British sounds

Issue: 137
Posted: 8 January 13

Alex Callinicos

The dominant fact about British politics is the slow decomposition of the Conservative-Liberal coalition government. The fundamental reason for this is the failure of chancellor of the exchequer George Osborne’s deficit-cutting strategy.

In advance of his Autumn Statement on 5 December the Institute of Fiscal Studies produced an analysis arguing that the targets he had set for reducing government borrowing were in danger because the economy had stagnated: output was 0.2 percent lower in the first nine months of 2012, instead of the predicted increase of 0.7 percent. Tax receipts were also lower than projected. If growth picks up, Osborne might still achieve a balanced budget by 2017 (his main target, already pushed back two years), but government debt as a proportion of national income would rise rather than fall between 2014-15 and 2015-16 (cutting this share is a secondary target). If the economy continues to stagnate, a further round of austerity will be needed to eliminate the deficit, involving tax increases and spending cuts amounting to 1.5 percent of national income—about £23 billion in current prices.1

After this appraisal was largely confirmed in the Autumn Statement itself, Martin Wolf offered this damning assessment of the debacle:

One growth downgrade has followed another. We have also seen huge slippages in borrowing plans, compared with what the chancellor initially expected. Thus, in the emergency Budget of 2010, the forecast for cumulative public sector net borrowing between 2011-12 and 2015-16 was £322 billion. In the latest forecast, this increased to £539 billion, a rise of £217 billion, if one excludes various special factors.2

So why has the British economy stagnated? The International Monetary Fund (IMF) has caused a flutter of panic among the austerians by publishing a study that suggests austerity may cut output more than had been previously thought. It estimates that, in current conditions, where interest rates are very low and many states are simultaneously cutting spending, the fiscal multiplier, which measures the effect of changes in public expenditure and taxation on economic output, may be as high as 0.9 to 1.7 (previous estimates had placed it at around 0.5).3 If the higher figure were correct, then for every pound cut from public spending, the economy would shrink by £1.70. This is the opposite of what Osborne predicted when he argued that austerity, by squeezing the public sector, would liberate private enterprise and generate a rapid recovery.

This study, which supports the arguments of Keynesian critics of austerity such as Paul Krugman, has come under attack, not only from defenders of government policy, but also from the Marxist economist Michael Roberts.4 Roberts argues that the fiscal squeeze alone hasn’t caused Britain’s economic stagnation. A fall in corporate profitability has led to a collapse in investment as firms hang on to their profits (see Table). The investment slump in turn is responsible for a collapse in productivity, which has pushed up unit labour costs and eroded the competitiveness of British exports, on which Osborne was counting to power the recovery.5

Whatever the explanation, one major apologist of austerity, the outgoing governor of the Bank of England, Mervyn King, now expects the British economy to continue to stagnate. “After a period of a year of reflecting on all this, we have decided that we think the chances of a rapid recovery are a good deal less than we thought,” he said in
mid-November.6 The bank argues that the economy is being held back by the large number of “zombie companies” that are kept alive only by the very low interest rates that it (like other central banks) introduced in the wake of the 2008 crash. A little over three in ten companies were loss making in 2010, 30 percent more than in the mid-2000s. According to
the Financial Times:

The number of companies only able to pay the interest on their debts but not reduce the debt itself—a common characteristic of “zombie” companies—has risen by 10 percent to 160,000 in the past four months, according to R3, the insolvency industry trade body.

“More and more companies are catching the zombie disease,” said Lee Manning, president of R3. “It is symptomatic of a stagnant economy, with a combination of low interest rates, low liquidation rates and many businesses running at a loss”.7

Table 1: UK gross fixed capital formation (£ billions)

Source: Roberts, 2012b

figure 1

Chris Harman’s portrayal of the contemporary world economy as zombie capitalism is thus being taken up by the mainstream.8 The bank’s diagnosis is interesting, because it chimes with the explanation of crises sketched by Marx in Capital and further developed by Harman and other contemporary Marxist political economists. The function of crises is, by destroying some of the capital accumulated in the previous period of expansion, to create the conditions for overcoming the fall in the rate of profit that is the underlying cause of these crises in the first place. Weaker capitals go bust, providing the space and cheapened machinery and labour power for stronger capitals to improve their profitability.

But, in the case of the present crisis, capitalist states, partly by bailing out the banks and partly thanks to the action of central banks in cutting interest rates and pumping money into the financial system, have prevented the necessary destruction of capital. Hence the stagnation experienced, not just by Britain, but by the advanced capitalist world more generally: the rich countries’ club, the Organisation for Economic Cooperation and Development, now predicts that its members will grow by only 1.4 percent in 2013.9

Britain’s plight, though shared by the other advanced economies, is particularly dire. As Roberts points out:

even if employment has not deteriorated as much as in previous slumps, this recession has seen the biggest ever fall in real incomes … Net national income per head, which is a better measure of living standards [than GDP per head], is down over 13 percent since its peak in early 2008 and is still falling—a truly horrendous reduction.10

That figure alone is sufficient to explain the decline of both coalition parties in the opinion polls and the matching rise in Labour’s fortunes. But the coalition’s woes have been compounded by a series of self-inflicted wounds that started with the March 2012 budget’s cut in the 50 percent income tax rate and the imposition of the “granny tax” and the “pasty tax”. These have continued with the Police Federation’s successful defenestration of the government chief whip, Andrew Mitchell, and the debacle of the derisory turnout in the police and crime commissioner elections.

Meanwhile scandal continues to strike at the establishment, as it has since the exposure of MPs’ expenses claims during the dog days of New Labour. News International still has a power to wound David Cameron in particular, with the upcoming trials of his disgraced cronies Andy Coulson and Rebekah Brooks and the tricky problem of how to handle the Leveson report on press regulation, which divides the Tory party and unites Labour and the Liberal Democrats.

The crisis precipitated in the BBC by the revelation of Jimmy Savile’s sexual abuse is maybe less directly threatening to the government, but it strengthens the picture of a thoroughly corrupt ruling class, as do revelations of the past cover-ups that protected Margaret Thatcher’s parliamentary private secretary, Peter Morrison, and Liberal MP Cyril Smith.

None of this means that the coalition won’t survive till its appointed end in 2015. It has changed the law so that parliament can only be dissolved with the support of a majority of the House of Commons. This gives the Lib Dems a veto over any attempt by Cameron to call an early election. Nick Clegg and his fellow ministers will want to hang on to the privileges of office for as long as possible, given that the polls suggest a Lib Dem massacre when the election does come.

But the coalition will become increasingly and more openly fractious. The turning point came in July 2012, when 91 Tory backbenchers rebelled against Clegg’s proposals for House of Lords reform. When Cameron promptly gave up the effort to get the bill through, Clegg retaliated by promising to block the boundary changes to parliamentary constituencies, a measure that would increase the Tories’ chances of winning future elections. The closer we come to the date of the next election, the more Tory and Lib Dem ministers will openly disagree with each other (as Cameron and Clegg did over the Leveson report). In the lead-up to the Autumn Statement, cabinet ministers were reported to be squabbling over who was to blame for the economy’s stagnation.11

But potentially the most dangerous fracture in the government is the return of the European question, which destroyed Thatcher’s and John Major’s governments during the 1990s. There are two forces driving this. First, the efforts led by Germany in particular to overcome the eurozone crisis by imposing a permanent, Europe-wide regime of fiscal surveillance and (though much more incoherently) constructing an EU banking union is threatening the relatively comfortable position that British capitalism has enjoyed over the past 20 years—attracting foreign investment thanks to its participation in the European single market, and staying out of the dysfunctional economic and monetary union while the City of London (to the fury of rival centres such as Frankfurt and Paris) hoovers up the most lucrative eurozone financial business.

Being perched on the edge of a much more integrated eurozone would be considerably less cosy for Britain: it might, for example, lose any influence over decisions concerning the single market and find the City excluded from many of the euro-related activities it currently undertakes. Indeed Christian Noyer, governor of the Banque de France, recently attacked the City’s dominance of euro trading (Britain accounts for about 40 percent of foreign exchange dealing denominated in euros), declaring: “Most of the euro business should be done inside the euro area”.12

Threats like this have given an opening to the second main factor in the equation, the Tory right. Never reconciled to Cameron’s attempt to “detoxify the [Tory] brand” by imitating Tony Blair’s focus on the “centre ground”, they have seized the eurozone crisis to press for Britain’s departure from the European Union. In October 2012 81 Tory MPs, 43 percent of the backbench party, defied the whips and voted for a referendum on Britain’s relationship to the EU.

These developments put Cameron on the spot. Many of the largest firms in Britain are now foreign-owned, investing here in order to get access to the European market. There seems to be very little business interest in leaving the EU. And Cameron needs allies elsewhere in the EU in order to try and block changes in the eurozone that would be unfavourable to British capitalism.

But the pressure from the backbenches, partly motivated by fears that the UK Independence Party is winning away more Eurosceptic voters from the Tories, is growing. (UKIP won more votes than the Lib Dems in the seven parliamentary by-elections held in 2012 and came second in Middlesbrough and Rotherham.) Cameron is condemned to ducking and diving to balance between these different forces—for example, hinting he will call some kind of referendum on Europe, but avoiding one on EU membership (which polls suggest the advocates of exit might win).

For all these problems, there is no sign of any retreat by the coalition from austerity. On the contrary, the more divided the government becomes, the more its members cling to the original rationale for their cooperation—cutting the deficit. In the Autumn Statement, Osborne announced that he would extend austerity by another year, till 2018, cut benefits and tax credits in real terms for the next three years, scrapped national bargaining for teachers, and pencilled in another £10 billion cuts in the next parliament. And many of the most vicious measures already imposed—for example, the caps on benefits and the scrapping of the Disability Living Allowance—only come into force in April. As numerous charities and NGOs have been warning, a hurricane is about to hit the poor and the vulnerable.

So how stands the resistance to austerity? The Labour Party leadership can’t be counted as part of it. Ed Miliband and Ed Balls have stuck to their mantra that some cuts are necessary. Their strategy seems to be simply to wait for the government’s growing unpopularity to push them up in the polls. And so far this is working. But this is of no help to anyone suffering the effects of austerity. On the ground the picture is, predictably, more mixed. Local Labour activists are often involved in campaigns against the cuts. Unite, whose general secretary Len McCluskey is one of the most high-profile critics of the coalition, is using its new community branches to recruit for the Labour Party.

There is in any case a dark edge to the electoral picture. Labour may be ahead in the polls, but UKIP’s successes show that, despite the effective rout of the English Defence League by Unite against Fascism, many disaffected voters are looking towards the populist right. George Galloway’s triumph in the Bradford West by-election in March 2012 conjured up the prospect that a powerful radical left pole of attraction might emerge. But his outrageous comments on the rape allegations made against Julian Assange and the subsequent resignation of Respect chair Salma Yaqoob have once again dashed the hopes invested in Galloway. This makes effective resistance now to coalition policies all the more vital in offering an alternative based on collective action.

So far the struggle against austerity in Britain has seen two peaks. The first came in November-December 2010 with the student revolt. Increasing university tuition fees to a maximum of £9,000 a year, in violation of a Lib Dem election promise, united both actual students and potential students in a series of street demonstrations whose quasi-insurrectionary atmosphere hadn’t been seen in Britain for many years. What made this movement so explosive was the participation of working class college students who seized the chance to express their anger about the raw deal they get from British capitalism. This was also a crucial element in the English riots of August 2011. But as has been true of such movements in the past; they were short-lived, disappearing as quickly as they had appeared.

The second peak came with the two public sector strikes against the coalition’s attack on pensions—30 June and 30 November 2011. Here the dynamic was very different. An alliance of left wing trade union officials and revolutionary socialist activists pushed for coordinated strike action by the three most militant public sector unions, the National Union of Teachers (NUT), the Public and Commercial Services Union (PCS), and the University and College Union (UCU). The result was 30 June, which built up the momentum that led much bigger unions—Unison, Unite and the GMB—to back what proved to be the largest strike day Britain has seen since 1926.13

Alas, the subsequent year saw this process go into reverse. Having thrown down a gauntlet to the coalition on 30 November, Dave Prentis, leader of the biggest public sector union, Unison, promptly put it back in his pocket. Heads of agreement covering Unison’s two most important groups of workers in health and local government and brokered by Trade Union Congress general secretary Brendan Barber were reached on 20 December 2011. Just as the hard left unions had pulled the bigger and more right wing ones in 2011, now they started to feel the pressure to abandon plans for further action.

The turning point came in March 2012 when the NUT executive ignored their members’ vote for further action and pulled out of a planned coordinated strike on 28 March (though teachers in London were called out that day). This led Mark Serwotka, PCS general secretary and the union leader most strongly identified with the strikes, to cancel plans to call his members out on 28 March. Despite valiant rearguard action by activists in the NUT, PCS and UCU, no further strike action has been called. Meanwhile McCluskey continued to use very militant rhetoric (even at one point threatening strikes in London during the Olympics), but did nothing to sustain the strike movement.

In addition to the vacillations and conservatism inherent in the trade union bureaucracy as a social layer, another factor was at play in this debacle. The chimera of union mergers as a means of strengthening the organised working class provided an important alibi for union leaders wanting to abandon strikes. There have, for example, been on-off discussions about merging Unite and PCS to form a left-led super-union. And the NUT leadership justified its failure to implement ballot and conference votes and call more action because it wants only to strike jointly with the National Association of Schoolmasters Union of Women Teachers as part of its pursuit of a merger between the two unions. But, as Martin Smith has argued in this journal, the kind of mergers that led to the formation of Unison and Unite have not stemmed the decline in union membership. Only the revival of trade unions as fighting organisations that improve their members’ pay and conditions can reinvigorate the British workers’ movement.14

The entire experience reinforces the temptation by some on the left to contrast the weakness of British resistance to austerity with much bigger struggles on the continent, particularly in the light of the general strikes in Greece, Italy, Portugal and the Spanish state on 14 November 2012. Undoubtedly 14 November marked an important step forward in mounting an international response to the Europe-wide austerity drive. And it is true that the Spanish state has seen over the last decade a succession of gigantic mass movements that started in opposition to neoliberalism and war but now focus on austerity. The high pitch of social struggle in Greece is at an altogether different level from anywhere else in Europe: the week before the 14 November protests the country was shut down by a 48-hour general strike.

But even in Greece the trade union bureaucracy vacillates and manoeuvres. In France, the other European country that has witnessed large-scale social movements in the neoliberal era, the union leaders effectively killed off the 2010 struggle over pensions, leading to widespread demoralisation. The same pattern of trench warfare as worker activists seek to overcome their officials’ blocking tactics, and more volatile explosions punctuating the set pieces mounted by unions is to be found across Western Europe. Britain is no exception.

The retreat from coordinated strike action has been especially demoralising for activists in the three most militant unions, NUT, PCS and UCU. But the scale of the setback should not be exaggerated. Paradoxically, as the reality of the strikes has receded, the trade union leaders have started to talk up the idea of a general strike. Unite, Unison and the GMB all voted for a motion at the TUC in September 2012 for a general strike to be considered, and the general council is accordingly consulting its member unions. The TUC march against austerity on 20 October attracted some 200,000 demonstrators: at the concluding rally Miliband was booed, while McCluskey and Serwotka were cheered when they raised the possibility of more strike action.

Of course, McCluskey in particular specialises in left wing speeches that commit him to nothing in practice. But the same mix of pressures from below, from activists who want action, and from above, from a government hell-bent on pursuing austerity, that produced 30 June and 30 November can push at least a section of the trade union bureaucracy into calling more strike action. In these circumstances, Unite the Resistance (UtR)—the coalition of left trade union officials and rank and file activists that emerged to drive the strikes through in 2011—continues to make a lot of sense.

For the Socialist Workers Party, which has played a major role in the development of UtR, the coalition performs a dual function. First, it serves as a united front between revolutionaries and that section of the left bureaucracy that wants to see strike action. Secondly, to the extent that it succeeds in building strikes, it can serve as the basis of a rank and file movement that can fight independently of any section of the trade union bureaucracy. What we saw in 2012 was a major retreat by left officials who had previously been in the lead in pushing for strike action. If that retreat were final and definitive, or if a genuine rank and file movement emerged, then the basis for UtR would no longer exist. But neither of these conditions are met. The more left wing leaders continue to wobble between rhetoric and action. And the very success of the union bureaucracy in pulling the carpet from under the strike movement indicates that rank and file workers still lack the confidence and organisation to fight independently.

Chris Harman argued during the Great Miners’ Strike of 1984-5 that a united front involves revolutionary socialists working both with and against those to their right. As so often with dialectical formulations such as this, there is a tendency to slide towards one or other of the two poles—in this case, just working with the left officials, or simply working against them. These are not just intellectual errors. There are objective pulls in both directions built into the situation. The relative weakness of the rank and file creates a temptation simply to tail the left bureaucracy, while the union leaders’ betrayals push activists in the direction of denunciations that aren’t backed by the muscle to call independent strikes and so lead all too often to passive demoralisation.

Revolutionaries have to grasp contradictions such as this in their totality, highlighting the aspect that brings them into focus. As Lenin put it, “The whole art of politics lies in finding and taking as firm a grip as we can of the link that is least likely to be struck from our hands, the one that is most important at the given moment, the one that most of all guarantees its possessor the possession of the whole chain”.15 Here and now in Britain this means building UtR, both as a forum where activists who want to build mass strikes can get together to discuss and coordinate and as a means of putting pressure on the left officials.

But it is important not to allow the call for a general strike to become a substitute for building the action that can actually be achieved now. Indeed, as we have seen, for the left trade union leaders, support for coordinated action can serve as an excuse to do nothing unless everyone acts together. Any opportunity for localised or sectional action should be seized, and not deferred in the name of a potential, perfect general strike.

The setback caused by the union leaders’ abandonment of the pension strikes is unlikely to be permanent. One immediate effect of the financial crash in 2008 was the abandonment of the pay campaigns mounted by the NUT and PCS. But it didn’t take these unions long to return to the battlefield. Already Osborne’s decision to scrap national bargaining represents a mortal challenge to the teachers’ unions that their leaders will find hard to duck. Despite interruptions, the curve of the class struggle continues to point upwards in Britain.


Notes

1: Emmerson and Tetlow, 2012. Thanks to Joseph Choonara and Jonny Jones for the comments on this article in draft.

2: Wolf, 2012.

3: IMF, 2012, pp41-43.

4: See Krugman, 2012, pp231-238, and Roberts, 2012a. Guglielmo Carchedi offers a Marxist alternative to the Keynesian conception of the multiplier in Carchedi, 2012. Giles, 2012, criticises the IMF’s use of data from an austerian perspective.

5: Roberts, 2012b and 2012c.

6: Jones and Giles, 2012.

7: Stothard and Giles, 2012.

8: Harman, 2009.

9: Jones, 2012.

10: Roberts, 2012b. The relatively low level of unemployment in Britain is discussed in Cooke, 2012.

11: Parker, Pickard and O’Connor, 2012.

12: Noble and Barker, 2012, and Barker, 2012.

13: Kimber, 2012.

14: Smith, 2011, pp127-128.

15: Lenin, 1961, p502.


References

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