it still demonstrates how even a relative secure industry can gyrate in the economic tide.
What all these figures show, is that the British economy, alone, is capable of churning out vast quantities of useful things whilst apparent economic good times come and go for the capitalists who own Britain. These statistics are available for any capitalist planner or politician, things which they must know, clearly, but rarely state out loud lest they be accused of “running the economy down”.
Of course, many of these changes in manufacturing in the UK are accounted for by shifts in production within the world economy. Why should bricks be made in Britain if they can be better made elsewhere – and at a cheaper rate? Of course, socialists have no nationalist brief to believe that all goods should be made in a particular country. Further, a swift glance at the performance of the world economy over this period suggests that other economies have suffered precisely the same problems as the UK We can do this, quickly, by looking at the Total Factor Productivity (TFP) of the world’s leading economies. TFP is the price of capital invested, plus the cost of labour, divided into the output of the economy and its rate of growth has clearly been declining:
(Source, Understanding UK Economics, ed. Curwen).
The real reason for the decline in the rate of growth of the production of many goods (and absolute declines in the production of others) lies in the fact that the worldwide competition for producing such useful products was so fierce that key markets became overloaded, and capitalists, more concerned with profits than supplying needs, moved off into new avenues of investment, trying to find a clear field in which to operate. Granted, some moved into new industries – such as computing and communications, which provided so much of the economic success of the 1990s – however, many more moved over into service industries, something reflected in the official statistics by the fact that whilst ONS did not list services in the 1960s as an economic category (but did list reams of specific products) in the 1990s services were there as a category, and all the products were lumped together as “manufacture”.
As can be noted from the table, the UK did manage to buck the world trend in the 1980s in one sense and achieve significant productivity and profitability. But this was achieved by closing down factories, and laying off workers, so clearing the field for more capital expansion. This led, in turn, to social chaos and outbreaks of collective bargaining by riot as poverty began to bite. The political strategy proved so risky that Thatcher had to pull back somewhat, and leave a large part of the welfare state she so despised intact.
The class struggle lies at the heart of capitalism, and it is only by waging this war that capitalists can rescue themselves from the crisis and problems of their own system. This class war rages through the simple fact that success for a capitalist enterprise, in terms of profits, need not have any corollary in satisfying the material needs of the vast majority. If Britain and the world do suffer crisis, this will merely lead to an escalation of already existing hostilities.
Capitalism can escape its crises through finding new markets, new technology and reducing workers’ working conditions (and possibly wages too). All these things, ultimately, mean that to develop, capitalism must continually revolutionise the basis of production. What this means, in short, is that it must dismantle any social structures that have grown up to support the old methods and techniques of production. That is why in recent decades it is transparently the case that communities have come a poor second to the needs of profit as shifts within the economy and capitalism’s periodic slumps have wreaked their devastating effect. And it is precisely because human communities, and thus humans, come second place in capitalism time after time, that socialists demand its abolition and the creation instead of a system of society truly worth living in.