By Michael Burke
In Britain, Marxist economics is not very popular, even among Marxists. Instead, an eclectic mix of ideas prevails. Beginning with an objective analysis of the current state of the economy, the framework here is that Marxist analysis cuts through the popular misconceptions on the economy and addresses the sources of the current crisis.
It is now possible to argue that a chronic British crisis is becoming an acute one.
It is widely understood that historically, Britain was the dominant economic power in the world. That period lasted effectively after defeat of Napoleon and from 1820 onwards to 1870, when relative economic slowdown began. For a long time, this trend was obscured by the existence of the British Empire. It seems that in the minds of many, it still is. The cause of the decline was that British capitalism found more profitable outlets for investment internationally, where it could use superior technology and/or brute force to win and dominate new markets. The Empire meant that the potential for profits in the domestic market was always going to struggle to compete with starvation wages in the colonies.
This became the ‘British disease’, the lack of private investment and the inevitable economic relative decline that followed. That is the long history.
But this is also extended through to the current crisis. The chronic relative lack of investment has now become acute. In 6 years since the 1st quarter of gross 2019 private sector investment has risen by just 8.7%. This is barely 1% a year and questionable whether this corresponds to a rise in net fixed capital formation, as it may well be less than the rate of depreciation and dilapidation.
The British economy’s Investment (Gross Fixed Capital Formation, GFCF) is about £500bn a year, equalling about 9% of existing capital stock. Most accountants would not allow a firm to depreciate its capital stock by just 9% a year, it would need to be much higher. Even if ‘UK plc’s’ capital stock does include railways and bridges (which have a much longer useful lifespan than firms’ fixed capital), GFCF which is just 9% of the existing capital stock seems too low to match the replacement level. The functioning capital stock of the British economy may be contracting.
The competition with confusion
Marxism is not necessary to outline this crisis. But it is necessary to explain why this has happened in this way, or to begin to outline an effective response to the crisis.
Firstly, this is because mainstream economics offers only confusion where explanation should be. To give a very concrete example of this, the Bank of England insists that there is a ‘productivity puzzle’ in terms of explaining the low growth of the economy and of productivity in particular. And there are 792 citations for 10 scholarly articles on the productivity puzzle on the first Google page alone. It is a very popular idea.
Yet there is no puzzle at all. If we take manufacturing, ONS data are startling and decisive. In real terms the manufacturing stock of fixed assets is almost unchanged over nearly 30 years. The means of production in the British manufacturing sector are not increasing.
As a result, it is extremely difficult to increase the output of the manufacturing sector. Yet, in fact, manufacturing production has increased at a very moderate pace over that time. In addition, when the total workforce and hours worked have also both declined sharply, the modest rise in output is closer to a productivity miracle than a productivity puzzle.
Of course, mainstream economics has a vested interest in obscuring the causes of the crisis, including at the very top like the Bank of England and the OBR. They represent the interests of the class that is responsible for the dearth of investment and the crisis overall. That is inevitable.
To take another example, there is an army of private sector economists in this country, many of them working in finance. Yet how many of them ever refer to the 2007-2008 crisis being caused by the over-speculation of the finance sector, its deregulation the economy’s over-reliance on finance and the role of US finances in provoking the global slump? Of course they do not. They have a vested interest in obscuring that truth too.
But what about the non-mainstream forces? The people who do not accept mainstream explanations for the crisis? If the British capitalists are on an investment strike, why is the British left on a strike against Marxist economics? Why is the most popular economist on the British left Keynes, who was a Liberal? And, even then, why do they mostly reject his prescription for a “somewhat more comprehensive socialisation of investment”?
They refuse to accept the role of the public sector, the State, interfering in the realm of the private sector, which in a capitalist economy like Britain in peacetime, dominates the investment function. They do not advocate increasing socialisation of investment.
Instead they promote a series of alternative explanations. These merit discussion because unfortunately they dominate the economic thinking of the progressive forces in this country.
These ideas include, but are not exhausted by:
- The government can just print money to get out of the crisis
- Tax revenues don’t fund government spending
- Governments can spend without limit
- Boosting Consumption is the way of the crisis, because under-Consumption is the cause
- Financialisaton is the cause of the crisis, and ethical banks or bankers are the answer, there are many more.
The fact that most of these nostrums, where possible, have been tried in the very recent past and failed does not impinge on their thinking:
- Biden/Trump/Sunak boosted Consumption without Investment and all we got was inflation
- All the G7 central banks printed money without limit and we got no substantial economic recovery
- Liz Truss spent without limit, and look what happened next
- Aside from abolishing taxation, it is hard to test the claim that taxation does not fund government revenues, but we can be sure disaster would strike very quickly. Merely cutting taxation, like Reagan and Thatcher, or Milei now leads to ballooning deficits
- And, good luck with finding ethical banks or bankers!
As we know, Keynes was a Liberal, albeit one who, in the realm of finance and the economy was attempting a largely objective analysis of the various economic crises of his lifetime, related to WW1, Versailles, the 1929 Crash and WW2.
However, much of the inner workings of the economy remained a mystery to him, even though those inner workings, and their ‘laws of motion’ had already been analysed by Marx. These include trade, which is how Capital begins, profits and their centrality under capitalism, the law of the tendency of the profit rate to fall, the Marxist law of value, and so on.
Many of these key analyses are either completely misunderstood or neglected altogether, even in left narratives on the economy. You are more likely to hear the word profits on a US business channel that you are in a political discussion about the economy.
But they all need to be reinstated, even if this seems like an uphill task. Because there are material interests and social forces which have every interest in removing Marxism from our lexicon, in denying his analysis and ignoring a whole body of work.
Harold Wilson famously said he had opened Capital at the second page and promptly closed it again. True or not, matters have not improved since.
The explanation for this lies in the role of the labour and trade union bureaucracy. They preach social peace, Marx does not. The prefer ‘keynesian’ solutions, not disruptive Marxist ones that might lead to conflict with capital. They hanker for a return to keynesianism now, when Marxism suggests that is no longer possible. Attacks on welfare, the war drive, repeated bouts of high inflation and the renewed turn to draining the public finances all point in the same direction. Capital is on a major offensive, essentially to increase the rate of exploitation as their way out of the crisis. They have no interest in listening to pleas for pump-priming the economy.
There is an alternative
Marxism tells us that a society develops economically through the accumulation of capital and the development of its productive capacity. In addition, the development of those productive forces outgrow and come into conflict with the existing relations of production, private ownership. But it also tells us that the capitalists’ dream is to accumulate without investment.
Taking these together, in Britain now we have instead the nightmare where the capitalists do not invest, the productive forces are not growing and their only method of accumulation is to increase the rate of exploitation.
A government attempting to operate in the interests of the working class and the oppressed would need to break this logjam. The main way to break it is through a sharp increase in public sector investment.
Of course, there is no reason in principle why at least sections of the ruling class might oppose such a policy. As for the allocators of capital in the bond markets, there are no borrowing restraints either when real long-term interest rates are below 1%, contrary to the claims of even some left economists.
After all, many private sector firms would benefit from public investment in housing, transport, IT and renewable energy. And many more would benefit indirectly from policies that improved conditions and health of workers, that cut delivery times, that improved connectivity or lowered their bills. The public sector has frequently rescued the private sector, most recently in the banking crisis of 2007-08.
But there is both a structural and conjunctural objection to these policies. In extremis, previously violent objections the public sector intervening in the economy can fall away if sectors of the economy have either exhausted their potential for profitable returns (say the train operating companies) and/or their disrepair undermines other sectors of the economy (such as the coal industry at the end of World War II). But these are exceptions, not the rule. Generally, there is ferocious resistance to any efforts by the state to encroach on private sector investment.
There is now also a conjunctural difficulty to a programme of public sector-led investment. The crisis of profitability of the British economy means there is a strong tide in favour of dismantling public sector institutions in favour of the private sector. This takes place through underfunding, outsourcing, overcharging, PFI and outright privatisation. The largest public sector organisation in the country is the NHS, and it is subject to all these impositions. But they are widely applied across the public sector.
The most recent development is to funnel public money to private arms’ manufacturers through an increase in the military budget, providing huge profits but no economic benefit whatsoever. There is too the general drive against wages, principally by the policy of stoking inflation, and reducing the social wage through cuts in welfare and the social safety net. Overall, the policy to increase the rate of exploitation to resolve the crisis.
Therefore, the central demand for public investment remains the appropriate economic response to the crisis, and all other schemes have failed over 15 years. But only the working class and its allies have no interests preventing the adoption of this policy. Politically, advocates of the policy should expect to be ignored and dismissed and then viciously attacked only when these ideas become more popular.
Overcoming the failed policies which have lasted centuries is sure to be a prolonged struggle.
The above are some notes made for a meeting at the Marx Memorial Library, ‘What can Marxism tell us about the crisis of UK plc?’ Video of all the presentations can be found here.
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