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From International Socialism (1st series), No.59, June 1973, pp.1-3.
Transcribed & marked up by by Einde O’Callaghan for ETOL.
The government has abandoned the modesty about its economic policies on which we commented last month. It is now beating the big drum. Its spokesmen are talking of the present boom in terms reminiscent of those once used to describe the German ‘economic miracle’ of the nineteen-fifties. The economic expansion this time is quite different, it is being argued, from its various predecessors since the war. Now, we are told, there will be permanent growth at around 5 per cent per annum, the breakthrough has been achieved, the position of the British economy in world capitalism is being transformed.
The boom is certainly massive. The industrial output figures for the first quarter of 1973 show an expansion equivalent to 9 per cent annual growth, well above the government’s 5 per cent target. In engineering the expansion is equal to 20 per cent on an annual basis. These ‘annual projections’ on the basis of three months’ figures need not be taken too seriously; indeed, on past form, the figures themselves will turn out to be in need of revision. All the same the scale of the boom is unmistakable. Moreover productivity – output per man – rose by about 9 per cent overall in 1972 and is still rising although, presumably, at a lower rate. The big ‘shake out’ of labour during the last recession achieved its aim of pushing British capitalism’s productivity growth above the levels of its major rivals. Profits must now be rising steeply as capacity usage nears the optimum.
The growth of exports – 10 per cent on an annual basis – is spectacular. In April the visible trade balance showed a deficit of only £45 million (compared to a deficit of £205 million for March). The overall balance for April was £11 million in surplus. This is the more remarkable because export prices are up by only 7½ per cent over the last 12 months as compared to a 20 per cent rise in import prices. One swallow does not make a summer and one month’s trade figures can be a very misleading guide to underlying trends. The odds are still heavily on a big balance of payments deficit for 1973, but the often quoted £1,000 million estimate now looks too high.
At the same time there is hard evidence of an increase in industrial investment after three years of stagnation. The well publicised British Leyland and GKN plans may hot be so impressive when viewed on an annual basis but they do represent a real trend. And the biggest government success of all, the one that underpins all the others, the imposition of phase one and phase two of the incomes policy, still holds and looks like holding throughout the summer. Average earnings are up by only 1 per cent over three months while retail prices are rising at an annual rate of 8 per cent, which is expected to accelerate to 10 per cent in the immediate future. The resulting massive increase in profits is being given a further upward shove as the Price Commission lets through wave after wave of increases, as indeed it is bound to do, given its terms of reference and the 20 per cent increase in fuel and raw material costs over the last six months. Finally, the government has succeeded in resisting EEC pressure to fix the parity of the pound. The Brussels Commission has given up the fight, at least for the remainder of this year. Sterling will go on floating, giving the government a great deal more leeway over balance of payments problems than would otherwise be the case.
These are impressive successes and, of course, to them must be added the gains made for the capitalist class in the period of ‘confrontation’, including the ‘shake out’ in industry, the welfare cuts – the virtually complete switch from benefits ‘as of right’ to means-tested benefits, the major tax changes in favour of the rich, the Housing Finance Act and so on. Heath is indeed at the high tide of his fortunes. But the tide will ebb. The victories of our ruling class rest on two pillars and each of these pillars rests on foundations of sand.
The first pillar is, of course, the world wide economic revival after the recession of 1970-71. The boom is in no way a specifically British affair. As the Economist notes,
‘All major countries experienced record growth in the first quarter (of 1973) ... Japan notched up a 15 per cent rate, the United States the largest rise in any quarter since the Korean War and Germany and France also raced ahead despite shortages of capacity and labour ... orders everywhere are rising. Germany’s overseas orders for heavy engineering, were up by a third on a year ago.’
But at the same time,
‘Inflation forecasts were less optimistic and growth everywhere will slow down next year ... Now we all march in step national trends reinforce each other. So the 1974 slowdown could lead to a 1975 recession.’
It could indeed. Whether in 1975, or earlier or later, a new and more severe recession is inevitable. The re-emergence of the international trade cycle as a major factor (’Now we all march, in step’) is one of the most important changes in world capitalism since the ‘permanent boom’ years of the fifties and early sixties. Already, in connection with British Leyland’s investment plans, the comment is made
‘... the next five (years) will see the build up of progressively more surplus car-producing capacity in Europe, to which British Leyland is contributing by planning a very substantial increase in its own. So, if British Leyland’s next five years are to be better, it can only be at others’ expense’ (Economist 19.5.73. – Our emphasis).
The years of more or less strain-free boom that were the product of the earlier phase of the permanent arms economy are gone forever. Cut-throat competition and ever more violent economic oscillations are the order of the day. There can be no repetition, by Britain or any other major power, of the spectacular ‘economic miracles’ achieved by German capitalism – and still more by Japanese capitalism – in the fifties and sixties.
The precipitating factor of the more or less severe slump that will necessarily follow the present boom is inflation, and the measures governments will be forced to take to check it. In the editorial in International Socialism 52 (July-September 1972) which noted the end of the recession, (’The world economy is clearly on the upturn.’), the prediction of an accelerating inflation which would ultimately reverse the upturn was made in these terms.
‘There are six factors which make one expect huge increases in prices over this coming year. First, the workers have not been defeated in this period of confrontation, with unemployment relatively high and with the economic prospects less favourable for workers than they will be; second, the prospect for fairly rapid re-deployment of unemployed skilled workers (and it is the skilled workers that form the fist of wage push); third, big business has seen its prices restrained during a period of cost increases and will react to any wage push with a dambreak of price restraint; fourth, the immense US fiscal deficit can be expected to work through in higher prices in the US economy and to spread internationally; fifth, military expenditure is bound to go up almost uncontrollably despite.the Moscow summit; sixth, the lack of agreement between the Western capitalist countries and their probable use of competitive devaluation will trigger off internationally concerted wage demands.’
The ‘huge increases in prices’ duly occurred and all the factors mentioned continue to operate although, of course, with differing intensities in different countries. As far as Britain is concerned, the working class, which was certainly not defeated in the period of ‘confrontation’, has, thanks to the trade union leaderships, suffered a setback, an overall decline in real earnings in the last six months. Needless to say this has had no perceptible effect in moderating the world wide inflation. It has been important in the relative competitive success of British capitalism. TUC sabotage of the wages struggle and practical support for the government, verbal opposition notwithstanding, is the second pillar on which British capitalist success is resting.
In February we wrote, ‘The TUC is a ship without a rudder ... (which) now flounders helplessly between a return to the “corridors of power” strategy, of the Woodcock era and the “resolutionary”, abstentionist, opposition policy of the lefts.’ It would have been more accurate to describe the TUC, at that time, as a ship without a helmsman. Now, thanks to the capitulation of the Scanlon-Jones ‘left’, Feather has been able to resume the helm and put it hard over to starboard. The TUC is sailing firmly to the right. It is committed, not merely to talks, but to a wage-policing deal with Heath. The intention is to conclude this package deal-which will include amendment of the Industrial Relations Act – in October after the annual Congress is safely out of the way.
However, the pillar of TUC support is even less stable than that of the world-wide boom. Given the pressure on real earnings that is the consequence of phases one and two and given the continuing rapid increase in retail prices, it will be virtually impossible for the TUC to effectively deliver the goods as Heath’s ‘policeman’. Britain is not Holland or Denmark or Sweden. The bigger size of the trade union movement, the vastly greater power and relative independence of shop-floor organisation, make a reproduction of, say, ‘model Swedish industrial relations’ in Britain a non-starter unless there is a series of massive working class defeats in actual confrontations. This is ruled out, above all during the boom. And under the pressure of inflation the ‘model industrial relations’ are breaking down, even in their Dutch-Scandanavian homelands. Two partially contradictory factors make the prospect of effective ‘policing’ even smaller. There is the obvious effect of a shortage of skilled labour at a time when the employers want output and yet more output and are therefore much more vulnerable to pressure. There is the probability that, already by October, the government will be forced into partial measures to check both imports and growth in output. Otherwise a balance of payments deficit and a falling pound, leading to an even greater rate of domestic inflation, may produce an explosive situation. But without the prospect of a continuance of the boom it will be much harder, even for Feather and the right wing, to conclude or keep to a deal.
Heath has no choice but to try. Precisely because ‘confrontation’ and the attempt to enforce the Industrial Relations Act resulted in defeats for the ruling class, Heath must put his money on the TUC. That in itself is a measure of the fragility of the government’s undoubted political and economic gains.
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