Socialist Economic Bulletin

All climate politics is global

By Paul Atkin

As revealed in this Oxfam Report, the poorest 50% and middle 40% of the global population have a minimal or declining carbon footprint. The top 10%, and even more the top 1%, already have carbon footprints that are unviable and are increasing so fast that they will have bust us through the 1.5C limit on their own by 2030.

The top 10% are people who are on more than £125,000 a year. Most of them live in the Global North, but are a minority even here. The working class in the Global North, is overwhelmingly in the middle 40%.

The strategy of the ruling class in the Global North is primarily to sustain their own wealth and power.

  • Some of them are in denial about climate change as a result.  
  • Even those that recognise reality can only envisage a green transition which prioritises their own consumption standards by keeping the bottom 50% impoverished. Carbon offsetting by keeping the global majority in their place.
  • Hence the failure to transfer investment to the Global South and the prospect that the 350 carbon bombs identified by the Guardian will be dropped; because it is profitable to do so.
  • This underlines the paradox of the debate about “stranded assets”, as assets are only stranded if there is a viable transition. If there isn’t, they stay profitable until everything collapses around us; which will always be the stronger motivation for companies operating on quarterly profit returns. The notion that Fossil Fuel capital will be more motivated by social responsibility than profits runs counter not only to the record of its counterparts in the tobacco and asbestos industries, but also its own record in covering up its own research on the climate impacts of its operations from the 1950s onwards. They knew. They covered it up. Now that we know, they greenwash instead.
  • As they recognise that climate breakdown will create social and political crises on an unimaginable scale, from waves of climate refugees to possible war in the Arctic, they are prioritising military spending over solving the problem. The US government is spending 14 times as much on its armed forces as it planned to do on domestic climate measures – and then didn’t agree to. They have committed $40 billion to stoke the war in Ukraine rather than seek a peace deal; while climate transition funding for the Global South is reluctantly dispensed through an eye dropper.

What that means is an immediate future dominated, not by win-win global cooperation to solve our problems and build a sustainable society, but by wars and crises that make doing so ever more difficult. Campaigning against these is an urgent priority for anyone committed to Just Transition.

A strategic challenge for the working class in the Global North is therefore recognising that our own ruling classes are structurally incapable of making the transition; but are divided between those that will openly sabotage it and those that will float half measures.

While we can bloc with the latter against the former, if we want a full transition, we have to lead it. If we don’t want to be thrown under the bus, we have to be driving the bus. That means thinking like the leaders of society, because it’s our job now. And we need to seek alliances with the global majority, including countries that see themselves as Socialist.

The tactical challenge is that we operate in a national polity that presumes a “national interest” that subordinates the working class to the ruling class and this is deeply ingrained in popular perception, political (and union) movements; so consciously thinking internationally – outside the limits of the Brit Box – and framing our campaigning accordingly is essential.

Exposing the causes of the surge in prices

By Michael Burke

UNITE the union’s new general secretary Sharon Graham has launched a ‘profiteering commission’ to discover and expose the role of profiteers in the current cost of living crisis. This is a good initiative as the exposures themselves can play a role in increasing the level of understanding about who is responsible for the crisis. This may also contribute to raising the level of class consciousness, which has not increased in proportion to the fall in real incomes since 2010.

There is no doubt that profiteering is a major factor in pushing prices higher.  As the chief executive of BP said, “we have more cash than we know what to do with,” after annual profits rose to almost £10bn. This statement alone explodes the myth perpetuated by ministers that any windfall tax on energy companies would interfere with investment plans.

But the statement itself is highly revealing in another way. Profits are crucial to capitalism, and some are experiencing a bonanza. Yet it is widely understood that some firms continue to struggle. As shown in Chart 1 it is clear that the level of company insolvencies is now above the pre-pandemic level.

Chart 1. Company insolvencies England & Wales February 2019 to February 2022

This is hardly surprising as growth was already weak prior to the beginning of the pandemic. The level of output has only recently recovered to end-2019 levels, before the economic effects of the pandemic were first felt. In addition, some producers of finished or semi-finished goods, as well as service providers will have been hard hit by the rise in commodities’ prices. All of this also flatly contradicts all the government’s boosterism about a surging economy.

As a result of this economic weakness, the situation is very uneven on profits. Clearly, some are experiencing a price-gouging bonanza, while others are experiencing declining profitability. Therefore, it is necessary to examine some of the key economic trends as a whole, in addition to analysing the role of specific sectors or firms.

Table 1. below shows some key variable for the British economy over two different periods. The first is the period from the 4th quarter of 1999 to the 4th quarter of 2021 (the most recent data). The second period is shorter, beginning before the pandemic in the 4th quarter of 2019 and also ending in the 4th quarter of 2021.

Table1. Wages, Compensation, Profits and Business Investment, £bn

 Q4 1999 to Q4 2021, £bn  % changeQ4 2019 to Q4 2021, £bn  % change
  Wages  111 to 254  +129  226 to 254  +12.4
Total Compensation (incl. employers’ social contributions)          128 to 309          +141          278 to 309          +11.2
  Total Profits (Gross Operating Surplus)        55 to 139        +153        124.5 to 139        +11.6
  Business Investment    31.3 to 53.2    +70    56.8 to 53.2    -6.3
Source: ONS, author’s calculations

Wages, Profits and Investment

Taking just wages and profits first, over the longer period the growth in profits has been the strongest of all, rising 153% (all data are based on nominal, not real £, for the purposes of comparison). However, this growth rate in profits is not hugely or qualitatively greater than the growth of compensation or wages, although it is clear that business owners have been winning in the struggle over each class’s share of national income.

The most significant laggard is in the growth of business investment which has risen at half the pace of the growth in the level of profits over the 22-year period.

Turning to the much shorter period starting with the quarter immediately before the pandemic, these patterns have largely continued but in a somewhat more dramatic form. There is no qualitative difference in the growth rates of wages, compensation or profits over the 2-year period. (Again, it should be stressed these are nominal data, before adjusting for inflation). But there has been no growth at all in business investment, which actually declined over the period.

Chart 2. UK Gross Operating Surplus and Business Investment, £bn

As Chart 2 clearly shows the level of business investment has completely failed to keep pace with the increase in the total mass of profits for businesses. At the end of 1999 business investment amounted 57% of profits on this measure. At the end of 2021 it was equivalent to just 38%.  

This is equivalent to approximately a decline of £100 bn in business investment in 2021 compared to 1999, based on the rise in profits and an unchanged investment ratio.

Why investment matters to prices

This reduction in investment directly lowers the growth rate of GDP, as it is equivalent to approximately £100 billion, around 4% of GDP. But crucially, Investment has the effect of producing an increase in the means of production.

It is widely recognised that the current surge in prices globally is a product of a ‘supply-side’ shock, where the supply of goods is insufficient to meet demand. In the first instance this was caused by US monetary policy, which has been extraordinarily expansionary without any commensurate increase in Investment.  Sanctions against Russia and the war in Ukraine have exacerbated these trends.

In contrast, all productive Investment either replaces or augments the existing capacity to supply goods to the economy (increases the means of production). Without it, demand can outstrip supply and cause prices to rise. A sustained increase in Investment would both create high quality jobs as well a generally lowering the upward pressures on prices.

Of course, specific mechanisms would be needed to ensure that this happened. Companies based in Britain have shown a distinct reluctance to increase their Investment over the long run.  Changes to the tax code would be necessary to oblige them to increase Investment at the expense of both shareholder dividends and executive pay. The tax rate could be increased on profits, so that the State could use the revenues to directly increase its own Investment (as well as increasing borrowing to Invest).

Naturally, none of this should cut across the work of the profiteering commission. The numerous scandals that can be revealed in that process can both rouse the indignation of the population as well as identifying funds to increase pay and lower prices for hard-pressed households.

‘The Devastating Economic Impacts of an Abortion Ban’ – an important article to read

By Kerry Abel, Abortion Rights Chair

With the fate of Roe v Wade to be ruled on by the US Supreme Court in the coming weeks, the New Yorker has carried an important article that sets out the economic consequences of removing a woman’s right to choose. These are in addition to a host of health, social and political consequences. The article, ‘The Devastating Economic Impacts of an Abortion Ban’, by Sheelah Kolhatkar, explains how an overturning of Roe v Wade would inflict serious economic harm on women. The article should be read here.

In the article Kolhatkar explains that:

‘The legalization of abortion, in the seventies, had dramatic effects on the ages at which and the circumstances under which women became mothers. It reduced the number of teen-age mothers by a third, and that of women who got married as teen-agers by a fifth.’

 ‘…the original Roe decision acknowledged that making people carry and raise unwanted children could “force upon” women “a distressful life and future,” the draft opinion, written by Justice Samuel Alito, barely mentioned the substantial ways that the loss of access to safe, legal abortion would hamper the ability of women to participate fully in society.’

Kolhatkar quotes some economists who have clearly explained how the overturning of Roe v Wade would seriously harm women’s education, employment, and earning prospects.

Tiffany Green is an economist and population-health scientist and assistant professor at the University of Wisconsin School of Medicine and Public Health. Reporting on Green’s views, Kolhatkar states:

‘…that many of those effects would disproportionately fall on those who were already marginalized…A few statistics help clarify how race and class influence who will most be harmed: in 2014, forty-nine per cent of all abortions were obtained by people who were below the federal poverty line. As of 2004, approximately a third were obtained by people who were white, thirty-seven per cent by those who were Black, and twenty-two per cent by Hispanic people. Black women are significantly more likely than white women to experience an unintended pregnancy, owing to disparities in the economy and the health-care system, and other factors; for the same group, childbirth is more dangerous….Green told me. “And the overwhelming thrust of the evidence is that this is going to negatively impact women and other pregnant people’s economic prospects, their mental health, their physical health, and ultimately their lives. The end of Roe v. Wade is likely going to have devastating fallout.”’

In addition Kolhatkar points out:

‘…most people don’t have access to paid family leave: the U.S. is one of the few nations that doesn’t guarantee paid leave to new parents. The cost of child care is prohibitively expensive, averaging more than a thousand dollars a month for infants. Research conducted by economists such as Claudia Goldin, at Harvard, and Francine Blau, at Cornell University, has shown that the gender pay gap begins to widen once women become mothers. The workplace protections that do exist for mothers apply mostly to people with college degrees; at the lower end of the economic spectrum, where hourly workers may be engaged in shift work with unpredictable hours, there are few safeguards in place.’

Progressive economists have been making the case in defence of Roe v Wade. Kolhatkar reports that Caitlin Myers, an economics professor at Middlebury College, last Autumn:

‘…marshalled a hundred and fifty-four economists to file an amicus brief against the abortion ban, in which they outlined decades of research on how unwanted pregnancies can affect women’s education, employment, and earning prospects, and can impact the labor market more broadly.’

There has also been some attempt to put the economic arguments before the Supreme Court. Kolhatkar reports how Julie Rikelman, from the Center for Reproductive Rights explained to the court that:

‘narrowing women’s access to the procedure could disproportionately harm low-income women or those experiencing personal crises. She turned to numbers to bolster her argument. “In fact,” Rikelman said, “the data has been very clear over the last fifty years that abortion has been critical to women’s equal participation in society. It’s been critical to their health, to their lives, their ability to pursue ”’

Unfortunately, at this point, Rikelman was interrupted by the Supreme Court Chief Justice John Roberts.

It appears the court is not taking seriously the economic arguments in support of Roe v Wade. The leaked draft opinion, written by Justice Alito, totally ignores the economic effects of an abortion ban could have on women’s lives.

It is vital that the negative economic impact of an abortion ban is more widely understood. The full article by Sheelah Kolhatkar, which should be read here, helps to increase that knowledge.

Who caused the surge in inflation?

By Michael Burke

The advanced industrialised economies have gone from being in a low-inflation or even deflationary environment to an inflationary one, seemingly in the blink of an eye. The situation is even worse in the developing economies, with shortages of basic foods and energy as well high prices.

There has been an entire cottage industry among economists over the past period discussing the causes, consequences and remedies for deflation. No longer. That period ended at the beginning of 2021, as Chart 1 below shows. Because the inflationary process has already been subject to a degree of mythologising, it is necessary to set out the factual mechanics of the process in a little detail.

Chart 1. Consumer price inflation in the G7 and OECD

Until the end of 2019 and for many years preceding average consumer price inflation in the G7 tended to vary between 2% and 3%, sometimes even lower. However, the pandemic which ripped through the world, and whose effects were especially prevalent among the G7 and OECD economies, as well as the lockdowns it caused, pushed both economic activity and prices lower. CPI inflation pushed down towards zero.

That deflationary episode then ended dramatically at the beginning of 2021 and until the most recent data in February 2022. The cause of the sudden change was the ending of lockdown in these economies and the sharp rise in economic activity that ending lockdown caused. This surge in Consumption in two of the leading advanced economies is shown in Chart 2 below.

Chart 2.Change in Real Private Consumption in EU and US, 2019 to 2021

However, there was no corresponding increase in Investment in these same economies over the same period, as shown in Chart 3 below.

Gross Fixed Capital Formation (GFCF) in the US and in the EU was barely higher at the end of 2021 than it had been at the beginning of 2019. If we take the two-year period as a whole, given the deep slump in Investment in the 2nd quarter of 2020 as lockdowns took effect, the average level of Investment was lower than prior to the pandemic.

Chart 3. US and EU GFCF in the pandemic

In common usage, there was an increase in demand but no increase in supply. More accurately, there was an increase in Consumption without an increase in Investment. In classical economic theory this leads to rising prices. As noted at the beginning of this piece, that is precisely what happened from the beginning of 2021 onwards. 

The other main explanations for the rise inflation are not at all rooted in facts. The suggestion that this round of inflation was brought on by the conflict in Ukraine can be dismissed as the conflict only began in late February this year. However, it is certain that since both Russia and Ukraine are globally important producers of key commodities, there will be very large and serious inflationary consequences that arise for hundreds of millions of people as a result. But these effects are only beginning now and will be touched on further below.

The earlier claim that it is China that is to blame is less easily dismissed, but only marginally so.  The disruption to the Chinese economy arising from the pandemic has clearly been less severe than in the G7 or in the OECD economies, as evidenced by its relative GDP growth rate over 2020 to 2023. For example, IMF projections for real GDP growth over those 3 years is over 16% for China, which is more than double that of the US.

But the more subtle and potentially dangerous claim is that it is the Chinese response to the pandemic which has caused the global ‘supply-chain bottlenecks’ which have pushed prices higher.  This in turn is used as a demand that China should end its zero covid policy.

However, it is not factually accurate. The ‘bottlenecks’ have their source in the advanced industrialised countries. So, even though China provides vastly more raw materials and semi-finished goods to the US, EU and other advanced industrial economies (as well as finished goods) than it imports from them, producer prices began to rise in the US slightly before they rose in China. Crucially US producer price inflation is far in excess of Chinese PPI (in October 22.4% versus 13.5%). These producer price inflation rates are shown in Chart 4. Below.

Chart 4. US and China Producer Price Inflation

Source: St Louis Federal Reserve

US producer prices began to turn before those in China, and the rate of inflation in the US much higher. These do not support claims that China is the source of ‘global bottlenecks’.

There is a further point, worth repeating about the consequences of inflation. Naturally, the beneficiaries of inflation are those firms who stand to gain from the rise in prices, the most obvious of which are the Big Oil firms currently. But others will be cashing in too from rising commodities’ prices, including agri-food businesses, Big Pharma, the nuclear industry and others.

However, the severity of the crisis will mean huge hardship for hundreds of millions of people, possibly billions of them. Supplies of essentials may slow to a trickle or even dry up altogether, especially in light of US-led sanctions. Or they may reach prices which force hardship and even hunger for the poorest populations.

According to the UN, 45 African and ‘least developed’ countries import at least a third of their wheat from Russia or Ukraine – 18 of those countries import at least 50 percent. Egypt, the world’s largest wheat importer, obtains over 70 percent of its imports from Russia and Ukraine, while Turkey obtains over 80 percent. 

In general, in the advanced industrialised countries there will be far greater misery than at present, with millions of people forced into some version of ‘heat or eat’. In the developing world, hundreds of millions will suffer even greater hardship and outright starvation is not ruled out for some. The sanctions regime now in place will hit the world’s poorest, far beyond the arena of the conflict.

The inflation outlook is very grave. The G7’s failure to invest and the co-ordinated ending of lockdowns was the initial cause. Those factors have now been compounded by the war in Ukraine and the sanctions that have followed.

What is the current phase of imperialism?

The piece below examines the evolution of imperialism. It is republished and was first written in 2014.

The question of imperialism is once again a widely-discussed issue following the crisis in Ukraine.

There are accusations from the British and US governments that Russia is imperialist, and many on the left appear to concur. The accusation is entirely false.

The article reaffirms the central idea that imperialism arises from the concentration of capital through monopolies (or more often oligopolies) and its merger with bank capital which forms finance capital and then goes on to dominate almost the whole world through specific imperialist countries.

The dominant imperialist country is the US. It is currently mobilising the World Bank and the IMF, which are the main pillars of the post-World War II architecture to act against Russia. At the same time it has ordered the SWIFT global bank payments network to boycott Russia.

No other country in the world can issue those instructions or hope to have them carried out. This is a strong real world indicator of which country is the dominant imperialist power, who its junior partners are and how it marshals them. The main architecture itself was created in US interests at Bretton Woods.

As the piece was written in 2014 and republished unamended, it includes data that has since become outdated. But generally the factual changes do not qualitatively alter the trends, or the main point of the argument. It is hoped that a comprehensive revision may be possible at a later date.

What is the Current Phase of Imperialism?

Previously published: May 13, 2014

By Michael Burke

A new situation requires a new analysis, and each new factor in the situation requires a specific and concrete analysis, placing it and its weight correctly in the overall situation. 

In world politics, the new situation is that the US was unable to bomb Syria, it finds itself negotiating with, rather than bombing Iran, and its coup in the Ukraine may not be entirely successful in drawing Russia’s neighbour into NATO’s sphere of influence. 

This overturns recent history. The overthrow of the Soviet Union in 1991 was accompanied by the US-led Gulf War. Since that time, the US and its various allies have bombed, invaded or intervened in Somalia (twice), Yugoslavia, Haiti, Afghanistan, the Philippines, Liberia, Iraq, the Maghreb, Yemen, Libya, Pakistan, Libya and South Sudan. The US has also led, organised or outsourced countless other interventions, overthrown governments and destabilised economies in pursuit of its interests. There has also been a series of coups and attempted coups in Latin America with varied success, and the so-called ‘colour revolutions’ in Eastern Europe to install pro-US, pro-NATO governments, as well as the US hijacking of the Arab Spring. 

However, the economic rise of China has warranted a strategic ‘pivot’ towards Asia in an attempt to curb the rise of the only economy that could rival US supremacy in the foreseeable future. Given this absolute priority and the reduced circumstances of the US economy, it has been necessary to suspend new large-scale direct military interventions elsewhere. 

This curb on US power has had immediate and beneficial consequences for humanity. Syria could not be bombed and neither could Iran. In these, Russian opposition to US plans was a key political obstacle, especially as the US wanted to deploy multilateral and multinational forces to do its bidding and needed the imprimatur of the UN Security Council. The US response to this blockage has been to increase pressure on Russia, most dramatically with its ouster of the elected Ukrainian government in a coup and its attempt to breach the country’s agreed neutrality by bringing it into NATO. 

This curb on US power, however limited or temporary, should be welcomed by all socialists, by all democrats and simply by all those who desire peace. Instead, we have the strange spectacle that some on the left have raised the charge that Russia is imperialist, or that China is, or countries such as Brazil, or India or South Africa are‘sub-imperialist’

This is not a coincidence. In the US State Department’s frustration it has produced every type of calumny against Putin, including that he is an imperialist[i] and akin to Hitler. Self-styled socialists who simply echo these charges are not highly amenable to logical argument. But it is vital for socialists to understand the nature of imperialism and its current manifestation[ii]


Concrete political aims must be set in concrete circumstances. All things are relative, all things flow and all things change
. Lenin, Two Tactics of Social Democracy in the Democratic Revolution 
The most important single work of Marxism on the subject of imperialism is Lenin’s Imperialism the Highest Stage of Capitalism

Lenin’s stated aim in writing the work was to demonstrate that the 1914-1918 war was imperialist (that is an annexationist, predatory, war of plunder) on the part of both sides; it was a war for the division of the world, for the partition and repartition of colonies and spheres of influence of finance capital, and so on.

Furthermore, he argued, that the character of the war, its class character, was determined by the position of the ruling classes of the warring countries and of the whole world, as the ruling classes of the belligerent countries had between them annexed almost the entire world. Therefore, he concluded imperialist wars are absolutely inevitable under such an economic system, as long as private property in the means of production exists[iii]

However, Lenin was categorical in warning that this was a study of imperialism in a given historical epoch and this was specifically (or concretely) ‘a composite picture of the world capitalist system at the beginning of the twentieth century’. As shown below, he also highlighted how this composite might change, as it was already changing. 

Therefore it completely contravenes Lenin’s injunctions in this and other works, indeed it is completely alien to the method of Marxism, to abstract from his pamphlet one or two important features of imperialism at this point, and use them as a measuring rule for modern imperialism. Imperialism, like all phenomena, must be analysed concretely, and only after taking all the main factors into account, and so establish its laws of motion. 

Changing politics

Three decisive changes in world politics have occurred since Lenin wrote his great work. As we shall see, the world economy has not stood still either, like all phenomena it too has continued to ‘flow’, in Lenin’s words. 

The first decisive political change was in the contest over who would be the dominant imperialist in the world, which began in 1914 was resolved by 1945. The US had become the single dominant imperialist power and would countenance no serious rivalry from other imperialists. The best they could hope for was to play some subordinate but mutually beneficial role as a junior ally of US imperialism. 

The second decisive change took place between in the short period between Lenin’s writing the pamphlet and its later Preface. The Russian Revolution meant that for the first time the working class was able to lay hold of and maintain state power. Since that time, and notwithstanding the overthrow of the Soviet Union, there have been continuously some parts of the globe where the working class holds state power, including Cuba, Viet Nam and Venezuela. Of these workers’ states by far the weightiest in the world economy is China. In all these cases, private property in the means of production is not the dominant form of ownership in the domestic economy. However, all are obliged to operate in a global capitalist system in which imperialism dominates. 

Taking advantage of this contradiction, the third change is that the anti-colonial and national liberation struggles were able to free the great bulk of humanity from burden of direct colonial rule, and in some cases this led ultimately to socialist revolution. 

These three facts, US supremacy within the imperialist bloc, the continuous existence of workers’ states and the wave of direct decolonisation, are entirely new factors. They are decisive in understanding that the main antagonism in the world is no longer inter-imperialist competition (which has certainly not been abolished).

Now, the pre-eminence of the US and the existence of workers’ states with real political and economic weight means that principal contradiction in world politics is between the US and its imperialist allies versus the workers states and the countries oppressed by imperialism (including the semi-colonial world and the remaining colonies). Of these, the biggest, the weightiest threat to US economic interests is the rise of China. 

Changing economics

In Imperialism the Highest Stage of Capitalism, Lenin sums up the main economic features of imperialism in that period. To some readers these are well-known, but they are worth repeating here. Worth repeating too is his own characterisation of this definition, which is that it was a special stage in the historical development of capitalism (which has continued to develop). 

The five features identified by Lenin are as follows: 
(1) the concentration of production and capital has developed to such a high stage that it has created monopolies which play a decisive role in economic life; 
(2) the merging of bank capital with industrial capital, and the creation, on the basis of this “finance capital”, of a financial oligarchy; 
(3) the export of capital as distinguished from the export of commodities acquires exceptional importance; 
(4) the formation of international monopolist capitalist associations which share the world among themselves, and 
(5) the territorial division of the whole world among the biggest capitalist powers is completed. 

Lenin’s starting-point is the concentration of production into monopolies, which is the basis of imperialism. This concentration is the inevitable outcome of ‘free competition’ between capitalists and has as a result risen exponentially since the pamphlet was written. Concentration means capitalist rivals are eliminated, and so increased profits require expansion overseas

The increase in concentration of production and trend towards monopolisation can be illustrated by the fact that the largest companies in the world are now larger than most countries. The tenth largest company in the world has revenues of well over US$200bn, and only 40 countries in the world have a greater level of annual GDP. In Lenin’s time, 44% of all US industrial output was carried out by just 3,000 firms. Now the output of just 130 firms is equivalent to 48% of US GDP[iv]

Concentration of production within the imperialist bloc has also increased. The dominance of the US is evident from the fact that it boasts nearly one-third of the leading Fortune 500 global firms, the same as its next three imperialist rivals together. At the turn of the twentieth century US Steel was the largest company in the world, with average net profits of US$34million. This is equivalent just under US$1 billion in today’s terms. In 2013 the most profitable company in the world was Apple, with profits of US$42bn. Aside from the few loss-makers, most companies in the Fortune 500 had profits far in excess of US$1 billion in 2013. 

The role of banks has also increased, but in an even more pronounced way. Lenin uses detailed data to show that the 9 leading banks in Germany held deposits of 10 billion German Marks. Two banks in the US, owned by the plutocrats JP Morgan and Rockefeller had deposits equivalent to 11 billion German Marks. These were equivalent to US$2.4 billion and US$2.6 billion in 1913 exchange rates. In today’s terms these are equivalent to US$56 billion and US$62 billion respectively. In 2013, Germany’s largest bank Deutsche Bank alone had deposits equivalent to US$727 billion. JP Morgan Chase is the biggest bank in the US which in 2013 held deposits of US$ 1,288 billion. At the same time, Lenin identifies the growth in traded securities to the equivalent of 479 billion French Francs. This is the equivalent of US$ 2,700 billion in today’s terms. But this is a fraction of the current level of international claims held by banks in the imperialist centres, of US$32,859 billion[v].

Taken together these data show that the main features identified by Lenin, the concentration of capital and monopoly and the increasing dominance of finance capital have both become more pronounced and more dominant features of imperialism. 

However, value can only be extracted if it is produced. Just as imperialism is a parasitic extension of capitalism, the dominance of finance capital is a parasitic characteristic of imperialism, which leads to its decay. 

Parasitism and decay

Under a system of super-exploitation, the capitalist has a diminishing incentive to develop the productive forces of the economy as profits can be increased simply by increasing the scope of territory and the number of slaves held by the slave-owners. This was noted by Marx in his analysis of the Southern slave states of America. 

In a different context, imperialism too is a system of super-exploitation, one which attempts to embrace the whole world. Marx had earlier shown that the first imperial power, Britain in Ireland, had benefited from a higher rate of exploitation in its colony, with the imperial power ‘pocketing the excess’ profits even beyond the rate of exploitation in their own domestic market. As the brutality and rapaciousness of the regime increases, so too does its parasitical nature. This leads to decay and its vulnerability to competition from a more vigorous system of production. 

At the beginning of the twentieth century Britain was the premier trading nation in the world, via its empire. However, Lenin points out that Britain’s profits from its foreign and colonial trade was just one-fifth of its profits derived from its overseas financial investments. Britain had already become a ‘rentier state’, primarily living off these investments. 

Britain had run a trade deficit, the value of imports exceeding the value of exports for most of the period from the 1890s to the outbreak of the 1914-18 war[vi]. But the very high level of interest income (or rent) on its overseas possessions meant that the balance on the current account (the combined balance of trade in goods and services plus overseas interest payments) remained in surplus. This overall surplus on the current account ended in the 1930s. Repeated devaluations of the overvalued pound frequently redressed this imbalance by making exports cheaper and increasing the value of overseas interest payments in pound sterling terms. The discovery of North Sea oil also gave a temporary boost, but deficits on the current account have become such a fixed feature of the British economy since that in some official data it is sometimes referred to as the current account deficit, rather than the current account balance. 

The deficit on the current account must have an off-setting item to balance it. This is the capital account, the net flows of capital rather than of interest payments or dividends. When Britain fell into a current account deficit in the 1930s it was obliged to become a net importer of capital to off-set it. 

As noted above, Lenin had identified the export of capital as one of the key features of imperialism at the beginning of the twentieth century. Only the most hide-bound or scholastic reading of Lenin would then argue that in the 1930s Britain passed from being an imperialist nation to an oppressed one. Instead, the parasitism and decay of British imperialism has led it into a new and more decrepit, leech-like phase. Where Britain has trod the United States has followed. 

Capital importers

The much greater size of the US domestic market, the consequent scope for increasing the division of labour and the greater productivity of its industries all meant the capitalist mode of production retained a degree of vigour there that had long become a distant memory in Britain. This was reinforced by the pre-eminent position of the US following the 1914 to 1945 world wars. 

However the US too has become a net importer of capital over a different timescale. This is shown in Chart 1 below. The US became an importer of capital because the growth of the economy was insufficient to maintain both the growth in living standards of the population and to fund the Viet Nam war. The US became an importer of capital in the course of the Viet Nam war and in order to pay for it. 

Chart 1. US Current Account Balance 1960 to 1980, US$ billions

Source: Federal Reserve Economic Data

The US did not become an economically oppressed nation while it was raining more bombs on Viet Nam, Laos and Cambodia than were dropped in the whole of the Second World War. Instead, imperialism and the dominant imperialist power has entered a new phase, where it sucks in capital from the rest of the world. It does so without in advance being either a net exporter of goods or of capital. 

As Lenin and a host of commentators had shown, in an earlier phase imperialism had been an exporter of capital. By the early 1970s the US (and Britain, long before) had become importers of capital. 

Persistently incurring new net debts will tend to run down any existing net stock of overseas capital. This is precisely what has happened. The US, as well as France and Britain are imperialist powers who own no net overseas assets, that is to say, their overseas debts are greater than their overseas assets. This is shown in Table 1 below. 

Table 1. Net International Investment Position 2012, US$ billions

Source: IMF, International Financial Statistics[vii]

The US is the world’s biggest net overseas debtor. It requires capital inflows to support the living standards of the population while maintaining the same level of military spending as the rest of the top 10 nations put together. These debts in return require interest payments, which in turn piles up further debt. 

Yet the most remarkable feature of the current economic aspects of imperialism is that the US, a country which has no net assets but only net debts, achieves a surplus on its investment income account. The net flows on the investment income account are shown in Table 2 below. 

Table 2. Investment Income Account, Net Flows, 2012, US$ billions

Source: World Bank, Data, Net Primary Income[viii]

Taken together these five imperialist powers have effectively no net overseas assets, as the net assets of Japan and Germany are effectively balanced by the net debts of the US, France and the UK. Yet in 2012 they received a net US$526 billion in net payments of interest and dividends from the rest of the world.

Within this bloc, the US is clearly pre-eminent. It extracted more interest from the rest of the world than Japan, despite having net debts greater than the level of Japan’s net assets. France and the UK were junior partners in this role. By contrast, both Japan and Germany are able to sustain trade surpluses because of accumulated levels of productivity (and in Japan’s case severe restrictions on imports). For them, there is no imperative to engineer investment income surpluses, these are a natural outcome of their trade-driven accumulation of overseas assets. Even so, along with France and the UK, they too play a supporting role in the global system of imperialism and benefit from it. 

[* The UK is undergoing a particular period of turmoil in its overseas accounts, associated with the continuing crisis of its banking system and their overseas operations. In the prior year the surplus was $42 billion. But it remains to be seen to what extent the UK can recover this position]. 

Finance Capital

A capitalist economy is one in which there is generalised commodity production. Money is the universal commodity, standing in for all other commodities in the process of exchange. The control over the direction or allocation of money capital therefore becomes decisive in the development of capitalism itself. The medium for this allocation is the banks[ix]

As a result, the degree of concentration of capital and the dominance of monopolies depends on the financial capacity of the banks. The scale of necessary investment requires access to large-scale savings. The elimination of rivals requires financial resources. So, the creation of Ford Motors, Standard Oil and AEG relied on the emergence of JP Morgan, Rockefeller and Deutsche Bank respectively. This control over the allocation capital places the banks in an increasingly dominant position in the capitalist economy. Dominance over the global financial system is the essential condition for dominance over an entire economic system dominated by finance capital. 

As the dominant force in the global financial system, the US directs resources for its own needs. It charges vastly higher rates of interest when it recycles capital overseas than it is willing to pay. This explains how it is possible for the US to draw in interest income when it owns no net assets. At the same time, the US and its junior partners in France and the UK have not grown as rapidly as the world economy over a prolonged period, and yet they are continually able to draw in capital from the rest of the world. This too is only possible because of the US dominance over the global financial system, with Britain and France playing an important subordinate role. 

The US dominates all global transactions through the trading pre-eminence of the US Dollar, which accounts for approximately 85% of all foreign exchange transactions.[x] Firms seeking to raise capital privately are inspected by the US-dominated ratings’ agencies. Governments are frequently obliged to apply to the IMF or World Bank, where the US dominates. The obligatory criteria under which these finances are disbursed, or not, comprises privatisations, reduced government spending, lower living standards and financial ‘liberalisation’. These have the effect of allowing greater access to domestic markets for the imperialist powers, their firms and their banks, and most especially allows access to domestic savings, which are required to fund the external deficits of the US and the other imperialists. It is no accident that the ideology underpinning these criteria is called the ‘Washington Consensus’. It amounts to dominance over the financial system which dominates the world and gives the US privileged access to its resources. 

This is far removed from the era of ‘free trade’, between firms and nations which ended by the turn of the twentieth century. In any event this frequently involved robbing the colonies of goods or raw materials for far below their value, or in many cases simply outright plunder. It is even further removed from the trade of one large country with another, say Brazil with Venezuela or China in Africa. These can be mutually beneficial trading relationships, even while governed by laws of the capitalist market. 

Instead, the parasitic imperialist powers are able to conjure capital and interest from the rest of the world, seemingly out of thin air and on a repeated basis. It is comparable to free trade only in the way that an armed robber is akin to a market stallholder. In both cases money changes hands, but US dominance over the global financial system leaves as little in return as the robber. And this is not a one-off, but it is a continuous flow of capital. 

It is only possible to rob someone repeatedly if a knife is held to their throat. The extraordinary US expenditure on its military and the willingness of its French and British aides de camp to support its military adventures (even their disappointment when the US was obliged to refrain from bombing Syria) is explained by this imperative to plunder the rest of the world. Military dominance and repeated shows of military force are necessary to underpin a system of global financial extortion

The negative effects of imperial domination are not most frequently felt through war. This is just the most extreme symptom. Instead, a consequence of the dominance of the US and its interests in global finance is that even any changes in the economic or monetary conditions of the US reverberate globally. Abrupt changes in the US repeatedly manifest themselves as regional or even global crises. This is shown in Chart 2 below. 

Chart 2. US Long-Term Interest Rates and Financial Market Crises

Source: Federal Reserve Economic Data

The chart above shows long-term US interest rates and some of the main financial market crises. The yields on US government debt change if there is an alteration in the balance of supply and demand for capital in the US. This was the case when Reagan came to office and hugely expanded the US budget deficit. It has also been the case with (increasingly modest) economic revivals in 1994, in 1997 and the very mild economic upturn in 2012. In all cases the increased demand for capital in the US led to a rise in US long-term interest rates.

The consequence was that capital flowed out of the semi-colonial world and into the US, leaving the former in crisis. This occurred with the Latin America debt crisis of the early 1980s, the global financial crisis in the early 1990s, the Asian financial crisis of 1997 and 1998. The recent ‘emerging market’ slowdown is only milder to date because the rising demand for capital in the US to fund rising consumption has been extremely modest by historical standards. Yet among the countries most affected by this slowdown include Brazil, Russia, South Africa, Turkey[xi], and so on, precisely those countries which are foolishly described as sub-imperialist, or even in Russia’s case, without the diminishing prefix. It is only those countries who are able impose capital controls that can partly insulate themselves from being a store of savings for the US (and face fierce opposition from the US for doing so). This imperial dependence on capital inflows is the reason that the US, and its proxies like the IMF are so adamant that capital movements be ‘liberalised’. 

In each case after these major crises the subsequent outflow of capital from the semi-colonial countries restored the US domestic balance of supply and demand for savings and so US long-term interest rates declined. But the outflow of capital left devastation in its wake in the semi-colonial countries affected. 

Increased parasitism, further decay

The impact of US dominance is felt not only in the colonial and semi-colonial countries but also in the subordinate imperialist countries themselves. As noted above, in 1994 there was a global financial crisis provoked by an increased demand for capital in the US which affected all countries unevenly. 

While the UK and France attempt to benefit directly from the dominance of the US and the role of global finance, Japan and Germany remain more closely related to the archetypal imperialist power of the early twentieth century. Highly competitive industries and persistent trade surpluses have previously allowed the build-up of a stock of overseas assets from which German and Japanese imperialism draw interest from the rest of the world. Consequently, they have had less incentive to support domestic finance at the expense of domestic industry. As a result Japan and Germany have much less to gain from the increased dominance of US-led global finance in the worldwide system of imperialism. 

After 1945, the US aim of bolstering capitalist allies as a bulwark against the Soviet Union prioritised the rebuilding of war-ravaged Japan and Germany. This was state intervention to preserve the capitalist system. But it was only after the US had established its supreme dominance over the rest of the world, including the subordination of these other imperialist powers through war. 

The weight of the imperialist economies is not static, either as a group or individually. They have undergone a series of dramatic changes. The only constant is US dominance. Chart 3 below shows the relative weight of these five imperialist economies in the world economy, both individually and as a group. The data is shown in the table below. 

Three distinct dates are chosen. 1913 represents a snapshot of the world economy on the eve of 1914-1918 war. 1951 represents the post-1945 settlement. This is also the highest recorded point of imperialist power on a world scale as accounted for by share of world GDP and is also the highest recorded level for the weight of the US in the global economy. 2008 is the final data available from Maddison before his death, and of course coincides with the onset of the global financial crisis. 

Chart 3

Source: Author’s calculation from Maddison data

The high-point of these imperialist powers in terms of share of world GDP was 1951. There has been a sharp decline since that time (which has almost certainly been deepened by the effects of the crisis). Within that bloc, the US has returned to its former starting point a century ago, whereas most of the other imperialist powers have declined in a more marked way. The UK has experienced the most spectacular fall of all, its weight in the world economy declining by two-thirds in a hundred years. Japan is the partial exception to this rule, having been only on the verge of becoming an imperial power at the beginning of the twentieth century and being utterly devastated by war and nuclear bombing by the early 1950s.

This still left just 9.5% of the world’s population in these 5 countries to enjoy the benefits of one-third of world output in 2008. Within those countries a tiny minority of the population takes the lion’s share. All manner of chauvinist and racist explanations are advanced for this unequal distribution of global income, and the accumulated wealth it brings. But in reality it is only possible if most of the world is dominated by a global system of imperialismthe forcible transfer of incomes and wealth from most of the world to a minority of it. This system includes ideological, legal, institutional, commercial and financial strands. All of these are underpinned by the aggressive exercise of military dominance, led by the US. 

A century ago, Britain had already become a ‘rentier nation’, living off its overseas income. The factual verdict on this strategy in terms of delivering growth is devastating. By contrast, Japan’s post-War success was built on very high levels of investment and favoured nation status in its trade relationships with the US. Japanese investment as a proportion of GDP rose to what was then an unprecedented level of 30% of GDP and in consequence GDP growth accelerated to over 8% per annum. 

However this period is already at an end. The Japanese domestic economy has not been accumulating net new capital for some years and the structural trade surpluses have become deficits. Growth has also stagnated for 25 years and it seems probable that like the US, France and the UK, Japan’s net overseas assets will dwindle towards zero (or below). 

A decisive blow was struck by the US against both Japan and West Germany in the late 1960s. Both countries had been growing more strongly than the US over a considerable period based on much higher levels of investment. Using the pressure of its military relationships, in a series of measures the US forced sharp revaluations of both the Japanese Yen and the Deutsche Mark. It suspended the convertibility of the US Dollar and finally collapsed the entire post-WWII Bretton Woods financial system. In this way it was able to disguise a substantial devaluation of the US Dollar as a widespread but piecemeal revaluation of other major currencies, while its grip on Middle East oil ensured this did not lead to an outright balance of payments crisis in the US. 

The effect was not to increase US growth but to slow both the Japanese and German economies for a generation, just as it had used the combination of its military and financial muscle to devastating effect against France and the UK during the Suez crisis in 1956. The US later repeated this feat particularly in relation to Japan, by redirecting Japanese capital towards the US arms race to bankrupt the Soviet Union in the 1980s. The most important outcome was the overthrow of the Soviet Union and its reduction to the status of a semi-colonial country, primarily producing raw materials for the (US-dominated) international markets. A side-effect was to foster the collapse of Japanese growth into stagnation, which has been unaltered since 1990. 
Inter-imperialist rivalry has not been abolished. But the US has used a combination of its financial and military dominance to ensure its own dominance within the imperialist bloc, even as that bloc has been in relative decline. 


The concentration of capital and the dominance of finance capital have both become more pronounced features of global capitalism in the current phase of imperialism. 

Simultaneously, the decayed and parasitical ‘rentier nation’ that Britain had already become over a century ago is now the norm for the imperialist countries as a whole and for its dominant country, the United States. 
Like an ancient despot, the US and its allies draw in tribute from the rest of the world in the form of a continuous inflow of capital. There is even a substantial net inflow of interest income, even though they possess no net overseas assets, only liabilities. 

The main mechanism for this worldwide extortion is the US dominance over the global financial system, which is itself the dominant sector of capitalism. This is only possible because it is underpinned by the vast military resources of the US, which are far greater than all its major rivals combined, and which it exercises repeatedly and brutally.

Like Britain before it, the US has become a ‘rentier nation’, whose main overseas income is derived from the exaction of interest and other payments rather than net trade. But this has entered a new phase, where the tribute of interest income continues to flow even though there are no assets on which it is based. Without any net overseas assets, this is only possible because of its status as imperial power. Imperialism is a global system of super-exploitation, directed by control over finance capital and supported by military dominance. The sole imperial super-power is the US, supported by its allies. 

Because imperialism has entered a more decrepit phase does not make it more benign. On the contrary. The US relentlessly seeks to extend its interlocking systems of military alliances, trade treaties and financial predominance because it is in relative decline. The vampire always seeks fresh blood. 

Using ‘imperialism’ as a term of abuse, or even as a synonym for a large trading nation, albeit one possessing nuclear weapons, is to rob it of all scientific value. The fact that US imperialism can occasionally be challenged or stymied by some combination of semi-colonial countries and worker’s states acting in concert does not alter the essential meaning. Instead, these challenges are a reflection of the relative economic decline of the imperialist powers in general combined with a growing and related war-weariness on the part of the population. The US insistence on its own supremacy within the imperialist bloc has only exacerbated that collective decline, while preserving its own dominant status. 

Rather than echo the frustrations of the US State Department, socialists and communists welcome the current impotence of the US, for however long it lasts and however limited it is. In 1997 a triumphalist US imperialism set out its bold plan to brook no global or regional opposition and to be able to fight two major wars simultaneously[xii]. In 2013 the US and its allies were unable to begin bombing Syria. 

Imperialism is the enemy of all humanity and its set-backs or defeats are a cause for celebration as they represent an advance for all humankind and the struggle for socialism. 

[i] This is not new. At the outbreak of war in 1914, most leaders of the Socialist Parties in Europe promptly discovered that their real enemy was the same as the one identified by their own bourgeoisie. 
“The scientific concept of imperialism, moreover, is reduced to a sort of term of abuse applied to the immediate competitors, rivals and opponents of the two imperialists mentioned, each of whom holds exactly the same class position as his rivals and opponents! This is not at all surprising in this day of words forgotten, principles lost, philosophies overthrown, and resolutions and solemn promises discarded.” 
Lenin, preface to Bukharin’s ‘Imperialism and the World Economy’, 

[ii] As the US became free to engage in increased military adventures with the collapse of the Soviet Union, there arose a concerted effort to disguise this by arguing that ‘imperialism’ was a diffuse and unspecific phenomenon. Hardt and Negri led the way in ‘Empire’arguing that ‘imperialism has no address.’ Imperialism is a global system of exploitation, but it has a sole superpower protagonist which is headquartered in Washington DC. 

[iii] This essay cannot possibly do justice to the scope of Lenin’s work, which relied on exhaustive and voluminous research in a host of languages. The notebooks for his pamphlet encompass hundreds of works, in Volume 39 of his Collected Works . However, with access to modern and publicly available databases it is possible to analyse some of the most important features identified by him and to update them in light of factually altered conditions. This can be done without the volume of work that Lenin was obliged to do, and should be done by socialists seeking to understand the development of capitalism. 

[iv] The Fortune 500 list of leading global firms contains 130 from the US In 2013 their combined revenues was equivalent to just under $16 trillion, approximately the same as US GDP. 

[v] Bank for International Settlements, BIS Quarterly Review, Q3 2013 

[vi] Bank of England, Three centuries of economic data There is an accompany dataset which shows the trade deficit from 1891 to 1906, followed by a trade surplus until the outbreak of the war. Dataset can be accessed here

[vii] IMF, 

[viii] World Bank, 

[ix] Lenin drew on Hilferding’s ‘Finance Capital’ which analysed the dominance of finance capital beginning with the role of money which ‘stands in the place of’ all other commodities. 

[x] BIS, Annual Foreign Exchange Survey, Reuters report 

[xi] Financial Times, Emerging Market: Fears of Contagion 

[xii] Project for the new American Century,

Trump, Bush and Johnson are to blame for the cost of living crisis

By Michael Burke

The cost of living crisis is now a feature across most of the leading western economies. While hundreds of millions of people are suffering a sharp decline in living standards there is a political imperative to blame others. But the actual responsibility for the crisis lies firstly with the fiscal policies of Presidents Trump and Biden, which in this country are sharply exacerbated by Boris Johnson.

This is a crisis caused by policy, not by naturally occurring phenomena, including the rise in the price of gas and oil.

There is naturally a desperate effort to escape blame and search for scapegoats, although blaming Russia for the energy price crisis seems to have only limited traction currently. The same seems to be true for efforts to blame China for Western supply-chain bottlenecks.

Yet it should be clear that the damage being created by economic policy is being compounded by efforts to shift the burden for the crisis onto workers and the poor.

The US ‘sugar rush’

The outsized surge in US government spending to offset the economic effects of the pandemic are so large that they are widely described by economic and financial market pundits as a ‘sugar rush’. As the name suggest negative consequences are likely to follow.

But the relative scale of the stimulus packages under Trump and then Bush, their skewed composition and their negative effects have been insufficiently analysed, given their scale. In the previous SEB post, these factors were analysed.

It showed that, “U.S. government spending rose by 9.7% of GDP in 2019-2020 – the largest increase in U.S. history apart from World War II. U.S. monetary policy was equally expansionary, the annual increase in M3 money supply reaching a peak of 27% – an increase almost twice as high as any other period in the last 60 years.”

By comparison the much-vaunted Roosevelt New Deal was a tiny fraction of this overall stimulus package. But there were also severe problems posed by the composition of those packages.

“This enormous fiscal and monetary U.S. stimulus was almost entirely focussed on the consumer sector of the economy. Between the last quarter of 2019, the last before the pandemic, and the 3rd quarter of 2021, the latest available data, U.S. consumption increased by $1,571 billion. In comparison U.S. net fixed investment, that is taking into account depreciation, rose by $22 billion – or by only 1.4% of the increase in consumption!”

In effect, Trump and Biden have tested the idiocies of Western post-World War II policies to destruction. Theirs was in effect a Consumption-only stimulus, without Investment. Neoliberal ideologues insist the state should not be concerned with Investment, as this would reduce the private sector’s relative ownership of the means of production. In one sense, this was the errors of post-War ‘keynesianism’ writ very large (although Keynes himself is unlikely to have endorsed such a gross error).

In effect, virtually unchanged productive capacity was unable to meet the effects of surging Consumption plus the exceptional growth in money supply. The result is now the inflationary wave that it is overwhelming living standards for most people in the Western economies and beyond.

The source of the inflationary impulse can clearly be seen in the trends in US, China and German producer prices since the end of pandemic recession (grey area). US producer prices have risen earlier and far faster than either Chinese or German producer prices.

Chart 1. China, Germany, US Producer Prices, percentage change year-on-year (January 2019 to December 2021)

Source: Federal Reserve Economic Databank

Misery at work

The rise in prices is causing misery in the Western economies for workers whose wages are constrained by unemployment and for those on fixed incomes such as pensioners or people on benefits.

In some sectors these same economies are experiencing labour shortages, despite the fact that everywhere there remain substantial job losses arising during the earliest phases of the pandemic. This is the effect of another development with a widely-used nickname, the Great Resignation.

In effect, firms have used the pandemic to mount a huge attack. The have been aided by friendly governments. So workers have suffered a combination of hourly pay cuts, shorter hours, worse contracts and conditions at work. In response some have left the workforce, taken early retirement or gone back into education. In Britain about 200,000 EU workers have also left post-Brexit. Across the Western economies, many workers are also faced with increased care responsibilities because of the pandemic and this falls hugely disproportionately on women workers. They simply cannot go to work.

As a result, the workforce as whole has contracted, with higher vacancies and lower employment at the same time. The so-called jobs boom is a myth. In the US there are still 2.9 million fewer people in payroll employment than before the pandemic began, and in Britain 500,000 fewer total in work.

Of course, in countries which chose to try to suppress the virus there has been no such similar economic dislocation, and employment growth has continued almost uninterrupted.

Johnson’s role

In addition to US fiscally-driven inflation and the terrible economic effects of letting the virus run free, the British government has taken further measures of its own, in addition to supporting the employers’ offensive.

The sheer number of measures is too extensive to list, but the major ones include cuts to:

  • Pensions
  • Reneging on the pensions triple-lock
  • Real cuts to public sector pay with the pay freeze
  • Welfare payments of all types
  • Universal Credit
  • Local government funding
  • Departmental funding (excluding health and defence)

and increases to:

  • National Insurance Contributions
  • Effective tax rates (by freezing income tax bands)
  • Energy bills
  • Council Tax payments
  • Public transport fare
  • Student loan repayments (by freezing repayment thresholds)

According to the Resolution Foundation the 15 years from 2010 to 2025 will see the worst decline in living standards on record. Amid this exceptional attack, some commentators seem to have been mesmerised by the projected increase in total government spending and claimed that austerity was over. This even sucked in some prominent labour movement figures.

But of course, if you cut NHS workers real pay to ‘save’ £3 billion while simultaneously allocating £37 billion to the private sector for failed test and trace, total health spending has risen. Yet austerity, the transfer of incomes and wealth from poor to rich and from workers to business has been brutally increased.

It should be clear that the combination of sharply rising prices in the western economies, a ferocious assault on pay and conditions at work and government austerity adds up to increasing misery for hundreds of millions. It is policy-driven, by Western governments.

China’s socialist economy will deal with the global inflationary wave launched by US economic policy

By John Ross

China’s 8.1% GDP increase in 2021, following on from 2.2% in 2020, will exceed that of any other major economy. However, as is well known, China’s year-on-year growth rate fell to 4.9% in 2021’s third quarter and 4.0% in the 4th quarter, showing downward economic pressure.

Furthermore, China’s economy was aided in 2021 by an exceptionally strong trade performance. China’s annual imports rose in dollar terms by 30.1% in 2021 and exports rose by 29.9%. There were therefore signs of a slowing of very rapid growth of trade at the end of 2021 – although this was less sharp than for GDP. Taking a three-monthly average, to avoid distortions caused by a single month’s figures, annual growth of China’s exports fell from 30.7% in June to 23.3% in December, while the annual growth rate of imports fell from 37.1% to 19.5%. Whether such a strong trade performance as in 2021 can be repeated in 2022 clearly depends not only on conditions in China but on the state of the global economy.

Therefore, in addition to the assessment of China’s growth in 2021, it is necessary to look at both domestic and international facts to see economic perspectives.

Starting with the international economy, there are strong reasons to conclude that global growth in 2022 will be weaker than in 2021. This is due both to general economic conditions and the strongly inflationary side effects of the type of stimulus packages which were launched by the Trump and Biden administrations – unless inflationary pressures are to become out of control U.S. this will force a significant tightening of U.S. monetary policy with consequent downward pressure on growth in the world’s largest economy. Similar pressures are likely in the European Union – the other major centre of the world economy in addition to the US and China. The effects of this U.S. inflationary pressure is therefore a significant risk for the world economy.

Looking at this danger in detail, in December U.S. consumer price inflation reached 7.0% – the highest rate for 40 years. Asset price inflation was even sharper – by October 2021, the latest data, U.S. house prices had increased by 19.1% year on year, which was even more rapid than the 14.1% before the sub-prime mortgage crisis. But such inflation was predictable given the nature of the stimulus packages launched by the Trump and Biden administration.

Taking fiscal policy, U.S. government spending rose by 9.7% of GDP in 2019-2020 – the largest increase in U.S. history apart from World War II. U.S. monetary policy was equally expansionary, the annual increase in M3 money supply reaching a peak of 27% – an increase almost twice as high as any other period in the last 60 years.

This enormous fiscal and monetary U.S. stimulus was almost entirely focussed on the consumer sector of the economy. Between the last quarter of 2019, the last before the pandemic, and the 3rd quarter of 2021, the latest available data, U.S. consumption increased by $1,571 billion. In comparison U.S. net fixed investment, that is taking into account depreciation, rose by $22 billion – or by only 1.4% of the increase in consumption! In short, an enormous increase in demand was pumped into the U.S. economy while almost nothing was contributed to the supply side. Under conditions where there was no great unused capacity in the U.S. economy a huge surge on the demand side of the economy, with no significant increase on the supply side, meant an inflationary surge was inevitable – and has duly taken place.

What led to such a serious error in economic policy? From a theoretical viewpoint it was the false conception that consumption is a contribution to economic growth. But this is simply false. Consumption, by definition, is not an input into production. So, the huge increase in consumption launched by the Trump/Biden stimulus packages did not aid the supply side of the U.S. economy.

From the political viewpoint the reason the Trump/Biden stimulus packages were entirely focussed on consumption was because the U.S. is a capitalist economy – that is, by definition, one in which the private sector has a dominant role in the means of production. This capitalist class, consequently, does not mind the state stimulating consumption, but it does not want it intervening in investment, that is in control of the means of production.

For this reason, the only time the U.S. has pursued an investment, a supply side, led stimulus policy was during World War II. – when the total priority of the U.S. was to defeat Japanese militarism and Nazi Germany. By 1944 79% of fixed investment in the U.S. was in the state sector. This achieved the greatest economic growth in U.S. economic history. Between 1940 and 1944 U.S. grew by 15% a year, the fastest short-term growth recorded by a major economy in world history. But this huge state intervention into the U.S. economy was against the interests of private capital – the share of wages, compared to profits, in the U.S. economy rose for three decades and inequality of income and wealth was sharply reduced. Consequently, except when facing mortal peril such as war, U.S. capital was determined that there would never again be a large-scale state led investment programme even if this resulted in slow U.S. economic growth.

Therefore, because of confused economic theory and political relations, Trump/Biden launched an almost entirely consumer focussed U.S. stimulus programme which inevitably produced the inflationary consequences already outlined. The inflationary consequences of this now require tightening of U.S. monetary policy which will slow its economy.

Given the U.S. economy’s size the resulting U.S. monetary policy tightening, generally expected to be launched by the Federal Reserve in March at the latest, will inevitably have consequences not confined to the U.S.. An increase in Federal Reserve interest rates will put upward pressure on interest rates in numerous countries. It is also likely to put upward pressure on the dollar’s exchange rate. This combination will have negative economic consequences for a number of countries.

It is to be hoped that the world will join hands to manage these financial risks, including via the IMF and G20, but nevertheless these risks will continue to exist, and sufficient multilateral action cannot be guaranteed.

This situation clearly has economic consequences for China. Economic growth for 2021 met projections. But there was significant downward pressure at the year’s end. Meanwhile China’s trade was somewhat slowing and there are negative trends in the world economy. It is therefore difficult to escape the conclusion that there must be a domestic stimulus during 2022 if the negative trends in the world economy are to be avoided. But it is also important to understand the unfavourable lessons of the Trump/Biden stimulus packages and therefore to note that a stimulus in China only on the demand side of the economy, that is on consumption, will have negative consequences. Instead, stimulus will have to significantly include the economy’s supply side – that is investment.

In summary, China in 2022 will face more negative global economic trends than in 2021. This will clearly require more domestic stimulus in China while making it necessary to avoid the errors of Trump/Biden administrations.

This article was previously published by Learning From China and originally published in Global Times in English and Chinese.

Austerity isn’t back. It never went away

By Tom O’Donnell

The latest report from the New Economics Foundation (NEF) has done a great service by helping to expose the myth that austerity has gone away under the current government. Instead, they show that incomes for the bottom half of earners have fallen over the last two years while those at the upper end have soared.

This is precisely the definition of austerity, which is the transfer of income and assets from poor to rich and from labour to capital. The key NEF chart is shown below.

Chart 1. NEF chart on the redistribution of incomes from 2019

Of course, Boris Johnson and his government claim they have ended austerity. Bizarrely, this is frequently repeated even among progressive commentators, along with the false claim that wages are rising (in reality pay settlements are running close to 2%, while RPI inflation is 6%, causing a deep cut in real wages).

The aim of austerity

The purpose of the austerity policy is an attempt to address the crisis of British capitalism by lowering wages, increasing hours at lower or no pay, cutting pensions (deferred wages) and other methods of increasing the rate of exploitation.

If firms can increase the rate of exploitation, they may be able to increase the mass and rate of profits. This would then allow them to increase the rate of investment once more, at a new, higher level of profitability.

The reason that the policy has been in place for 12 years now is because it has not worked.  Chart 2 below shows the ‘profitability’ (the net return on capital employed, in percentage terms) for UK private non-financial firms.

Chart 2. Profitability of UK non-financial private companies, in percentage terms

The return on capital had been falling over a prolonged period and took a sharp lurch lower in the Global Financial Crisis (GFC) in 2008/09. It was then that austerity was imposed in 2010 in order to revive profitability. However, this was only partially successful, as profitability peaked in mid-2015 and has been in a downtrend ever since.

This limited success in reviving profits has had the effect of producing only a partial increase in the rate of business investment, shown in Chart 3 below. This is crucial, as the motor force of the capitalist system is the expansion of capital, driven by the increase in profits.

While gross business investment did increase from the depths of the GFC, it has not sustained that increase and peaked in 2017. That is not long after the peak in profits in mid2017 already noted. Weak business investment does not suggest a robust recovery in profits.

Chart 3

And even these data, based on gross business investment levels do not provide a full picture, because depreciation and dilapidation must be taken into account. This is a measure of the net level of investment, after depreciation and dilapidation and in country such as Britain, is overwhelmingly the domain of the private sector.

The capital stock is increased by investment and reduced by depreciation and dilapidation.  The combined effect of both gives the change in the net capital stock. The outcome of the net level of investment is shown in Chart 4 below, reproduced from the ONS.

The ONS chart below shows the key components of the changes in the net capital stock. It also shows two redlines, which are the average growth in the next capital stock before and after the GFC. The first red line shows the average growth in the capital stock at just 2.4% in the years prior to the GFC. But this has since halved to growth of just 1.2% annually.

This is a clear indicator that profits have not recovered to the point where firms feel compelled to increase investment in order to expand capital further or faster.

Chart 4. Net Capital Stock Growth in the UK, 1996 to 2020

Even more austerity

The NEF analysis shows a fall in living standards for the lowest paid half of the population, and a big increase in incomes for the top 5% of earners. This is in line with analysis from both the Resolution Foundation and the Office for Budget Responsibility, republished by the Treasury.

On this evidence, the point that austerity has never gone away is irrefutable. The government clearly has an interest in misleading the population on this point. 

Progressive commentators and others who repeat it tend to confuse the total level of government spending with austerity policies. But if lower paid incomes are being hit while the government lavishes the private sector with useless track and trace systems, or useless PPE, to take just two examples, it does not mean that austerity has been reversed.

At the same time, it is quite naïve to believe that a government committed to acting in business interests (to the point of outright corruption in the current case) would willingly abandon austerity anything more than temporarily, for electoral reasons.

Austerity is the central mechanism to restore profitability and so produce a private sector-driven investment recovery. As we have seen, we are still very far from that goal, and so the supporters of austerity will continue on this path until they have achieved their aim, or unless they are forced from it.

Prices up 6%, wages up just 2%

By Michael Burke

Workers across Britain are experiencing severe cuts in wages in real terms. The latest measure of average pay settlements is just 2% higher than a year ago, while a long-standing indicator of inflation shows prices rising by 6% over the same period. Contrary to widespread claims by Boris Johnson and many others, wages are not surging. In fact, the decline in pay in real terms (after inflation) is the sharpest since the global financial crisis in 2009. This represents a sharp decline in living standards.

The measure of pay settlements comes from professional human resources consultancy XpertHr, in a November 18 press release. It differs from the data provided by the Office for National Statistics (ONS) in important ways. The ONS measures average pay, not average pay settlements. Ordinarily, there would be little disparity between the two. However, this is an exceptional period.

During the pandemic there have been hundreds of thousands of job losses. These have been concentrated in low-paid sectors of the economy, especially hospitality and accommodation. The ONS measure naturally monitors the pay of those in work. But, in making a comparison with prior periods, there is a bias as now a higher paid group is being measured.

This is highlighted by the ONS statisticians themselves, who caution about how the average data should used. Memorably they argue that using this measure is like taking an average height of the occupants of a room, asking the short people to leave and then taking a new average, which is much higher. But no-one has become taller. In the jargon, it is a compositional change.

At the same time, the Retail Prices Index is a key measure of inflation long used as a reference in pay bargaining. Unlike the CPI it includes housing costs and so is a broader measure of the prices workers are actually paying. The RPI has shot up to 6% growth year on year (while the CIP has also risen, to 4.2%).

Chart1. Retail Price Index (RPI) inflation, year-on-year % change

Source: ONS

Of course, these facts did not prevent Boris Johnson claiming that not only is pay rising, but other matters such as the deaths from Covid-19 or longevity should be disregarded as higher wages are the metric on which his government should be judged!

But no-one in the labour movement or who is in support of workers’ pay and conditions should believe his nonsense and certainly not repeat it. The claims on higher wages are an unscrupulous attempt to hoodwink viewers and voters and will prove short-lived as annual comparisons with the pre-pandemic workforce fall away over time.

As the ONS chart on real average pay below shows, the previously favourable year-on-year comparisons on pay are already starting to fall away. And it is clear from the data on pay settlements combined with the appropriate inflation data, that workers are on average suffering one of the biggest attacks on their pay for many years.

Chart 2. Average Real Pay, % change year-on-year

Source: ONS

This sharp fall in living standards is likely to have wide-ranging economic and political consequences.

Don’t be fooled again. This is another Tory austerity Budget

By Michael Burke

The widespread claims that the latest Budget is not an austerity Budget, even that it is borrowing Labour’s clothes, are both factually and logically false.

The purpose of this article is first to set out the factual position in relation to government spending, and then to offer a framework in judging the over stance of fiscal policy. From these two key points it can be shown that this is another, quite vicious austerity Budget and that to argue otherwise both disarms and discredits the labour movement in the face of this attack.

Facing facts

The government have conducted a major sleight of hand when it comes to the presentation of the policy it has adopted in the latest Budget and Spending Review. This con trick is highlighted in a key Treasury table below.

Table 1.  Total Managed Expenditure (TME)

This TME table is one of the key pieces of information in any Treasury Budget document as it gives the summary data for many of the key totals for government spending. For anyone analysing the Budget, it is one of the first things they will examine.

But here the presentation of the data is misleading, probably deliberately so. In the top right-hand corner of the table highlighted there are two columns, showing the growth in the expenditure variables in real terms (adjusted for inflation). The first shows the growth in real terms in the Fiscal Year 2021-22 to the FY2024-25.  The second of these columns shows the same end date FY2024-25, but the start date is 2019-20.

What is missing is a column with the start date FY2020-21, which is the most recent Fiscal Year, that ended at the beginning of April 2021. As a result, there is no measure of future years in comparison to the one that has most recently ended, which is the normal yardstick for assessing any change in policy.

There is a good reason for this. The start date of this most recent year would show a very different outcome. Instead of rising in real terms there would be sharp falls in real terms. In fact, using the FY that has just ended of 2020-21, there are falls even in nominal terms (before inflation) which are shown in the preceding columns.

To illustrate this, Total Public Sector Current Expenditure was £989.1bn in FY2020-21 and is projected to fall to £974.3bn in 2024-25. The same is true of Total Managed Expenditure (which includes gross investment as well as day-to-day spending, but does not include depreciation). This falls over the same period from £1115.2bn in FY 2020-21 to £1107.6bn in 2024-25.

Remember too that the totals in these columns are in nominal terms, before inflation is taken into account. Using inflation forecasts from the Office for Budget Responsibility (OBR) the present author calculates that prices will rise by a cumulative 12.5% over the period. So, in real terms (adjusted for inflation) Total Public Sector Current Expenditure will be £852.5bn in 2024-25, while Total Managed Expenditure will be £969.2bn.  These would represent falls of 13.8% and 26.7% respectively in real terms.

To be clear, these are the gross totals where each of the government spending departments together comprises those totals. This is a planned and very deep cut to government spending. It amounts to a vicious deepening of austerity.

The sleight of hand is made possible by the government including the huge increase in spending, an extra £200bn in 2020-21 that was forced on it by the pandemic, while it is slashing that extra spending in future years.

The overall picture becomes even clearer in the Chart below, which shows total government receipts and spending in relation to GDP.

Chart 1. Government Spending and Receipts as a percentage of GDP

From this it is clear that, measured in relation to GDP growth, there was a spike in government spending in the first year of the pandemic. This was caused by its own complete failure in responding to the outbreak of the virus, and the human and economic damage that resulted. This country has had far more days of lockdown that other countries which successfully suppressed the virus.

However, the government now proposes (shown in the black dotted line) to reverse almost the entirety of that increased spending almost immediately. This is something like a 10% to 11% decline in public spending as a proportion of GDP.

It is worth noting that the government’s timetable for that scale of reduction is literally a couple of years. There was an equivalent decline in government spending achieved by Margaret Thatcher over the course of 10 years, but that was at a time of relatively strong growth due to the inrush of North Sea oil. No such period of higher growth is anticipated for the period ahead, which would require the cuts to government spending to be applied even more ferociously.

Government apologists claim that spending is returning to normal as the economy returns to normal. Of course, the pandemic is far from over, so the assertion is highly doubtful. But as even the OBR suggests, the combination of Brexit and the pandemic has left permanent ‘scarring’ on the economy, so it is not going to return to ‘normal’. Under these circumstances, there is no justification for ripping the bandages off the scarred patient and discharging her from hospital.

Total government spending is being slashed in real terms and as a proportion of GDP. The notion that this constitutes an end to austerity is simply without any factual foundation.

Fiscal policy matters

The overall stance of fiscal policy cannot simply be gauged by the amount of spending and whether it is increasing.

It has already been shown that in fact, government spending is falling in real terms, as a proportion of GDP and in nominal terms. However, even if that were reversed and spending was rising, that would not be the key determinant of fiscal policy. Government priorities for tax and spend affect different classes of society unevenly. What matters, is who receives the spending, who is being taxed.

Suppose a bad teacher has a packet containing 12 biscuits and chooses two favourites among the class who are given 3 biscuits each. The rest of a class of 30 are told to fight among themselves for the remaining 6 biscuits. When the rest of the class complains that this is unfair, the teacher brings in a packet of 15 biscuits. But now the two favourites receive 5 biscuits each, leaving the rest of the class fighting over 5 biscuits. Even though resources are increased, their distribution has become more unequal, not less.

Austerity is about the distribution of resources, not about the level of government spending. Indeed, extreme right-wingers like John Redwood like to claim there has been no austerity because government spending has risen. Of course, he is wrong. There has been fierce austerity despite a rise in government spending.

As Chart 1 above shows, an upward trend in government spending has been in place since 1990. But that did not stop Osborne and Cameron, in one of their first major austerity measures from increasing VAT (overwhelmingly paid by those on average on lower incomes) while cutting Corporation Tax (paid on profits). As far as the Treasury was concerned this was ‘fiscally neutral’ as the rise in VAT yielded about £13bn and the tax cut was approximately worth the same. But the effect was to distribute incomes from mainly average and low earners to profit-making businesses.

In short, austerity cannot be determined by the level of government spending.  As Diane Abbott and others have shown, the measures contained in the latest Budget were a vicious attack on low and average incomes earners and pensioners, with forecasts that real average earnings will fall, at the same time that bankers and other receive tax giveaways.

In this Budget there is both a reduction in spending, and a redistribution of spending from workers and the poor to bankers and higher paid. Austerity is the transfer of incomes and assets from poor to rich, from labour to capital. That is what this Budget implemented.

Calling things by their real name

It is possibly unfortunate for many readers that such a basic factual presentation and such elementary analysis has to be provided. But such is the level of confusion and outright deceit surrounding government policy, that basic truths are necessary.

The widespread assertion that austerity has ended is factually incorrect. High taxes are not progressive if they are paid by average earners to facilitate the privatisation of the NHS. The claim that a government cutting Universal Credit and state pensions, while cutting taxes on banks and presiding over a fall in real wages is ‘carrying out Labour policies’ insults the intelligence.

The repetition of these falsehoods discredits the labour movement and in particular all those who fought successfully for an ‘investment, not cuts’ approach that was adopted under Jeremy Corbyn’s leadership of the Labour Party. Crucially, falling for this Tory con trick disarms the labour movement in arguing against the austerity measures and in mounting any defence against them.