The British economy went into its current recession before any of the other advanced capitalist countries. It will also be the last to come out.
The recession began at the start of 1980. The slide in industrial output accelerated in January 1981 and there is no clear sign of the recession bottoming out. Indeed the recent Tory budget which took a further £3.5 billion out of the economy threatens to send it into a tailspin.
Britain has gone deeper into recession than the Tories planned or the bosses anticipated. But the recent budget made it clear that if Thatcher has her way, the punishment will continue until the working class is broken, or until the resistance to her policies from the working class turns her out of office. From the sound of the recent bleatings of the bosses in face of the budget, it seems that they are afraid that the latter will be the likely outcome of the continuation of Thatcher's policies. The British Slump
In 1980, the output for the whole economy (gross national product) fell by 3% But even this figure gives too flattering a picture. The situation has been a deteriorating one. The major decline was in the latter part of the year. Thus in the last quarter of 1980, total output was down 5.5% from a year earlier.
Compared with the peak of the last business cycle, this represented a 6.8% contraction. So the present recession is likely to be much worse than the 1974-75 recession when the drop was 4.8% between peak and trough-third quarter 1973, to third quarter 1975. (The figures are from Report of the Central Statistical Office, [CSO] February 1981) Things are getting worse, with the burden falling on manufacturing industry.
In January, industrial output fell by 1.3%. This was the seventh monthly drop in a row. Industrial output for the three months November to January showed a staggering 11.5% drop over the same period last year. This is the largest decline since the crash of 1930. The drop is worse, (13.5%) if oil and gas production is left out.
The figures for manufacturing industry show a 14.4% drop in output since January last year, and the figures then were depressed by the steel strike. (In the three months from November to January the drop reached 3.6% on the previous three months.) The core sectors fared even worse. Metal manufacturing was down by 20%, engineering by 17% and chemicals and petroleum by 16%. (Figures issued by the Central Statistical Office, February 1981.)
To try to get a measure of the decline, we could note that the car industry turned out only 924,000 units in 1980 against 1.64 million in 1970. Steel output was down from 28 million metric tons in 1970 to 11.2 million last year. As for the construction industry, the usual indicator of economic activity, the budget submission by the National Federation of Building Trades Employers, predicted that by the end of this year output will be 25% below its 1970 level.
The response of the bosses to this situation has of course been to go in for an orgy of destocking. As a consequence investment in manufacturing declined last year by 6%. The Department of Industry prediets that this year the volume of capital spending will decline by a further 15% to 20%.
A challenge to this bleak picture has been the way that exports have apparently held up despite the strength of the pound sterling. Last year saw a balance of payments surplus of £2.5 billion. The first two months of 1981 gave a £1.65 billion surplus-half the projected yearly target. But for several months now, the Confederation of British Industry (CBI), has been pointing out that the strong pound is undermining exports. In just these same two months of 1981 the volume of manufactured goods exported fell by nearly 9%.
In any event, oil trade and "invisible" exports such as banking and other services (including the Common Market repayment on Britain's budget contribution) amount to more than 80% of the current account surplus.
The reality is that Britain has suffered a catastrophic loss of competitiveness—estimated by the Bank of England last December to be an astonishing 40% below 1975 levels-that will in time show through the current account.
This will be all the earlier as the previous export performance could take advantage of a situation where most of the advanced capitalist countries had still to go into recession. This no longer pertains.
The other bright spot for the government has been the way that inflation has been brought down over the past year. In February 1981, the Retail Price Index fell to 13% from the 20% level one year ago. But even this is threatened.
The main indicator that the government has chosen to monitor its success in bringing down inflation has been the money supply. This grew at twice the 7% to 11% rate that the government had projected. By the April target date, it will have grown by well over 20%.
The big companies bear a large part of the responsibility for increasing the money supply. In October bank lending to industry totaled £3.6 billion. This has been increasing at an average monthly rate of between £400 million and £500 million a month since then (Financial Times, December 19, 1980).
High interest rates, which according to the monetarist religion should have kept the money supply in check, have had precisely the opposite effect. Companies have had to borrow more to pay interest on previous loans.
The severity of the recession is such that despite the unprecedented large number of bankruptcies—2,068 companies went bankrupt in the last quarter of 1980 alone, a 38% increase on a year earlier-banks are "bending the loan rules" to prevent more. According to the November 23, 1980, Sunday Times, "Helping to keep British industry afloat will cost the major High St. banks up to £400 [million]" in 1980 as provision against doubtful debts.
This situation has been exacerbated by the sharp fall in the rates of profit of industrial and commercial companies. This (excluding North Sea oil) had been cut at the end of last year to 4.5%-a full percentage point lower than during the 1974-75 recession. This has affected blue chip, high productivity and export oriented industries like ICI, Metal Box Co., and Courtaulds. ICI showed no trading profits for the first nine months of 1980, Metal Box was in the red last year on its British operation for the first time in living memory, and Courtaulds' profits collapsed from £30 million to £3 million.
Looking at a company more dependent on the hard-hit car industry, Lucas Industries, the motor accessories and aircraft equipment group, plunged £27 million into the red for the six months preceding January-down from profits of £12 million. GKN, Britain's top engineering company with extensive steel interests, saw profits of £126 million turn into a £1.2 million loss. International Computers Limited (ICL), Britain's only main-frame computer manufacturer, had to be rescued from bankruptcy by a £200 million government loan guarantee following a loss of £20 million in the last three months of 1980.
In face of this, the bosses have been screaming at the government to decrease its debt by massive expenditure cuts in order to allow a sharp fall in the punitive interest rates dictated by its monetarist policies. The public sector borrowing requirement (PSBR) to April this year will be nearly £14 billion—a gargantuan overshoot of the government's target of £8.5 billion. This amounts to 6% of gross domestic product virtually the same as in the 1974-75 recession. The plan was to cut that in half to avoid the massive acceleration in inflation which followed the last recession.
But, this isn't because Thatcher's gang is wavering over its plan to all but dismantle the welfare state. Last November, a vindictive package of cuts was announced of some £1 billion off public expenditure (which stood at £105 billion) for the year. Within this, defense expenditure was increased by almost 3%, while local authority spending-the major spending on welfare services-was to be cut by 3% in volume terms.
What this latter cut was to mean in real terms was clarified by Tory Environment Minister Heseltine in December when he announced a complete ban on further local authorities' housebuilding and announced a system of vindictive punishments against "overspending" local councils.
These cuts were not meant to be general aggregate cuts. They were meant to be different than Labour's which had resulted primarily in cut backs in capital spending projects. Tory cuts were aimed at wage cutting and destroying services through cutting jobs.
Some success has been achieved on this front. Local government shed more jobs last year than ever before. But the 2.2% or 45,000 jobs cut (excluding increases in the forces of law and order), are really nothing comparable to what has been going on in the private sector.
Worse, from the bosses point of view, the wage bill at £30 billion for 1980-81 was a whopping 25% increase. Wages in the public sector have been rising twice as fast as in the private sector. (Economist, March 14.)
So the government plans have come up against the obstacle of the working class. This has been manifested in the way that local Labour controlled councils have been pressured to put up resistance to the Heseltine measures. It has also been registered in workers' resistance to the government imposed 6% limit on public sector wage rises—a measure in itself originally thought anathema to monetarists. Thus, at the time of writing, all the workers in the civil service are involved in industrial action to force an improvement in a 7% wage rise offer.
Nonetheless, cuts in services have proceeded if not in exactly the form the government wanted. Further cuts are in the pipeline for July. Manual workers in the public sector have settled for 7.5% increase—even if they are so far mounting a determined resistance to job losses. So why the massive overshoot in the PSBR?
The Economist of March 21 summed up the reasons in its typically sardonic fashion: "Through grants to Britain's steel, coal, rail, motor and defence industries, the government has spent counter cyclically with greater munificence than any since the war, including Labour ones."
"Counter cyclical" spending had nothing to do with the upwards of £3 billion spent in this fashion. The reason was the strength of the working class. This was graphically the case in coal, when the government was forced to do a dramatic about-face cancelling all proposed pit closures and threatened redundancies [job losses] in face of a developing miners strike in late February. This action threatened to unify the whole class in a movement to bring the government down. Similar concern was at the root of the decisions to fund the British Steel Corporation (BSC) and British Leyland (BL), although the situation was less clear-cut, and the successes against the workers involved were greater.
Added to the reasons for the overshoot was the greater amount spent on ameliorating the effects of unemployment (£815 million) and the costs of unemployment pay and loss of tax revenue from the unemployed (approximately £1 billion more).
Of course, there was never a chance that a full-blooded monetarism could have been implemented in Britain given the social relation of forces. Britain is not Chile. What Thatcher's version gave a cover for was the deliberate creation of mass unemployment as the decisive weapon to batter the working class into submission.
But the result has been that the Tories have thrown everything that they had at the working class without making any decisive breakthrough. To the contrary, as it continues to pile on the pressure, a backlash is threatened which could engulf it.
The Reserve Army of Labor
Figures announced for March show unemployment standing at 2,484,712, that is, 10.3% of the working population. The rate shows no signs of slowing down. As the March 25 London Guardian commented: "Next month, short of an economic miracle, the 2.5 m[illion] total will be exceeded with worse to follow in the summer when the jobs market is flooded with schoolleavers."
In January, the Organization of Economic Cooperation and Development (OECD) reported after close consultation with the Treasury that 1981 is likely to see a further million unemployed. By mid 1982, 3 million or 12% of the workforce will be officially out of work. This projection was confirmed by a recent leak from the Treasury which anticipates a 3.7 million figure by the end of 1983. (Sunday Times, March 22, 1981.)
These official figures underestimate the situation. It has been suggested (New Statesman, March 27, 1981) that nearly another million must be added in order to take into account the number, primarily women, who do not register. This would make the number of women unemployed equal to that of men.
Youth have been hit exceedingly hard. In the year up to January 1981 there has been a 73% increase in the number of unemployed people under the age of twenty-five.
Employment Secretary James Prior has attempted to utilize this horrendous situation facing youth to suggest the establishment of a voluntary training scheme for up to six months in the army!
Long-term unemployment (that is those unemployed for more than a year), increased by 100,000 in 1980. Standing now at 455,000, long-term unemployment accounts for 20% of those without work. (All figures are from the Department of Employment Gazette, February 1981.)
Overall, in 1980 one in ten lost their jobs in manufacturing. In metal manufacturing this was one in five. In textiles one in seven.
In addition, there were 501,000 workers on short-time in manufacturing by the end of 1980. But overtime working still amounts to 8.2 million hours a week (down from 15 million hours per week a year earlier).
In this situation, of course, workers have been thrown onto the defensive. Wage rises have steadily declined. In the three months November 1980 to January 1981, the average increase in basic rates was 9% compared with over 20% for the corresponding three months a year earlier. Nonetheless, for those still in work living standards have continued to rise to date.
The number of work stoppages in 1980 (1,262) was the lowest since 1941. However, the Tory press was crowing a bit too soon. The number of days lost (11,920,000), although considerably down from the previous year's astronomic figure of 29,474,000, was higher than in 1970 and 1973 under the previous Tory administration, and higher than in the first three years of the last Labour government.
The average number of days lost per year for the past ten years was 12,870,000. But this included three exceptional years of strike struggle: 1972, with the first miners' strike and an incipient general strike to free five dockers imprisoned under infamous Tory antiunion laws; 1974, with the second miners' strike which culminated in the fall of the Heath government; and 1979 with its "winter of discontent" against the wage-cutting policies of the last Labour government-again, a movement that led to the downfall of the government.
Moreover, to get a real measure of the tempo of the class struggle we would have to add the days lost through political strikes which are not included in the official figures. These would include the stoppages by aerospace workers (March 3 and 24) protesting against the denationalization of their industry; strike action in solidarity with the steel strike in South Wales; and the stoppages connected with the Trades Union Congress (TUC) "Day of Action" on May 14. Just adding the 2 million or so engaged in the latter action would put the figure above the average of the past ten years.
Of course, it would be foolish not to take account of the much greater hesitancy that exists among workers about taking strike action reflected in the sharp decline in the actual number of strikes and the decline in the overall number of workers involved (excluding the TUC Day of Action). In fact, six major disputes accounted for 9.5 million of the days lost. Of those the thirteen-week steel strike accounted for 8.8 million days lost, or 74% of the total.
The underlying relationship of forces was clarified in the miners' strike. The government was left with absolutely no doubt that British industry would be brought quickly to a halt if the miners struck. Solidarity was promised from dockers, rail workers, and steelworkers. It was absolutely clear that virtually no one would cross the miners' pickets. In flagrant defiance of the new Tory antipicketing laws they made clear their determination to send flying pickets to prevent the movement of coal from stockyards to power stations and other major users.
The government's fear had already been revealed when it granted a 13% rise to the miners without a struggle. A similar attitude to other strong groups of workers had been struck by the government when the dockers forced a complete climb-down by the bosses from their threat of large-scale redundancies, the tab being picked up by the government.
The role of the trades union bureaucrats has therefore been thrown into sharp relief. There is nothing immovable about this government nor are workers lacking in willingness to take it on. In reality, in a whole series of key confrontations, it was only the open and blatant sabotage of the bureaucracy that allowed the bosses to impose their will. We had already seen this in relation to the steel strike early last year, where, although the final settlement of 16% was a far cry from the original 2% "final offer," the thirteen weeks of bitter struggle had put the satisfaction of the full demands in sight. Moreover, it was the bureaucracy that compartmentalized the fight for higher wages from the fight to defend jobs. After thirteen weeks, and feeling sold out, the steelworkers did not have the ability to prevent the bureaucracy from selling 50,000 jobs.
The situation in British Leyland was even more obvious. On three separate occasions, in relation to three separate attacks by the bosses, workers voted for strike action (or actually went on unofficial strikes). But each time it was the bureaucrats that sabotaged the fight. The last one was typical. The workers voted to reject an 8.2% wage offer but the bureaucrats simply refused to act on it, continually reposing the matter in front of the workers until they got a majority for acceptance.
A virtually identical situation pertained in Fords and elsewhere.
So the pattern became clear. Use the bureaucracy for all it is worth. But if that fails, compromise in order to avoid a real confrontation. Thus the miners, waterworkers, gas and power workers will all have achieved a 13% raise.
But the problem for the Tories was that they had rejected a policy of directly relying on the union bureaucrats to do their dirty work. Unemployment and a decisive weakening of the class especially at the level of the plants was going to do the trick. But even in the face of 2.5 million unemployed, the level of organization in the factories remains largely intact. To be sure, some individual unions have lost some members, but the last Trades Union Congress (TUC) recorded yet another overall increase in union membership. (See table. Note that in the last period when there was a sharp increase in unemployment in 1971-72, this was immediately reflected in the loss in overall union membership. This is not yet the case, today, although unemployment is very much greater.)
Changes in British Trade Union Membership, 1969-1979
Year | Number of unions at year end | Membership in thousands: Male | Female | Unclassified | Total | % change in membership 1969 | 565 | 7,972 | 2,507 | — | 10,479 | +2.7 1970 | 543 | 8,444 | 2,743 | — | 11,187 | +6.8 1971 | 525 | 8,382 | 2,753 | — | 11,135 | -0.5 1972 | 507 | 8,452 | 2,907 | — | 11,359 | +2.0 1973 | 519 | 8,450 | 3,006 | — | 11,456 | +0.9 1974 | 507 | 8,586 | 3,178 | — | 11,764 | +2.7 1975 | 501 | 8,729 | 3,464 | — | 12,193 | +3.6 1975* | 470 | 8,600 | 3,427 | — | 12,026 | — 1976 | 473 | 8,825 | 3,561 | — | 12,386 | +3.0 1977 | 481 | 9,071 | 3,775 | — | 12,846 | +3.7 1978† | 462 | 8,791 | 3,692 | 628 | 13,112 | +2.1 1979 | 454 | 8,963 | 3,888 | 645 | 13,498 | +2.9
*These notional figures exclude 31 organisations previously regarded as trade unions (see article on page 1203 of the November 1977 issue of Employment Gazette).
†Prior to 1978 figures for trade union members not clearly identified as male/female were included proportionately in the appropriate totals.
Of course there have been changes in the plants. A notable defeat was recorded with the victimization of the leading rank-and-file leader Derek Robinson and another group of stewards in British Leyland. But this has not been able to be translated across-the-board.
This situation is marked by an accelerated turnover of the rank-and-file leadership in the shop stewards committees. This has often thrown up a new layer of militant but untested leaders. Even in the cases where there has been little change of personnel, stewards committees have shown a real instability in political complexion, being capable of moving rapidly to the left.
But the most important index of the character of the situation in the class is the leftward moves inside the Labour Party. Eighty thousand people joined the Labour Party in 1980. Local union affiliation to the party has developed on a broadening front-pioneered by the Yorkshire miners, led by left-winger Arthur Scargill. The developing pressure on the trade-union bureaucracy was seen at the last Labour Party conference at Wembley when the vacillation of the union bureaucracy allowed the left to score a remarkable victory which gave a decisive say to the unions in the election of the party leader (that is, any future Labour prime minister).
The developments in the LP represent an attempt by a new layer of working-class leaders to solve the burning questions facing the class which can no longer be resolved at a local or sectoral level.
The advance of the militant left, and the adoption by the Labour Party of a leftwing alternative to the Tories is a factor weighing heavily on the response which the Tories make to workers' challenges to them. This was a clear factor in the capitulation to the miners. It is also an important element marking the response of the bourgeoisie to the crisis of Thatcher's policies.
In relation to productivity the situation is unclear. At the end of 1980, the Bank of England reported that "It does not appear that productivity performance over the past year or so has been significantly different than in the mid-seventies." (Bank of England Quarterly Bulletin, December 1980)
Given the extent of short-time working (500,000 in manufacturing) it would be illegitimate to draw premature conclusions from this picture. Productivity gains have undoubtedly been recorded. Some of these have been very large indeed. This is especially true in BSC, BL, and Fords, and other large-scale manufacturers. There is evident satisfaction by the bosses on this
front, although the permanence of their gains will only be really tested when the economic upturn comes. BL cannot be encouraging in that regard.
The real problem for the bosses, especially the dynamic export-oriented sectors, is the present framework of the government's economic strategy. Everyone was aware that problems would ensue from the high value of the pound sterling which now has the status of a petro-currency. But its value has been buoyed up further by high interest rates and the consequent movement of large amounts of speculative funds to London has meant that there has been an adverse movement of 40% in relative labour costs.
The Independent Treasury Economic Model (ITEM) group of economists pose the problem this way: "The loss of competitiveness [in 1980] was on such a scale that it went far beyond industry's capacity to offset by productivity gains and by lower wages" (Guardian, January 5, 1981).
In other words, the short and medium term interests of the big bosses are coming into conflict with the unexpected economic consequences of Thatcher's longer term objective. Thatcher's project to reverse the sixty year decline of British capitalism by inflicting a decisive defeat on the working class had been a shared perspective, but 2.5 million official unemployment has failed to deliver the goods.
In a number of tests, Thatcher has shown herself to be dangerously weak. A series of piecemeal concessions which she has been forced to make have had the consequence of producing unexpected results which have hurt major manufacturing concerns.
Given their shared objectives the bosses very much welcome the recession and the mass unemployment. They were quite prepared for short-term sacrifices. Now, as Thatcher seems to be failing, they are beginning to lose their nerve. If 2.5 million unemployed has not done the trick, who knows what might be needed? Who knows what reaction will be stirred up? Who knows what the consequences might be for Britain's industrial base?
This was the context in which Chancellor Geoffrey Howe prepared his March budget. For some months, criticisms had been mounted by the bosses and their representatives. Terrence Beckett, chairperson of the Confederation of British Industry had already stated the need for "a bare knuckle fight" to force Thatcher to change course. An all-party committee of MPs, with a Tory majority, had produced two reports which had challenged the validity of the government medium-term economic strategy.
Industry wanted the budget to mark a change of course. The CBI demanded a reflationary package, biased towards helping private industry come out of the recession—a package which would slash interest rates significantly and lower the value of the pound. They wanted cuts in taxes on industry which would have put £1.9 billion in companies' pockets. All commentators were calling for "a new industrial strategy." The CBI produced its own "master plan" aimed at reviving the British economy. Finally they wanted a change in public sector spending towards financing capital projects (which have declined by 40% since 1970).
The actual budget came like a bombshell. It took £4.5 billion out of the economy (including the £1 billion delayed from last November) through a mixture of direct and indirect taxation aimed primarily at the working class. This will push inflation up by 2%. The TUC estimated that between £4 and £5 will have to be added to union wage claims as a result. At the same time its constraints were such as to be unable to meet the demands put forward by the bosses. Only minor concessions were given worth £860 million in a full year. Sir Raymond Pennock, president of the CBI, called the budget "a kick in the teeth."
The budget on the other hand was welcomed by the City [London's financial district]. Share prices went up rapidly in the weeks following the budget. It would, however, be quite mistaken to see some basic division opening up between sections of the bourgeoisie, or Thatcher favouring the City as against industry.
The problem was that a "turn" along the line demanded by the CBI, although meaning a continuation of the attacks on the working class because of the reflationary consequences, would have been interpreted as a weakening of Thatcher signaling a change of priority from "fighting inflation" to dealing with unemployment and thus giving concessions to the working class. Just prior to the budget Thatcher had made a humiliating climb-down in face of the miners' challenge. The main concern was to avoid any idea that the budget was a continuation or endorsement of this capitulation. But this intransigence was play-acting. The capitulation to the miners was a real defeat.
The unpopularity of the budget within the working class threatens political disaster for the Tories. The growing disillusion of the ruling class has put Thatcher in an isolated position. Most major figures in her Cabinet, outside a small inner circle, have let it be known that they neither agreed with nor were consulted about the budget.
The overwhelming pressure is for Thatcher to change course-or if she refuses to remove her. The March 15, Sunday Times summed up the concensus: "If [Thatcher] continues [her policies], the electorate will have its revenge and it will be right." Or, more forthrightly, the March 15, Observer: "Mrs Thatcher must be persuaded to change course or she must be removed."
Pete Walker, a prominent cabinet "wet" and old Heath supporter has started a public campaign for "a new industrial strategy to save industry from extinction." He further argued for a policy to reduce unemployment. But this is already to throw in the towel.
The dilemma facing the bourgeoisie will not be easily resolved. To continue with Thatcher's policies or to do a "U-turn"- both are equally dangerous options. 1981 has opened with a rash of industrial disputes including a number of factory occupations against redundancies, with some victories being chalked up. Combined with events in the Labour Party they promise to prevent the bourgeoisie from gaining the defeat of the workers movement they wanted from the recession.
March 27, 1981