Cooking The Books 1:Empty hope
“Fresh blow to hopes of consumer-led recovery as squeeze tightens on pay” ran the headline of an article in the Times (21 January) by Gráinne Gilmore, reporting on official figures for wage growth in the three months to November:
“Average pay excluding bonuses rose at an annual rate of 1.1 per cent for the period . . . Private sector staff saw no pay rise at all in November. . . Analysts said that companies were cutting workers’ hours and pay to try to limit redundancies . . . Colin Ellis, European economist at Daiwa Securities, said: ‘The lack of any pay increase in the private sector will weigh on consumption during 2010, much as weak wages have in Germany.’”
She didn’t say who was hoping for a “consumer-led recovery” but this was always an impossible dream. As should be clear from her report, consumer demand depends largely on what people are paid. In other words, it is largely made up of what wage and salary workers have to spend. Which depends on the level of employment; which in turn depends on what those who own and control productive enterprises (or who act for them) decide to produce according to what they think are the prospects of selling it profitably.
The economy, and its ups and downs, is not driven by consumer demand, but by capital accumulation, i.e. by profits being invested in expanding production. The ups and downs of consumer demand in fact reflect, not cause, the ups and downs of the economy. Paul Mattick put it well in his Marx and Keynes: “The business cycle is not caused by variations in social consuming power, particularly not that of the workers; rather the cycle determines these variations”.
When production is expanding so is employment and income from employment. Workers have more to spend and, on the basis of the assumption that their employment is secure, are able to borrow against future expected income and so can spend even more. Some economic observers, perhaps influenced by what they were mistaught in college about capitalism being a system of production for consumption, jump to the conclusion that it is this increased consumer spending that is causing the economy to grow. But this is an illusion. Consumer spending is booming because the economy is booming, not vice versa. This becomes clear when the economy stops expanding, as it did in the second quarter of 2008 and in fact began to contract. When this happened consumer spending fell too.
Consumer demand will never recover of its own accord. How could it? Workers can’t simply spontaneously increase their income. It will only revive when production and employment do. And that depends on the prospects of profitable production reviving. Which the squeeze on pay Gilmore reported on will in fact be contributing towards.
Capitalism is a system geared to profit-making, not to meeting needs, not even to restricted, paying needs.