Britain has been the least successful of the major imperialist economies in terms of the growth of output and productivity. For this reason the present recession, which began in early 1973 after the short-lived six-month "boom," is less dramatic in reiation to the preceding years than the recessions in Japan or the United States, for example. The recession is nonetheless quite marked. In March 1973 a year of quite rapid expansion is industrial production come to an abrupt end. Since then the monthly production total has stagnated, except during the period of the three-day week from December 1973 to March 1974 which the Tory goverment imposed in response to the miners' work-to-rule Industrial production has not recovered to its level before the miners' dispute. The gross national product for 1974 will probably be about 2% below its level in 1973. A number of industries, however, have fallen into a more acute state of recession. The most important, of course, is the motor industry. Monthly production of motor vehicles has fallen by about 20% compared with 1973. The construction industry also has plunged into a very deep slump. Steel production in the first six months of 1974 was 16% down from 1973. Other industries badly hit are timber and furniture, bricks and cement, and textiles, especially oil-based artificial fibers. In addition agriculture (especially cartle breeding) has been meeting a mounting crisis due to rising feed costs, and this is sharply reducing the purchase of new stock. The likelihood of an intensification of the recession in output, regardless of what happens to the capitalist economy internationally, is shown by the sharp decline in orders for most of the major industries. Over the last twelve months for which figures are available, these fell by about a quarter in the engineering industry, 15% in the textile industries and clothing industries, 90% in shipbuilding, and nearly 40%6 in construction. The official figures for the number of workers unemployed has not yet risen as much as expected in such a recession. Unemployment continued to fall until the end of 1973. Since then it had risen by October 1974 to 622,000 in Britain and another 22, 000 in the North of Ireland. This is 2.7% of the labor force, compared with 2.2% in late 1973. Unemployment would undoubtedly have risen faster already if it were not for the capitalists' real fears of militant factory occupations, which have spread with extraordinary speed in Britain in the last four years in response to redundancies. As a result, especially in the industries hardest hit by the recession, shorttime working has become much more common.
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BRITAIN
2. Fall of capital accumulation
The decline in labor productivity, evidenced by the combination of stagnant or falling output and rising unemployment, is partly the result of the decline in capital accumulation that is associated with the economic crisis. Over the past year private fixed investment has dropped by nearly 10% and public investment has continued the unbroken decline that began as long ago as 1968. The slight rise for manufacturing investment in the first half of 1974 was canceled by a further fall in the third quarter of the year. The total is now much less than it was in
1970. The fall in public investment arises ouf of the long-term financial crisis of the nationalized industries, which itself results from the charging of noneconomic prices so that the nationalized industries can subsidize the private capitalist sector and act as a temporary control of inflation. All the nationalized industries except steel are now operating at a huge loss, which the Labour government has now said if will correct.
There is one element of expenditure generating demand in the economy that has fallen much faster than investment: housing construction. The completion rate of new housing has fallen by nearly 20% since 1973, But more important, the rate of new orders for housing received by contractors has fallen by about half, producing a growing number of redundancies and bankruptcies in the construction industry. Consumer spending also shows clear signs of the recession. Retail sales have remained almost completely stagnant since the end of 1972, and the recent fall in real wages described below can be expected to make then decline further. A sharp decline has already shown up in car sales, which dropped by more than 20% in 1974 compared with 1973. The present level of consumption is being maintained only at the cost of a fall in personal savings from 11% of disposable income in 1973 to 9% this year. 3. Balance of payments As far as the effects on expenditure are concerned, the British economy is still in a period of "phony war, " because no serious efforts have yet been made by the government to correct the extremely large balance of payments deficit. Part of the deficit, of course, results from the oil crisis, and it remains true that a large section of funds from the oil-producing countries continues to flow into London, so the necessity to correct the deficit is avoided, of least in the short term. Even so, the British government has been forced to borrow huge sums directly from countries like Iran and from the Eurodollar market. 18
The reason the problem is so serious is that the British deficit consists not only of higher payment for oil but also of a huge deficit on the rest of its trade, which began in mid-1972, long before the oil crisis.
The total deficit is expected to be about E4,000 million in 1974, of which £2,400 million is occounted for by oil. The elimination solely of the part of the deficit not attributable to oil would imply the reduction of total consumption by about 5%. The balance of payments deficit, therefore, simply expresses the extremely strong pressures towards further recession that still remain in the British economic situation.
4. Budget deficit
The same potential is reflected in a different way in the immense size of the financial deficit of the central and local goverments. The public sector deficit has grown from E2, 525 million in 1972-73 to f4,497 million in 1973-74 and an estimated E6, 300 million in 1974-75. Only the printing of money to cover these gigantic deficits at present stops the huge potential for further recession from materializing. The local governments, which cannot print money, have fallen into a state of very serious crisis, and the result is growing expenditure cuts, especially in education, but also in all the fields in which local government operates (transport, health, etc.). The immediate crisis was staved off in November 1974 with a huge new grant from the central goverment. 5. Inflation These gigantic state deficits are closely related to the rate of inflation. The central goverment deficit has appeared partly as a result of desperate efforts by the state to stifle inflation through food subsidies and the necessary grants to cover the deficits of the nationalized industries and the local authorities. And the local authorities' deficits appear because of the steep increase in costs that they face in providing all their services. The rate of inflation in Britain has now risen to about 18% a year. Aside from a brief reduction as a result of the cut in value-added tax in July, the inflation rate has now been increasing more or less continuously since 1972. The effect of the price code, which has been in effect since 1973 and which limits allowable price rises to cover certain recognized costs, has probably been to limit a little the inflation that would otherwise have occurred. In the November 1974 budget the code was considerably relaxed. This relaxation, combined with the recent new occeleration in industrial costs, means that inflation is very unlikely to decline in the near
future. But in addition, the serious balance of payments situation began once again in late 1974 to reflect itself in the exchange rate of the pound, which fell by about 4% between August and December 1974. That will give a further sharp twist to the inflationary spiral. 6. Profits The recession in output and the rate of inflation in Britain are serious enough, but they are not exceptional compared to some other imperialist countries. What makes the British crisis exceptionally intense is the extraordinary deterioration in the economic position of capital that has taken place over the past ten years but has very fiercely intensified in the past two. One of the most readily available measures of this is the share of profits in the total value added of industrial and commercial companies. This rate fell from 15% in 1964 to about 10% in 1970. There it remained for about three years, prevented from falling further by the short boom of 1972-73 and by the Tory government's incomes policies. In 1974, however, it took a new nosedive: in the first quarter of the year, when the three-day week pushed output sharply down, the share of profits was negative; and in the second quarter it had only recovered to 4%. This represents a fall in profits of over 80% between the first half of 1973 and the first half of 1974. These figures are adjusted to exclude stock appreciation, the unrealizable profit that results from the effects of inflation in pushing up the value of normal assets in the form of stocks of materials and finished goods. The position is now one in which huge sections of British capital are failing to make realizable profits at all even before the payment of taxes. After faxes are paid the situation is worse, since under the British tax accounting system corporation tax normally has to be paid on the unrealizable capital gains in the form of stock appreciation. The drastic recent decline in profitability has been one of the things that have influenced the collapse in liquidity that has afflicted large sections of British capital in recent months. A good part of this collapse, however, is not the result of outside forces of which capital is an innocent victim, as the ConFederation of British Industries continually suggests, but is the result of conscious planning by the firms concerned in order to reduce their liquidity so as to raise their profits in an inflationary situation. The three-day week, in which wages were maintained at relatively higher levels than output, placed a heavy burden on firms that were already illiquid through choice and then were forced to do more short-term borrowing. That is one of the reasons
Heath's provocation in declaring the three-day week did not meet with wholehearted support from capital. The collapse of liquidity has produced a spate of bankruptcies or near bankruptcies. The total number of company liquidations rose by 15% in 1974. Among the first to have been forced into complete liquidafion in 1974 are Court Line (heliday tours), G. Stibbe (knitwear machinery), London Indemnity and General Insurance, and Nation Life (insurance). Among those that have been saved from bankruptcy only by injections of cash from the government are Ferranti (major electrical engineering firm), Alfred Herbert (major machine-fool firm), and Aston Martin (specialized motor manufacturing). And among those which are in a sufficiently parlous liquidity situation to be threatened with bankruptcy or near bankruptcy are British Leyland and many others. The liquidity crisis is particularly severe among certain sections of financial capital and in the property companies. Rumors of liquidations of insurance com panies and property companies are an almost daily occurrence on the stock exchange, and several of them have materialized. Significant insurance companies and property companies have gone bankrupt; several "secondary banks" have been subjected to rescue operations by the big banks, organized by the bank of England; one of these (Triumph Investment Trust) has gone into liquidation. Most of the banks in difficulty have been in the Eurodollar market and were hit by a steep rise in the rate of interest they had to pay for deposits during the semipanic that followed the collapse of the Herstatt Bank in Germany. The most dramatic single indicator of the acute worsening of the economic health of capital is the recent behavior of the stock market. The value of shares has now fallen in nominal terms by over 70% since mid-1972; when adjusted for inflation, this represents a fall in the total market value of shares by well over 80%. Saudi Arabia, for instance, could now buy a controlling interest in all public companies in Britain with something like six months of oil revenues! 7. Wages That the deterioration of capital's position has continued so rapidly shows how woefully insufficient have been the measures so far taken by both Tory and Labour governments to redress capital's economic difficulties. These governments have failed so far because they have feared the consequences of the confrontation with the working class that would be necessary as a prelude to imposing the needed economic solutions. Instead, both Tory and Labour governments have pursued a course of steady
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BRITAIN pressure against wages as well as a whole host of measures to siphon economic resources to capital through the financial mechanisms of the state. The ability of the working class to resist the continual pressure on wages has been limited, as wage movements in the recent period show. Over the whole period since 1964 there has been an increase of only 11% in the level of average real take-home pay (money wages adjusted for inflation and taxation). In 1973 this level was static and has fallen by about 4% during 1974. The Labour government's abandonment in July of the Tories' statutory incomes policy has led in the short term to an improvement in the movement of money wage rates, which in October were rising at 23% a year. Some of the gains, however, were the result of the final round of increases under the threshold agreements (limited cost of living compensation) that were introduced under Phase Ill of the Tories' incomes policy and ended in October. It is still too early to say how much these thresholds (now worth E4.40 a week to the 10 million workers who received then) are being incorporated into basic wage rates under new agreements. 8. Social contract It is too early to determine the results on wage agreements of the "advice" offered to union negotiators by the Trades Union Congress (TUC) under the social contract - the formal expression of the efforts by the Labour government and the trade-union bureaucracies to impose nonstatutory wage controls on the working class. The content of the advice is that wage claims should be made no more than once a year, that they should be for an increase no more than the rate of inflation in the past year or the expected rate in the coming year, and that if threshold increases have been received, then the claim should be equivalently reduced. The TUC also suggests that the claim should be raised to take account of the extra proportion of any increased wages taken in tax, though this last point has been very ambivalently presented. Additional claims may be made in respect of especially low-paid workers and women workers, and in producivity deals. The net effect of these regulations, if interpreted to the letter, is that at least half of all workers would be asking for wage cuts during the period of the agreement - very sizable wage cuts for all workers if the rate of inflation were to accelerate.
9. Welfare state
The decline in standards of health, education, and housing is occurring at an even sharper rate than
20 the fall in the real value of wages. Hit by inflation and rapidly rising interest rates (local authorities depend on loans to finance their spending, including outlays for education), most sectors of the welfare state are also being eroded by direct cuts in government expenditure. Previously rising at a rate of 7% (allowing for inflation), public spending is now to be cut by 5% in Chancellor Healey's latest budget. There has been no restoration of the E182 million worth of cuts made in spending on education by the Tories in 1973. The rude shattering of welfare state Britain is most dramatically seen in housing. Some 18.2% of British housing units are described as "unfit dwellings. " The reality behind this state euphemism is that over 1 million families live in slums. Housing construction (combining both public and private investment) reached a total of 425,855 units in 1968. This level had dropped to 304, 118 in 1973, and figures released for the first part of 1974 indicate a further slump of a possible 100,000 units from the 1973 figure. Meanwhile housing prices are rising faster than inflation. Secondhand housing that in 1970 sold for an average price of E4, 946 would sell in 1974 for E10,043.
OL COPTER S HOM E SS TO LET
Against the background of the recent large jump in the rate of erosion of social welfare, sections of workers have taken action to protect these services. Recently, miners in Yorkshire, one of Britain's major coal fields, struck for increases in nurses' pay. They justified their action in terms of the protection of the Health Service. Meanwhile, workers at one hospital banned servicing of private patients during actions to win pay increases. The big decline in the quality of life in all the city centers (teacher turnover rate is 30% in some London boroughs, many Glasgow children have had only three day a week education for several months, over 1.5 million people in London have no inside toilet, or hot water, or bath) has created direct action groups, like squatters seizing empty property. In addition to the immediate fight over the cost of living, the need to protect elements of the welfare state that face government "rationalization" is likely to continue to be an important theme of the unfolding class struggle. 10. Labor bureaucracy A great part of the energies of the leadership of the Labour party and of the leading members of the trade-union bureaucracy have for several months now been devoted to propagandizing for the social contract form of wage control and publicizing a danger of mass unemployment if it is not enforced. Many of those who in the last few years have been regarded as leaders of the "left" in the trade-union movement have joined in the propagandizing. Jack Jones of the Transport and General Workers Union, for instance, adds to propaganda for the social contract a plea that workers should not make wage demands that create financial difficulties for the firms concerned. Given that the Confederation of British Industry is now increasingly saying that British capital cannot afford even those wage levels implied by the social contract, this presumably means that Jones will be advocating even lower wage claims. The TUC has also joined the campaign of the CBI for higher profits, and it therefore gave a warm wel come in November to Chancellor Healey's third budget, in which he distributed about £2,500 million unconditionally to capital in various ways. This was done first by abolishing the taxation of stock-appreciation profits; second, by making relaxations in the price code on allowable costs, thus permitting larger price increases; and third, by organizing a E1, 000 million fund to be raised from the banks with which the government would provide medium-term finance to capital.
The "Icft" Tribune group in the Labour party has reacted to the financial crisis of capital and the recessionary danger by saying that they do not exist. And this, as much as the right's call to restrain wages in the interests of profitability of capital, could serve to prepare the way for rapid and severe cuts in workers' living standards, since workers cannot prepare for a crisis that they do not believe to exist. Until recently the bureaucracies were having some success in imposing the social contract: Numerous low wage settlements have been made; at the annual conference of the TUC the halfhearted opposition to the social contract led by the Amalgamated Union of Engineering Workers (AUEW) crumbled willingly in response to a demagogic appeal by TUC General Secretary Len Murray; and a move inside the AUEW to put in a wage claim that would break the social contract was defeated in favor of a vague formula for a "substantial claim. " More recently, however, the rank and file have been making some inroads: The series of militant strikes in Scotland in October and November, which the bureaucracies were unable to control, led to some quite high wage settlements; and the miners' ballot in November threw out the National Coal Board's productivity deal, opening the way for another large wage claim not linked to productivity. The leaders of the Labour government are taking the line in the face of the growing recession that unemployment is a worse danger than inflation, and in interational meetings they are arguing against deflationary policies. Domestically the government has been prepared to see a rapidly growing government deficit because of its subsidies on food, the subsidies to the nationalized industries, and the massive handouts to capital. The policy, however, is not nearly as expansionary as it looks: The subsidies of the nationalized industries are to be rapidly phased out; and while the handouts to capital are officially supposed to lead to more investment and therefore to a way out of the recession, this is scarcely likely to happen when with the other hand the government is doing everything it can to hold down consumption through wage controls under the social contract. These handouts may avoid a few bankruptcies in the short term but are more likely to be used by capital to reduce debts to the banks rather than to finance investment. They will probably do little, therefore, to offset the growing recessionary pressure that was reemphasized early in December by an ominous rise in industrial stocks. U
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