Socialist Economic Bulletin

By Diane Abbott

The latest Budget and Comprehensive Spending Review from the Chancellor provided a boost to certain parts of the economy. If you are a big polluter or fossil fuel producer, or a bank executive or shareholder, or an arms manufacturer — then this was a good spending round for you.

But for ordinary people the picture is once again very different. You are getting clobbered by a Tory Chancellor and a Tory Prime Minister who is only anxious to get the PR right and can definitely rely on the media on Budget day to deliver.

If this is reminiscent of Osborne and Cameron, or Hammond and May, it should be. They all belong in the rogues’ gallery of “reverse Robin Hoods.” They have all hammered ordinary working people with tax hikes and pay freezes while providing handouts and tax breaks for the rich, big business and the banks. This Budget was precisely in that mould.

Thankfully, we can rely on some objective analysis on the Budget from think tanks such as the Institute for Fiscal Studies (IFS), the Resolution Foundation and others.

They are very far from being left of centre. The Resolution Foundation is chaired by Tory Lord Willetts and the IFS probably would not object to being described as fiscal hawks.

In any event, they do provide detailed and non-partisan analysis of tax and spend policies — and their verdict is clear. They have simply made explicit what is contained in the projections of the Office for Budget responsibility (OBR) and the Treasury’s own documentation.

The key points include:
• falling real wages next year and no increase over the following two years
• a higher tax burden on ordinary people, up to £3,000 a year more for average households by 2027
• one of the biggest “savings” is from the government abandoning its manifesto pledge to keep the triple-lock on the state pension
• the “big increase in department spending” is primarily driven by the increase in financing for social care
• which is funded by a whopping increase in National Insurance Contributions (the most regressive tax on the books, clobbering the lowest paid while the highest paid are shielded)
• much of the remainder in spending is a sticking plaster for the NHS, which is under severe threat from the government’s Covid policy
• and just to make sure we understand their priorities clearly: a cut in taxes on the banks (the surcharge and the bank levy) which benefits shareholders and bank executives

This has nothing to do with “build back better,” “levelling up,” or all the other false claims made for current Tory economic policy. It is old-fashioned, dishonest austerity policy to take from ordinary people, people on middle incomes or below and to provide tax giveaways to big businesses, banks and the rich. Austerity has not been halted. It is being deepened.

One the eve of Cop26, the Budget also completely disregarded the climate emergency, which was not mentioned in the Budget speech and had pitifully low resources devoted to it. Cuts to air passenger duty for short haul flights and for fuel duty are a kick in the teeth for the entire environmental movement.

These are surely a political gesture on the Chancellor’s part. While Boris Johnson allows dumping of raw sewage in our waterways, as Cop26 host he must at least pretend he is interested in the issue of catastrophic climate change. But Rishi Sunak is signalling to Tory backbenchers that he shares their contempt for the issue, as part of his campaign to eventually replace his boss.

The terrible priorities of this government were also clearly on display in relation to the defence budget. While other departments remain below their real spending level in 2010 and the crisis in local government funding is so grave that local authorities are told to look for a £400 increase in council tax, the MoD continues to expand its arsenal of hardware.

While the MoD budget is projected to rise modestly in real terms overall, there is a huge increase in spending on the military capital budget. This means that there is likely to be a further shrinkage of military personnel and a very significant expansion on military hardware.

As CND points out, the unilateral increase in Britain’s nuclear warheads already announced is in breach of international law on non-proliferation, a treaty which the British government has signed.

The increase in spending on military hardware can now be widened in scope. The Treasury documentation describes this as “the largest sustained increase in defence spending since the Cold War, to safeguard the UK’s cutting-edge military, underlining the UK’s commitment to Nato.” So, people on universal credit must tighten their belts, but there are billions for the new Cold War.

All of this takes place against a backdrop of exceptionally weak growth in official projections over the medium term. The Chancellor neglected to mention that this country will have one of the weakest recoveries in the G7. This is mainly because we have also had one of the worst pandemic outcomes, which the OBR says “scars” the economy over the medium term, as well as inflicting a huge toll on public health.

According to the OBR, the combined effect of scarring on the economy from Johnson’s Brexit policy and his pandemic inaction is to lower growth by 6 per cent. But the Chancellor really had nothing to say about this prolonged stagnation and the crisis of productivity that underlies it. Unsurprising then that he has no measures to address it.

Johnson is literally presiding over death and destruction. Just as he has let disabled people, the elderly, ethnic minorities and working people bear the brunt of the Covid-19 death toll, so he is ensuring that the economic price of these barbaric policies is overwhelmingly paid by middle- and low-income earners.

Meanwhile, Sunak looks after his own in the banks, while polluters and arms manufacturers have also done well. For almost everyone else, this is even more austerity.

Diane Abbott is MP for Hackney North and Stoke Newington.

The above article was originally published here by the Morning Star.

By John Ross

The COP26 conference on climate change is discussing an issue which will profoundly affect every person on our planet. Climate change, together with nuclear war, is one of the two issues which can overturn the present basis of human civilisation. Because of the extreme seriousness of this issue, the COP26 conference should therefore be an arena for strictly objective international scientific discussion and international cooperation. Fortunately, as will be seen, strictly objective scientific evidence on the issue of climate change has been put forward in the run up to the conference.

Regrettably, however, COP26 has also become a site for geopolitical propaganda, primarily carried out by the U.S., to try to obscure the realities on climate change. This attempts to present the situation on climate change as being that the advanced countries, and in particular the U.S., are playing a leading role in the fight against climate change and that it is developing countries, and in particular China, which are the chief problem on climate change. This is reflected by media reflecting this propaganda – for example the Financial Times, surveying the conference, declared: “China and India cast pall over climate ambitions ahead of COP26.”

As will be seen this claim is the exact reverse of the truth. It is the advanced countries, and in particular the U.S., which are the chief problem on climate change due to their far higher per capita carbon emissions than developing countries. Furthermore, the policy positions advanced by the U.S. are a demand that the advanced countries, and in particular itself, should be given a privileged position in terms of the right to emit far more carbon per person than developing countries. This is unacceptable from the point of view of justice, democracy, the equality of nations, and even racially – this policy demands that overwhelmingly white countries should be given a privileged position compared to people of colour.

Because of the seriousness of this a series of articles will be run here on the implications of climate change. But this article has a strictly limited aim of setting out the factual position. This shows why it is clear that the U.S. and advanced countries are demanding a privileged position for themselves and why this is unacceptable.

The IPCC’s scientific evidence

It is fairly well known that the U.S., and advanced economies, attempt to present the issue of climate change in a way that does not acknowledge their overwhelming historical responsibility for carbon emissions and therefore climate change. This criticism is entirely valid – it is simply because it is well known it will not be dealt with here. But what is not so well known is that before the COP26 conference objective scientific evidence has also been put forward on the current situation on climate change which shows exactly the same pattern. In particular, the Intergovernmental Panel on Climate Change (IPCC) has published an important report: “Climate Change 2021: The Physical Science Basis”. The purpose of this article is to analyse the data produced by the IPCC. . This clarifies clearly that the claim being made by the U.S. and other advanced countries is for a privileged position in current carbon emissions. This is therefore the issue concentrated on in this briefing.

Analysing the core of the present situation, the key factual data concluded by the IPCC is set out in Table 1. As will be seen the IPCC gives various probabilities of hitting the key goal of 1.5 degrees of warming compared to pre-industrial levels, depending on the number gigatons of carbon which is emitted after the beginning of 2020. Thus with 900 gigatons of carbon emitted there is only a 17% chance of hitting this target, with 650 gigatons of emissions there is a 33% chance, with 500 gigatons a 50% chance of hitting the target, with 400 gigatons of emissions a 67% chance, with 300 gigatons of emissions an 83% chance. All these variants are worth analysing but, as is it the most central one, what will be analysed in this article is the one with the 50% chance of limiting global warming to 1.5 degrees. This requires that a global 500 gigatons of carbon is emitted.

Given this 500 gigaton figure it is then easy to calculate the per capita “carbon budget”, that is the maximum allowable carbon emissions for each person on the planet – which is  64.8 tons. Given the population of each country it is then also easy to work out the permissible carbon budget for each individual country. This means that any country asking for a per capita cumulative carbon budget above 64.8 tons is asking for a privileged position compared to humanity as a whole, and any country with a cumulative per capita carbon emission below 64.8 tons is making an above average aid to humanity in meeting this target.

Table 1

Changes in population

To complete the factual picture, it is then necessary to note that over long periods of time, up to 2050 or beyond, the population of individual countries will change. For example, on UN projections, between 2020 and 2050 the population of the US will increase by 15%, India’s population will increase by 19%, but China’s population will fall by 3%, Germany’s population will fall by 4%, Japan’s population will fall by 16% etc. Therefore, it is necessary to make calculations based not only on present populations but on future population. For this purpose, in this article, projections from the UN Department of Economic and Social Affairs will be used.  

High per capita carbon emissions are overwhelmingly concentrated in high income economies

Turning to the present situation, it is then completely clear that high per capita carbon emissions are overwhelmingly concentrated in high income countries.

This key data on this is summarised in Table 2, which shows a comparison to world average per capita emissions – to be clear it is not suggested present world emissions are sustainable, they are too high, but this is primarily to simply give a point of comparison for judging present relative emissions.

The pattern is evidently clear. Of the 213 countries (and 3 sub-country administrative regions), for which there is data, 78 have per capita carbon emissions above the world average. But of these 56, that is 72%, are advanced economies. Only 22, that is 28%, are developing economies. In contrast there are 138 countries which have below world average emissions – of which only 15, that is 11% are advanced economies, and 123, that is 89%, are developing economies.

In summary, the factual situation is entirely clear. It is the advanced economies which overwhelmingly have above average per capita CO2 emissions and it is developing economies which overwhelmingly have below average per capita emissions. In short it is advanced economies whose policies are by far most inadequate from the point of view of restricting emissions.

Table 2

The detailed situation of advanced and developing economies

Looking in more detail at the situation of advanced and developing countries this shows the situation is even worse. Table 3 shows the 213 countries and three sub-country administrative regions ranked by their level of per capita emissions. These are taken in groups of 20 – the highest 20 per CO2 carbon emitters, then countries ranked 21-40 by carbon emissions, then countries ranked 41-60 etc.

The pattern is crystal clear. The higher the level of per capita carbon emissions the more the situation is dominated by advanced economies. Of the 20 countries with the highest per capita emissions 16, that is 80%, are advanced economies. Of the countries ranked 21-80th in terms of per capita carbon emissions 40, that is to two thirds, are advanced economies. Only once significantly below world average per capita emissions are arrived at are there more developing than advanced economies in each group.

In summary, it is the advanced economies which have by far the worst results in the world in terms of excessive per capita carbon emissions. And the higher the level of per capita carbon emissions the more the situation is dominated by advanced countries. Therefore, not merely historically but in terms of current emissions, the advanced economies have the policies which most diverge from what is required for the planet. By far the greatest violators of what is required on climate change are the advanced economies, and the biggest proportional reductions which are required are therefore also in advanced economies.

Table 3

The fake criteria for climate emissions put forward by the U.S.

Once the facts on global climate emissions are grasped then the fake character of the criteria for U.S. “leadership” in fighting climate change becomes transparently clear.

The U.S. attempts to present the situation as the criterion for success in fighting climate change is the percentage reduction from current emissions. Thus, Biden has announced that the U.S. aims at “to achieve a 50-52 percent reduction from 2005 levels” of emissions which is supposed to represent “Building on past U.S. leadership”. Given that in 2005 U.S. per capita CO2 emissions were 20.8 tons this means that the US proposes to reduce per capita carbon emissions by 2030 to 10.4 tons.  But this means that by 2030 the U.S. proposes that its level of per capita CO2 emissions should be 220% of the present world average!

That is not leadership, it is carbon damage on an incredible scale, and a claim for a completely privileged position for the U.S. in the world. It means, for example, that by 2030 the U.S. claims its per capita carbon emissions should be 42% higher than China’s are today. This is not U.S. leadership; it is to be a total climate change laggard.

The entire method put forward by the U.S., based on percentage reduction from present emissions levels, is fraudulent – a distortion of reality. Because all this method does is to protect the position of the highest CO2 emitters! To take a few examples, if the U.S method of aiming at a 50% reduction in emissions by 2030 was aimed at, and applied to present levels, this would mean a claim that the U.S. was allowed to emit per capita 8.0 tons of CO2, China was entitled to 3.7 tons, Brazil to 1.2 tons, India to 1.0 tons, and the Democratic Republic of the Congo to 0.02 tons! Such comparisons have  nothing to do with U.S. leadership on climate change – on the contrary it shows the U.S. is claiming a privileged position for itself. It also shows why similar claims for a privileged position by advanced economies must be rejected.

What is being shown by the U.S. is not leadership on climate change but a claim for privilege by advanced countries and, in reality, for the white population of these countries against the overwhelming majority of humanity who are people of colour and who live in developing countries. Such an approach is not merely unacceptable from the point of view of justice but it is also ineffectual – it will obviously never be accepted by the 84% of the world’s population who live outside the advanced economies.

The real situation on climate change

Fortunately, the scientific data produced by the IPCC makes it possible to calculate the real changes which are required to combat climate change. These are summarised in Table 4.

To analyse the effect of this, as with most issues in the world – such as the percentage of world population, the percentage of world GDP etc – the key consequences for climate change are concentrated in a small number of countries. Only 17 countries each have carbon emissions accounting for more than 1% of the world total. Together these countries account for 75% of world carbon emissions. Therefore, analysis of these countries is sufficient to follow the world trends.

The key data for these countries is set out in Table 4. The pattern is clear. Of the world’s largest emitters of carbon only two, Saudi Arabia and Australia, have higher per capita emissions than the U.S. Furthermore, despite their extremely regressive policies, these are small emitters of CO2 compared to the U.S.-  Australia accounts for 1.2% of world carbon emissions, and Saudi Arabia 1.8%, compared to the U.S.’s 14.8%.

In summary, the U.S. stands in a higher league all of its own in terms of its per capita CO2 emissions. In particular, making the comparison to the largest developing countries, China’s per capita CO2 emissions are only 46% of those of the U.S., Indonesia’s 15%, Brazil’s 14%, and India’s 12%. Any attempt to portray the U.S. as a leader in fighting climate change is therefore grotesque.

Because U.S. per capita carbon emissions are so much higher than any other major country it makes clear why U.S. CO2 emissions cuts must be correspondingly much more rapid than any other major country to fit within its carbon budget. As shown in Table 4 U.S. annual average reduction of CO2 emissions from 2020 onwards must be 20.2% a year – compared to 10.2% a year for China and 3.0% for India. (To be clear, for all countries, this is not the precise annual average that must be achieved but the annual average achieved over time – so if emissions fall more slowly, or rise, in the initial period there must be correspondingly rapid falls after this initial period). To give a comparison, this average means that by 2030 U.S. emissions per capita should have fallen to 1.3 tons per capita, compared to its proposed target of 8.0 tons per capita. That is the U.S. is proposing that its per capital carbon emissions by 2030 should be more than 6 times what is required to fit within its carbon budget. This has nothing to do with climate change leadership, it is climate change vandalism.

Table 4

Conclusion

The above data does not all detract from the fact that climate change is one of the two most serious threats facing humanity – together with nuclear war. The world needs to radically reduce CO2 emissions. As China, fortunately, is the most advanced of the developing countries, it needs to limit CO2 emissions. But the attempt to present developing countries, and in particular China, as most responsible for the danger of climate change is purely propaganda by the U.S. – China ranks number 50 in the world in terms of per capita carbon emissions. The U.S., and advanced economies in general, are not leading on climate change, they are claiming a privileged position for themselves.

There are three main forces in the world who are fighting for a just response to the common threat to humanity posed by climate change:

• The Global South – that is developing countries, who as the data shows, are being fundamentally discriminated against by the advanced countries and in particular the U.S.
• China, which as the most advanced and powerful of the developing countries, is a particular target of U.S. distortion and propaganda.
• Progressive sections of the Western movement against climate change – while, as noted, the U.S. is primarily engaging in propaganda and attacks on developing countries and China there are nevertheless undoubtedly forces within the Western movement against climate change which reject such positions. Furthermore while scientists, and research by organisations such as the IPCC,  tries to be careful not to become too involved in policy questions their research entirely undermines the claims of the U.S.

To put matters in a nutshell, the U.S. is regretably attempting to carry out a crude propaganda campaign around COP26. The facts show clearly that what the U.S. is attempting to claim for itself is a privileged position against climate change. It is not the leader on climate change by the world’s greatest climate change laggard. It is advanced economies which are claiming a privileged position on climate change. Any force fighting climate change in the West has to take this as a fundamental starting point. The U.S. is not leading the world on the fight against climate change, it is simply claiming a privileged position for itself.

The fight against a climate change is a very real one for the whole of humanity. But its starting point, as the facts show, must be that it is the advanced countries that must make by far the biggest proportional reductions in CO2 emissions. The attempt by the U.S. to present the main problems as being in the developing countries, not the advanced ones, is a pure statistical distortion.

The above article was originally published here by Learning From China.

By Michael Burke

In an era of blatant lies, the claim that this Tory government is trying to push wages higher and create a high wage economy stands with some of the most shameless fabrications of all.

The entire thrust of government policy is to drive wages lower in order to boost profitability. This is logical, from the perspective of those addressing the crises of the British economy by prioritising a rise in profits.

However, another policy with the same aim in mind, Brexit, has back-fired as far as this government is concerned, and for the interests of the ruling class in general. The effects of Brexit are so negative and far-reaching that it has created a labour shortage, which was never part of the plan. Just as critics of Brexit warned, non-tariff barriers would have reduced both the supply of goods and services as well as raising their price.  These new non-tariff barriers, which have not yet been fully put in place, are now described as ‘supply-chain issues’, but are actually Brexit effects, as will be shown below.

However, it is not at all true that Brexit, or government policy is leading to higher wages. These are negative effects for the population as a whole as energy and food bills are already soaring at a time when workers generally are being hammered, including very significant job losses.

Crucially, the shortages of labour and skills are driven by a wholly unanticipated development; primarily the exodus of British-born workers after Brexit.

Driving down pay, and keeping it there

There is a strange reluctance on the part of many, even among government critics to accept the reality that the labour market in Britain is in very poor state and that workers generally are struggling with shorter hours, lower pay and worse conditions.

So, to avoid any charge of cherry-picking data to suit an argument below, is a table produced in the most recent Office for National Statistics (ONS) labour market report for September.

Table 1. UK headline economic status levels and rates, total weekly hours, and redundancy levels and rates, seasonally adjusted (unless otherwise stated), May to July 2021

Source: ONS

The change in all key indicators since the pandemic began is show in the last column. So, 716,000 people are newly unemployed over the period, the unemployment rate has risen 1.3%, the unemployment total has risen by 186,000, and so on.

All of these represent a partial rebound from the lows seen since the pandemic began. But the pandemic is far from over, as international bodies such as the IMF now warn, having previously based unfeasibly strong growth forecasts on the assumption that the pandemic was coming to an end. There is too an immediate threat as the furlough scheme ended at the beginning of October, which was still supporting 1.6 million workers. No-one can know in advance how many further job losses will be caused as a result, but one survey suggests that 70% of these employers will cut at least some jobs.

The generalised effect of much higher unemployment is to create the ‘reserve army of labour’, just as Marx analysed, which has the effect of driving down wages for those in work. This is an aim of government policy, and is supplemented by other policies to weaken the bargaining power of labour, everything from fire and rehire to curbing the right to protest.

Not so fast on pay

One area of genuine confusion, fostered by the government and supportive commentators is on the trends in pay.  Boris Johnson says that pensioners will not receive the promised ‘triple-lock’ uplift in pensions linked to sharply rising pay because it is a statistical aberration. He also says that the same rise in pay is evidence that his long-held(!) aim of increasing wages is bearing fruit. As usual, neither claim is true.

Chart 1 Annual Pay Growth

Source: ONS

Chart 1 from the ONS above shows various measures of wage growth, with and without bonuses and in nominal or real terms (adjusted for inflation). These range from 8.3% for nominal total pay (including bonuses) to 4.5% for regular real pay.

But ONS issues two notes of caution in using the data. The first is the comparison with a depressed economy a year ago, when total real pay fell by 1.8% across the economy. Compared to two years ago and before the pandemic, real total pay is up just 3.5% over the 2-year period. Secondly, the ONS statisticians warn about compositional effects. Over the past period, by far the biggest portion of job losses (of 716,000 in total) have been among part-time and low-paid workers. The average pay of the remainder, those still in work rises simply because the lower paid drop out of the calculations.

There is no boom in wages. Assertions of this kind, either from government supporters or Brexit supporters are completely false.

In addition, it should be absolutely clear that the government which imposed a pay freeze on the public sector has never had a plan for higher wages. The opposite is the case. The aim of the public sector pay freeze has nothing to do with controlling public finances. After the £37 billion debacle of test and trace, and over £400 billion spent on business subsidies during the pandemic to date, even ministers know they would struggle to amount that case.

The aim is to set a ‘going rate’ in the economy as a whole which is close to zero for all pay rises, including the private sector. In mainstream economic jargon this is a ‘demonstration effect’, to curb wages. This is necessary, from the perspective of the architects of the policy, because even after more than a decade of austerity it is uncertain whether there has been any decisive impact on the crisis of profitability in the British economy, as SEB has previously shown. The actual policy is to push wages lower in real terms, to restore profitability.

The reason the government has been stymied, at least temporarily, is because of Brexit and a wholly unforeseen effect on the supply of labour. In typical fashion, this Prime Minister has turned an unwelcome and unforeseen development of higher pay into a claimed long-held policy aim. It is not just a lie, it is nonsense.

Brexit effect

It is undoubtedly true that other countries are experiencing problems of supply. This follows a period of disinvestment by firms in the advanced industrial economies the pandemic and is a consequence of it.

To take a widely-experienced example, there is a general shortage of truckers and HGV drivers. During the lockdown phases of the pandemic there was natural wastage as the normal retirement rate took place, but this was increased as many others took early retirement or took other jobs for lack of work. In many instances, the drivers are self-employed and have had little or no financial support during the pandemic. But in addition to these elements, firms did not hire and train new drivers as work for them was limited.

All of these factors explain the general shortage. But, while truckers and HGV drivers move around in response to work across Europe, Brexit means Britain has cut itself off from the supply chain for transport services. In plain language, HGV driver do not want to come here, or work overseas from Britain. This economy has severed links to that supply chain via Brexit.

These Brexit problems (which are not solely about foreign workers coming to this country, but deter all drivers from crossing to and from Europe) are creating shortages and driving up wages in the sector. The same is reported in other sectors, such as seasonal agricultural workers, butchers, and others that may only now come to light.

These labour and skills shortages are also directly feeding into shortages of goods and higher prices, from fuels, to food, to pharmaceuticals. All these are predicted Brexit effects.

None of this is meant to suggest the EU is a progressive entity. It is not. But neither is the British state. Instead, Brexit has meant a severing of supply chains that extended to this economy, a cutting off from markets and a reduction in the productivity of both labour and capital as a result. Brexit is a significant negative economic shock.

Some suppliers have diverted goods away from British markets because of the costs associated with the new non-tariff barriers, and British and EU drivers will not wait at the Channel ports for their paperwork to be checked, unpaid while they are not making mileage.

Perhaps the most startling and least understood aspect of the Brexit shock is the composition of the exodus of workers because of Brexit. This belies the claims of the government/Brexiteers that fewer foreign workers have led to higher wages. This surprising composition is shown in Chart 2 below.

Chart 2. UK and European-born Workers

Source: ONS

It is widely but incorrectly asserted that the labour and skill shortages are driven by the flight of EU workers in response to Brexit. There has been a significant decline in the number of EU workers in this country, although this has been offset to some extent by a net inflow of non-EU European workers.

As a result, Chart 2 above shows the number of total European-born workers in the British economy (orange line, right-hand scale).  There are around 200,000 fewer European workers than at the beginning of 2020, when it was clear that the Tory election victory meant there would be a hard Brexit and harsh immigration/visa regime replacing Freedom of Movement (FoM).

But there has been a much steeper decline in the numbers of British-born workers over broadly the same period (blue line, left-hand scale). The total net decline in these workers has been well over 900,000. This far outstrips the net decline in the numbers of workers from Europe, and is the main Brexit effect on the supply of labour.

There may be a number of reasons for this outsized level of exiting the labour market in this country, that lie beyond the scope of this piece. In addition to discouraged workers, there has been a long-term outflow of British-born workers to other countries, which may have continued even without the benefits of FoM. In addition, reactionary immigration regulations mean that birth in Britain does not confer citizenship or residency rights, and spousal rights of residency were also abolished with the end of FoM. Others may have moved abroad because partners or other family members no longer had rights of residency or work. There may be other, unknown motivations.

However, it is clear that by far the biggest Brexit impact on the availability of skills and labour is from British-born workers leaving employment (916,000 lower the peak level) rather than European workers (192,000 lower).

Conclusion

The government’s plan is to cut wages in the British economy in order to push up profitability. This is clear from pay freezes, fire and rehire, and furlough on 80% of pay and which now ends even though the pandemic effects are stronger now than this time last year.

However, the government has run into a significant hurdle of its own making, through the disastrous Brexit policy. Barriers and bottle-necks created by Brexit, and higher global energy prices caused by a failure to invest for the duration of the pandemic, have been exacerbated here because Britain cut itself off from its own supply-chains. 

There has been a significant outflow of workers, out of the workforce and out of the country, which has created shortages of labour and skills. At least temporarily this is causing upward wage pressures in certain sectors. It is overwhelmingly driven by the outflow of British-born workers, not workers from the EU.

For the population as a whole, the effect of Brexit is to create shortages, including shortages of essential goods, as well higher prices. Brexit has made the overwhelming majority worse off. The current trends in energy prices, where Britain has left itself completely exposed at the end of the European supply chains (and adopted a laissez faire approach to energy purchasing), points to higher prices in general.

Higher prices are a consequence of government policy and lower wages an aim. The government has taken a series of measures to ensure the latter. However, a Brexit project that is designed to benefit US capital above all, and to encourage British capital to emulate that economic model has driven away workers as much as discouraging new ones. That Brexit effect stymies the overall economic plan, as labour shortages have led to higher wages in some areas.

So, a new fiction is created.  The government is not aiming for higher wages, as it claims. It is now aiming for higher prices, which will lower all wages in real terms.

By Tom O’Leary

The collapse of the US-led occupation in Afghanistan has rightly focused on the human cost of the 20-year war and the disastrous effects of Western interference in the country stretching back much further. But, despite what the US President now says, ‘nation-building’ became a central objective of the occupation and was used as a justification for other military adventures. All of that has been abandoned, as the US now has other, new Cold War priorities.

No prosperity

A striking feature of the economic impact of the US-led occupation was that there was no economic development. Various estimates, including by respected economists such as Stiglitz and Blimes, estimate the total cost of the war at trillions of dollars. If that is the case, almost nothing of it found its way into the Afghan economy.

According to World Bank data, the total output of the Afghan economy was equivalent to just $19.8 billion in 2019 in current US Dollar terms, a fraction of US total spending on the war. Worse, as Chart 1 below shows the Afghan economy has not been growing for years. Its peak level was in 2013 and has been sliding since.

Chart 1. Afghanistan GDP, 2002 to 2019, Current US Dollars

This is not a regional effect. It would be invidious to compare economic performance with oil-rich Tajikistan, Uzbekistan and Turkmenistan, or the Chinese powerhouse. But other countries have performed much more strongly, such as Nepal and neighbouring Pakistan.

Chart 2. Afghanistan, Nepal and Pakistan GDP, 2002 to 2019, Current US Dollars

As a result, average living standards in Afghanistan have failed to keep pace even with those in its poorest neighbours. Since the occupation, the gap with those countries has actually widened, and living standards are the same now as they were in 2015, as shown in Chart 3.

Chart 3. Afghanistan, Nepal and Pakistan Per Capita GDP, 2002 to 2019, Current International US Dollars

At the same time, the US/NATO forces occupation failed to provide any net new job creation at all. As Chart 4 below shows, while unemployment is a growing problem in Nepal and Pakistan, it is significantly outstripped by Afghan unemployment, which is no lower now than at the time of the invasion, as shown in Chart 4 below.

Chart 4. Afghanistan, Nepal and Pakistan Unemployment Total (% of workforce, using ILO modelled estimate), 2002 to 2019

Female unemployment is estimated to be 16.8% in Afghanistan, with no World Bank data available for prior years. This compares to 13.1% for Nepal and 6.1% for Pakistan.

In short, the occupation did not lead to any economic development. Instead, the economy and living standards have stagnated for years and even poor countries in the region fared much better economically than Afghanistan under the occupation.

Little social development

The repeated argument for bombing and invasion was that the invading forces would liberate the country, and especially women and girls from the vile and reactionary impositions of the Taliban. There can be no doubt about the profoundly misogynistic Taliban rule. But the claims for liberation, especially for women and girls, are not accurate.

The United Nations Human Development Indices have been developed by the UN Development Programme (UNDP). It is most comprehensive set of data available for many countries, including Afghanistan.

In the table below, taken from the most recent country report the UNDP shows the relative position of women and girls in Afghanistan and compares these with other (groups of) countries. In the first column the female/male relative position shows that the ratio of the development index of 0.659 is far lower for females than males in Afghanistan compared with other countries in the region, the region as a whole or comparably undeveloped countries. The overall level of development is also grotesquely low at 0.391 (column 2, HDI Values).

Perhaps the most startling evidence, given the widespread Western claims about the political purpose of the military campaign, is the reality of school life for Afghan girls compared to their neighbours and counterparts. While their expected years of schooling is 7.7 (and far below boys) the actual level of schooling on a mean average basis is just 1.9 years. This is less than half the level in Pakistan or the group of low development countries as a whole, and little more than a third of the school years for girls in the region.

Finally, not only is the per capita Gross National Income for Afghan women (last column) by far the lowest on all comparisons it is also more unequal than in the group of lowly developed countries. Only in Pakistan is the ratio of women’s incomes so atrociously low compared to men’s.

Not all of this can be ascribed solely to the legacy of the disastrous Taliban rule. The occupation has lasted 20 years and key indicators of both social deprivation and social inequality have not advanced even beyond the poorest and most unequal of neighbours. The Nepalese, the Pakistanis and others in the region and beyond are clearly better at manging their own affairs than the US and its allies have been at occupying and ruling Afghanistan.

Who benefits?

Sometimes, there is no grand plan behind even the most consequential of actions. Bombing and invading whole countries can be conducted without clear aims, a clear strategy or an exit, as recent history demonstrates.

However, it is impossible to conduct an adventure of such prolonged duration and so costly in terms of lives and funding, even if these are overwhelmingly accounted for solely in terms of US or Western lives and finances unless the adventure can be adjusted to align with the fundamental interests of an important constituency, lobby group or class.

It is not necessary to take the official statements of war aims at face value. It was said the war was necessary to remove bin Laden (who turned out to be hiding in a different country altogether) and then it was for ‘nation building’, which never happened.

Instead, it is necessary to ask, Cui bono? Who benefits? Who is doing so well out of the war that they can employ spokespersons, write op-ed pieces, establish think tanks, and fund Congressional leaders’ re-election campaigns? The completely corrupt Afghan leaderships installed by the US, especially Hamid Karzai and Hashmat Ghani, who initially fled Kabul with car loads full of cash, are the recipients of corruption, not the donors.

If highly regarded economists place the cost of the war in the trillions of US Dollars, and yet as noted the Afghan economy has been shrinking to a level below $20 billion annually, then funding must have left the country. In effect, the taxpayers of the US and elsewhere were not funding nation building in Afghanistan, they were funding US defence contractors, the Pentagon war machine, and a whole raft of ancillary suppliers, of everything from ‘security personnel’ to beer and burgers.

That is where the huge bonanza of public money went. Some have sought to account for the funds through the annual reports of US publicly traded companies and their stock price, which have both gained enormously. But the truth is that many of the contractors at the head of the trough are privately owned companies including the notorious Halliburton group or Blackwater company, which is in effect a US-aligned mercenary army. In turn, these firms developed deep links with both officials in government and Congressional leaders. Former US Vice President Dick Cheney later become CEO of Halliburton.

In the US currently, unlike Britain which faces a specific humiliation of its own, there is only limited criticism of the Afghan withdrawal. Once Obama signalled the end of the occupation and Trump struck a peace deal with the Taliban, it was clear that the bonanza from this war was over. Meanwhile Biden is sharply increasing the military budget, as part of the pivot to China and the new cold war. Shareholders and privateers will not lose out.

Why failure, why now?

The US is a vastly better equipped military machine than anything the Taliban can muster. In terms of conventional forces alone it has 2.1 million active or reserve personnel. The direct military budget is over $750 billion in the current year. Using US military intelligence sources, the New York Times estimates that the Taliban has no more than 2,000 to 3,000 full-time fighters, even if it can call on up to 10,000. Its budget can probably be counted in the millions, not the billions.

In such a mismatch, there must clearly be a problem with the greater force and its inability or unwillingness to use its weight. Of course, there is a world of a difference between being a local insurgency which can simply return home before returning to the fight once more, and an occupying force which must either spread itself all over the terrain, or hole up in a small number of larger centres.

But it was clear to Obama and successive Administrations that they would have to commit more, not fewer troops to defeat the Taliban and even that was not guaranteed to be an enduring victory. Meanwhile the US has identified other priorities.

When asked about the US support for the Mujaheddin against the Soviet-backed government of Afghanistan, US national security adviser Zbigniew Brzezinski argued that the Mujaheddin offered no fundamental or strategic threat to the interests of the United States. So it is with the Taliban. The US has allies who commit beheadings and deny women all rights. And itself and allies regularly carry out acts of terrorism.

But this only explains why the US is willing to accept a defeat, not why it decided to withdraw now. Biden explains this decision now in these terms, “Our true strategic competitors — China and Russia — would love nothing more than the United States to continue to funnel billions of dollars in resources and attention into stabilizing Afghanistan indefinitely.”

The echo of Brzezinski’s comment is audible. The real threat to US interests, according to Biden is China and Russia, not the Taliban. It is also clearly his judgement that operations in Afghanistan could be a never-ending drain on US resources. That must be prevented and instead they must be redirected towards the strategic competitors, or the main enemy in military/political terms.

Conclusion

The Afghan war was never going to end in the victory that its architects such as Bush and Blair claimed. It was a punitive war followed by occupation, which can only create resentment and hostility. The elimination of bin Laden was largely irrelevant to the conduct of the war and the claims made for nation building or for liberation of women and girls were overwhelmingly false.

Instead, there was a huge bonanza, for the US military establishment, for defence companies and private contractors, which amounted to a powerful lobby for never-ending wars.

But the political decision has been taken to end the war, not on grounds of morality or even cost. Instead, the US has identified a strategic enemy in China along with its Russian ally and the entire focus must be directed towards blocking its rise. This is the new number one aim and overwhelming priority of the US.

By Tom O’Leary

British government policy is widely criticised as being driven by the needs of the economy rather than the requirements of public health. This criticism and the anger it reflects is wholly justified. Yet is difficult to understand since it has produced both an economic disaster as well a public health catastrophe.

And Britain is not alone. Similar outcomes have been recorded in terms of the decline in output and in terms of death toll across Western Europe and in North America, although Britain lies at the extreme end of both.

If we leave aside the issue of incompetence, which has undoubtedly been a factor, it is not reasonable to assume that the richest countries in the world (with some of the most advanced medical and scientific expertise at their disposal) could all randomly come to the broadly to the same disastrous consequences.

Instead, a proper understanding of the real economic objectives of policy in the pandemic shows that, within that framework, policy has been a major success and there has been no disaster at all. Policy is clearly not driven by the need to save lives or protect health. It is also not driven by the needs of ‘the economy’, if what is meant is preserving jobs, maintaining living standards and reviving economic output.

In reality, it is the drive to maintain and expand profits, which is the motor force of capitalist system. This has been rather successful in many of the economies worst afflicted in terms of per capita death toll.

The millions of jobs lost, huge wage cuts, rise in precarious employment and outright bankruptcy of many firms naturally cause huge economic and social dislocation, alongside the death toll. But, since all these can contribute to rising profitability, the policymakers do not seem them as disastrous at all. At most they are seen as an unfortunate by-product, or present a political difficulty for governing parties (but even here, generally speaking, those governments pursuing this line have been supported by other parties). In terms of the central objective of restoring profitability, the elements of economic dislocation listed above are a feature of the plan, and each can make their own contribution.

The trade-off has never been between lives and ‘the economy’. It has always been a trade-off between lives and the opportunity to boost profits. Within the political space allowed, Western governments have overwhelmingly chosen to prioritise profits.

A short note on profits

There is frequently some scepticism about the idea that profitability can rise as output falls, and vice versa that profits can fall as output expands. For a full explanation of the relationship readers are encouraged to read Marx’s Capital, especially this section on the Rate of Profit in Volume III. The short note below cannot do justice to that, but hopefully serves to illustrate one key point.

In this example, a manufacturer produces goods which sell for £100 million. But is unhappy with profits of only £5 million or 5%. The rest is spent on fixed and variable costs, maintaining the factory, paying rent, paying workers, paying suppliers, and paying interest and so on. The manufacturer decides to fire some workers and reduce the remainder’s pay. Because of fewer workers he can only produce goods to sell at £90 million. But costs have fallen so far the profit is now £18 million, or 20%. Both the mass of profits and the rate of the profit have risen.

The converse is true. An increase in output may not lead to either a higher mass of profits or a higher rate of profit if they oblige the manufacturer to increase overtime and overtime pay and higher more workers. Output and sales can rise, but both the mass of profits and the rate of profit can fall.

There are many more factors affecting profits, but the issue of the numbers in employment and pay conform to what is currently happening in the advanced industrialised economies; huge pay cuts and jobs losses to restore profits.

The G7 pandemic

The Western G7 countries have had a disastrous pandemic. Their death toll has been far worse than for the world as a whole, as shown in Chart 1 below.

Chart 1. World per capita death toll from Covid-19 and selected G7 countries

In addition, by insisting on only limited restrictions for international travel and bogus quarantine schemes they have managed to seed the rest of the world with the virus and it mutations. On top of all that, the G7 countries led by Britain and Germany are refusing to waive vaccine patents which would allow the global production of far cheaper generic vaccines for poorer countries. Their aim instead is to ensure huge profits for Big Pharma.

Japan is the only exception in terms of death toll. But because Asian countries in general had to deal with SARS outbreak in 2002 to 2003, they generally have far better outcomes in the pandemic. And Japan has one of the worst outcomes of any country in the Asian Pacific, despite being its richest country.

Chart 2 below shows that this outsized death toll has not ‘protected the economy’ at all. No G7 economy had recovered its pre-pandemic level of GDP by the 1^st quarter of 2021, having generally experienced their worst recessions of the modern era. The outcome for the UK economy was the worst of all, still 8.8% below its pre-pandemic level.

Chart 2. G7 Change in Real and Nominal GDP since pandemic

Many international institutions such as the IMF, World Bank and others have been projecting a sharp rebound in output for some time. But we shall see soon whether the recent upsurge in new cases once again forces a postponement of the projected recovery.

Even with these still rosy forecasts for G7 growth, GDP is expected to expand very weakly compared to the world economy as a whole. According to the IMF World Economic Outlook for April this year, over the 3 years 2020 to 2022 cumulative real GDP growth in the G7 will be 3.75%. This compares to the projection for the emerging economies of 9.6% over the same period, which is mainly accounted for by China’s 17.1% projected growth.

As noted above, there has been a dramatic cut in jobs and pay. Across the G7 pay has been cut in real terms and in Japan pay has even been cut sharply in nominal terms. Compared to pre-pandemic levels the combined number of people unemployed has risen by 4.8 million, according to OECD data.

Profits up

The cut in jobs and pay have helped to boost profits, as they are designed to do. Chart 3 below shows the level or mass of profits for the US economy in nominal terms.

Chart 3. US Corporate profits, $ billions

The fall in US profits that began in mid-2006 was the harbinger and cause of the global financial crisis and subsequent Long Recession of 2008 onwards, but the recovery in profits was much slower than the initial recovery from the pandemic slump. It took 3½ years for profits to recover by the end of 2009. This time around they have already hit a new peak and soared past the previous peak in 2009 after just 7 quarters. This profit’s rebound has been faster and stronger than in the previous recession, and by a big margin.

Most G7 economies do not produce data in the same timely way as the US. But UK data is available for a comparable measure of the Gross Operating Surplus up to the 1^st quarter of this year. This is shown in Chart 4 below.

Chart 4. The Gross Operating Surplus if UK firms, £mn

The trend is nothing like as dramatic or as clear-cut as in the US, and profits are only marginally above their level at the end of 2019. Even so, it provides a clear indication that the health of the economy, or general well-being are not the determinants of profitability. Profits can be affected by the relationship between capital and labour, and in this pandemic they clearly are. In effect, capital is using the pandemic to alter the relationship of forces in its favour and to the detriment of workers and the poor. They have met with some success to date.

However, it would be premature or even foolish to declare victory for capital. Some of the rise in recorded profits is likely to subsidies, open or disguised from the Western governments. More fundamentally this is a struggle, a struggle between classes.

We have already seen too global stock markets wobble because speculators are concerned about the effect of the resurgent virus on profits, especially the Delta variant. The emergence of as yet unknown variants could have the same effect.

Furthermore, just because capital is dominant in this struggle now, it does not necessarily mean that the outcome is determined. The renewed surge in cases may require further, off-setting attacks on wages, jobs, and conditions to maintain the rise in profits. There may come a point when the attacks will not be endured by workers and the poor.

The past cannot be undone. The G7 countries have let more than a million of their own citizens die and are refusing to help the populations of the Global South with vaccine access, condemning millions more to certain death.

Instead, they have ‘let no good crisis go to waste’, and enacted pandemic-austerity for workers and the poor (the exception being the US), plus vast transfers to big business. Pay cuts for workers and job losses have taken place across the board (led by the US). Tax rises and welfare cuts are in the pipeline, along with privatisations.

At a certain point, the big battalions of the labour movement will need to act if this carnage is to be stopped at any time.

By Michael Burke

The Communist Party of China was founded on July 1, 1921. In a short series of graphs this note aims to highlight some of the consequences of that decision for China and the world. In particular, the trends in rapid growth in Chinese living standards after the Chinese Revolution is highlighted in a way that is designed to be more readily understood in societies where nothing similar to this has taken place over a similar timescale.

Background

The Communist Party of China was founded after a series of attempts by young radicals and nationalists to agitate against foreign domination of the country. In 1839, Britain invaded China and there followed a ‘century of humiliation’ as it was territorially and economically carved up among the Western imperial powers.

One aspect demonstrating the degree of that humiliation was the enormous decline in living standards under British Empire-led rule.  This is shown in Chart 1 below (all data from Angus Maddison, unless otherwise stated).

Chart.1 Per Capita GDP in China in the Century of Humiliation, Int’l $

Under rule by foreign powers, China’s per capita GDP fell over a period of a hundred years (1850 to 1950) from $600 to $448. By contrast, and for comparison, British per capita GDP rose from $2,330 to $6,939 over the same period.

Later success

The CPC’s first great achievement, and the necessary first step for all later development, was its ability to expel the foreign colonialists, culminating the Revolution of 1949. Chart 2 below extends the first chart to the modern period, up to 2008, to the time Maddison’s death.

Between 1950 and 2008 China’s per capita GDP rose from $448 to $6,725. So, in 100 years of colonial and capitalist rule, living standards fell by over 25%. Yet in 58 years after the Revolution per capita GDP rose by 14 times. To bring matters up to date, the World Bank (which uses a different, but consistent measure of international purchasing power) which estimates that per capita GDP rose a further 128% from 2008 to 2019. This implies a cumulative growth in output of between 1950 to 2019 of 33 times.

Chart 2. China’s Per Capita Incomes, 1850 to 2008

One of the stranger arguments about the current Chinese economic system is that it is capitalist, in part reflecting an inability or unwillingness to accept prosperity as an aim or product of socialism. Oddly, on both left and right can be found arguments that imply or explicitly state that China’s prosperity is a product of capitalism.

Yet China was opened up to capitalism for 100 years and it was an economic disaster.  It was only when the CPC led the peasants and workers to power that economic development was possible, and the scale and pace of the development since has been astonishing.

Success in a global, historical comparison

It is difficult in richer societies to imagine both the scale and pace of that transformation. Therefore, it may be useful to demonstrate both of these in relation to historical comparisons. Chart 3 below is based on the same data as in Chart 2.  But in addition, it uses as reference points the estimates for per capita GDP provided by Angus Maddison for a variety of societies and over different historical periods. 

The purpose is to highlight some important milestones on China’s path of economic development, and to give an indicator of its pace. All comparisons are the author’s, not Maddison’s.

Chart 3. International Comparisons of China’s Per Capita Incomes, International $

It is important to dispel any notion that this was an inevitable process, independent of any policy decisions and simply a reflection of ‘catch-up’ that often occurs to all extremely poor nations.  This can be done in 3 ways:

1. When Britain led the foreign invasion and carve-up of China in 1840, in the century that followed there was no catch-up as per capita GDP actually fell (to a level seen in Western Europe after the fall of Rome and the barbarian invasion).
2. Within the era following the Revolution there are distinctive periods of growth which themselves reflect policy decisions.  In particular in the period from 1950 to 1978 per capita GDP grew strongly, by 118%. However, in the following 28 years through the ‘reform and opening up’ process, per capita GDP grew much more rapidly, by 518%.
3. International comparison shows that similar countries, including ones which had liberated themselves from Empire, did not grow nearly as rapidly. This is highlighted in Chart 4 below, in the comparison of modern trends in per capita GDP in India and in China.

Chart 4. China and India, Per Capita Incomes, US current $ at Purchasing Power Parities

Source: World Bank

In 1950, very shortly after both the Chinese Revolution and Indian Independence, India’s very low per capita GDP was still considerably higher than China’s in percentage terms.  According to the Maddison data GDP per capita GDP was $619 in India versus $448 in China (in International $ terms). Both countries grew far more rapidly than they had under colonial rule.

However, China pulled level with India in 1992 and more rapid growth meant that it had reached a per capita GDP of $16,804 in 2019, 140% greater than in India.

Conclusion

In 1921 when the Communist Party of China was formed 474 million Chinese were attempting to subsist on per capita GDP of something less than $600 per year. Now there are 1.4 billion Chinese citizens with a per capita GDP of almost $17,000 in 2019.

The CPC inherited a level of output comparable to the living standards in Western Europe after the fall of the Roman Empire in the West. Within 70 years, a single lifetime, a rise in per capita incomes has taken place which either took millennia in other countries, or which, unfortunately many other countries are still very far from achieving.

Naturally, many people in those countries will be keen to examine the main factors responsible for such a transformation in living standards, with the aim of learning from them and adapting them to local conditions where possible.  Anyone interested in economic development, or increasing living standards, or socialism will want to do the same.

These 4 charts are not designed to identify those main factors driving exceptional growth, but simply to provide a very small snapshot of the effects of policies and structures which were aimed at raising living standards and to encourage study of these issues.

By Tom O’Leary

There are widespread claims that British Chancellor Sunak is implementing Corbyn and McDonnell’s economic policies even though this has been explicitly denied by both of them. Simultaneously, there is the claim that Biden is resurrecting Keynes with his $1.9 trillion stimulus packages.

These claims are important to examine, and not simply because they are at risk of sowing widespread confusion.  It is also important to set out what the recent changes in economic policy represent on both sides of the Atlantic, especially as they are likely to be influential in the Western countries as a whole as the latest iteration of neoliberal economic policy.

Source of confusion

In Western Europe (and to a lesser extent in the US) the dominant economic policy from 1950 to 1980 was ‘demand management’.  This was characterised by a loosening of fiscal and monetary policy when there was an economic downturn and the reverse when there was a perceived risk of ‘overheating’ and inflation.  This policy fell apart in the economic crisis of the early 1970s and was replaced by Reaganism and Thatcherism from 1980 onwards with what have become known as neoliberal policies.

This failed policy of demand management was incorrectly understood as ‘keynesianism’.  It is not in the scope of this article to explain why this is not a product of Keynes’ thought, and this has been done rather well elsewhere on SEB.

The point emphasised here is that this policy of demand management is not effective, as its failure in the early 1970s shows.  This is because simply increasing demand does not automatically lead to increased production, and still less it does not automatically lead to increased investment, that is the growth in the means of production.

However, after the horrors of World War II and the following 20-plus years of economic rebuilding, growth and prosperity in Western Europe and the US, the associated ideas of demand management maintain a powerful attraction. This includes in the European labour movements and their Lefts.  Yet it remains important to dispel this confusion, as it disarms all of these forces in their response to the latest economic turn in the major Western economies.

The turn in economic policies

Just as they did in the 1980s, the US is leading the Western economies towards a new economic policy, with Britain as its most faithful follower.  To understand that economic policy it is necessary to take account of the key developments in the US, which is both the stimulus packages under Biden and Trump taken together, the two British Budgets in March 2020 and 2021 and the various stimulus packages all across in the advanced industrialised countries.

These policies can be summed up as providing a safety net for business (including tax breaks, loans and guarantees as well as direct subsidies).  For payroll workers there is an element of wage support, although this also includes wage cuts in most instances.  There is little or no support for more marginal workers, the unemployed, those forced into ‘self-employment’ and others.

The latest Biden package totalling $1.9 trillion includes an innovation, a $1 trillion stimulus to household spending.  Trump called his own earlier package ‘stimulus measures’ but they were nothing more than temporary and partial subsidies, very little of which went to households (mainly a $600 cheque to households, meant to cover 3 months’ expenditure).

Biden’s is a genuinely large but temporary boost to household incomes, equivalent to approximately 5% of GDP. Taken with the Trump package that was mainly directed towards business the total additional government spending in response to the pandemic is $4.1 trillion, or just under 20% of US GDP.  Little wonder that the economy is expected to grow at a rapid pace this year.

In Britain, the Office for Budget Responsibility (OBR) estimates that the total support offered by the British government (which is overwhelmingly to business) at £356 billion, equivalent to approximately 12.5% of GDP. In the other advanced industrialised countries the support measures are sizeable, adjusted downwards in line with the shallower contractions in GDP generally seen elsewhere.

Rising government debt

All of this increased expenditure combined with falling GDP have led to sharp increases in government borrowing.

Government debt issuance in the OECD (Organisation for Economic Co-operation and Development) is expected to be a new record, equivalent to US$19 trillion in 2021 after $18 trillion in 2020 and compared to US$11.2 trillion in 2019. The level of debt issuance was previously on a declining trend in response to the moderate growth of the OECD economies. So, it can be stated that the entire increase in new debt is a product of the economic crisis caused by the failed response to the pandemic.

These totals far exceed the levels of government borrowing seen even in 2008 to 2010.  But this is because the depth of the current economic crisis far exceeds the impact of the Long Depression.  There is also a distinct possibility there is a China effect. Simply leaving the US economy to its own devices threatened to open such a huge growth gap between the US and China that it would soon become irrecoverable.  The huge stimulus is designed to close that growth gap.

Sharply rising government debt and a large temporary boost to spending that may have confused commentators in their wildly inappropriate comparisons. But it should be noted that the initial response to the 2008 crisis was also to increase government spending, and only when the recovery was secured this was followed by vicious austerity in 2010.

In this crisis, it is already clear that increased subsidies and one-off boost to incomes are being combined with structural, that is long-lasting austerity measures. This is shown in the way that Biden reneged on his campaign pledge for a $15/hour Federal minimum wage and cut unemployment benefits.  Sunak is cutting government current spending, increasing taxes on workers and maintaining a pay freeze on public sector pay, as has been shown previously on SEB. 

Macron in France is still battling for his Thatcherite labour market ‘reforms’, while Germany is eyeing privatisations.  All of these are different aspects of a shared drive towards austerity, modified by national conditions.

Will it work this time?

The main factor in determining the level of production is the amount of labour available and its quality (skills, training, education).  But increasing the level of production per worker without simply increasing their hours requires an increase in the means of production, through investment.

The reason ‘demand management’ failed was because in a capitalist economy investment is driven not by ‘demand’ but by profits.  Firms may either find that additional output is not profitable for a variety of reasons (additional costs or low availability in acquiring raw materials, intermediate goods or necessary labour). Alternatively, they may prefer to try pushing prices higher in response to increased demand, especially if they expect that increase to be temporary.  Others may find they have the additional capacity to meet the rise in demand without creating additional productive capacity.

This certainly seems to have been a factor in the US, the leading capitalist economy over a prolong period (and the G7 economies generally).  The level of capacity utilisation in the US economy is shown in the chart below.

Chart1. US Capacity Utilisation

Source: FRED

There are two important factors to note from the chart.  The first is that the rate of capacity utilisation in the US economy is lower than 75%. There would have to be an enormous, sustained increase in the level of consumption to oblige US capitalists to increase their investment on the confident assumption of future profitability.

Secondly, which reinforces the first point, is that it is also clear that the rate of capacity utilisation in the US economy has been on a long, unbroken downtrend over several decades, only interrupted by cyclical swings.  Reversing that downtrend would require a qualitative change in the overall conditions of the US economy to boost profitability, not simply a one-off boost to household incomes however large.

It should be noted too, not entirely as an aside, that this decline in capacity utilisation is mirrored by the same long-term decline in investment as a proportion of GDP in the US economy, as shown in Chart 2 below.

Chart 2. US Gross Fixed Capital Formation as % of GDP

Boosting demand will not be enough to sustain growth over the medium-term, because it is unlikely by itself to create the scope for profitable investment when there is already such a high level of idle capacity.  Instead, by themselves the stimulus measures will do only that, stimulate economic activity for a year or two against a backdrop of otherwise very weak growth.

However, as previously noted the governments of the advanced capitalist countries are not simply boosting ‘demand’.  They are also imposing austerity measures right now, the most important of which is the surge in unemployment and cuts to pay. 

Just as ‘demand’ or consumption does not determine profitability, so it is possible to increase profitability even if consumption remains unaltered (or receives only a temporary boost).  Profitability can be increased if the rate of exploitation is increased, specifically if wages for the same work are cut or if work is increased for the same wages. 

Both of these are being imposed now, the former largely on manual and other workers who are forced to attend work even under furloughs, and latter largely on stay-at-home, mainly ‘white collar’ workers.  Pay per hour worked is cut in either way, initiated by furlough schemes, underpinned by rising unemployment (the mechanism of the ‘reserve army of labour’) and supplemented by measures such as no increase in the Federal minimum wage, or cuts to unemployment benefit, or public sector pay freezes, cuts to Universal Credit payments, and so on. 

These austerity measures are integral to the whole economic plan, which is why it is extremely foolish and misleading to compare them to the policies of Corbyn, McDonnell or Keynes.  They amount to an all-round attack on wages and the social wage even while there is a temporary boost to demand.  In fact, the enormous sugar rush effect of the trillion dollar boost to household incomes may help to mask the effect of these impositions.

This is not so different to the stimulus in 2008 and 2009 followed by austerity from 2010 onwards.  The first is meant to revive capitalism and the second designed to boost its profitability by placing the burden of the crisis on the shoulders of workers and the poor.  The scale of the crisis caused by allowing the virus to circulate means the scope of policy measures is far greater and the two episodes, of stimulus and austerity, have been concertinaed.

Their purpose is to alter the relationship between labour and capital in the advanced industrialised economies in favour of the latter, to increase the rate of exploitation and then to lay the basis for a rise in profitability leading to a self-sustaining rise in business investment.

This did not work after 2010.  It remains to be seen whether it will work this time around.  It would be guaranteed to fail if there were large-scale resistance to these impositions. But that has yet to materialise.

By Diane Abbott MP

It is a modern miracle how incredibly damaging Tory Budgets are given a warm welcome by the overwhelming majority of the media, the miraculous status undimmed by the fact that it happens year after year.

The consensus was that last week’s Budget was a “spend now, tax later” plan.

The opposite is true. Aside from measures to try to cope with the pandemic which a clearly reluctant Chancellor is obliged to extend, the substance of the latest Budget, like the 2020 Budget, is to cut spending and raise the taxes on working people now.

In addition, far from there “being no money left,” there is in fact an enormous tax giveaway to big business.

The talk of tax hikes in the future on corporate profits is pure conjuror’s trick, designed to distract from what is actually happening now, using a policy that may never be implemented.

But as damaging as this austerity Budget will prove to be, there is even worse to come from its serial failures to address the multiple crises of British society, including the pandemic itself, the prospect of catastrophic climate change, the huge and deepening inequalities in society, the housing crisis, the crises in public services and in our basic infrastructure.

Robin Hood in reverse

In any sober assessment of this Budget it should be clear that the austerity policy has been reintroduced with a vengeance, following on from last year’s 5.7 per cent real-terms cut in government current spending (the day-to-day spending on schools, hospitals, public services of all kinds).

At the same time the support measures the Tories announced are mainly short-term and overwhelmingly to support business.

As this government’s policy has repeatedly shown, in a negative way, and other countries in a positive direction, the economic health of any nation depends on its public health.

The best gift the government could have given to businesses (and far less expensive) would have to suppress the virus with a zero-Covid policy. It still could, if it changed policy.

These are among the austerity measures that have not got the publicity they deserve:
• A public-sector pay freeze (except for nurses, whose 1 per cent rise is still a cut in real terms, after inflation)
• Another cut in government current spending (£4 billion)
• A rise in council tax (£2bn)
• A freeze on income tax thresholds (which means 1.3 million of the lowest-paid workers are brought into the tax net and ordinary workers lose out by paying more tax than if the thresholds had risen with inflation).

Together these amount to a huge attack on living standards of ordinary people.

At the same time, taxes for businesses are being cut massively.

Ignore all the spin about the big rise in corporation tax on profits, which is way in the future and may never happen.

Companies will soon be able to claim £13 for every £10 invested.

This “super-deduction” of tax is a huge tax giveaway amounting to around £27bn.

The Office for Budget Responsibility (OBR) says the policy will not boost business investment over the medium term, just simply bring it forward in the short term. So it is just a giveaway to business.

Together, this is the transfer of incomes from ordinary working people and the poor to big business and the rich.

It is the classic definition of austerity, and the same type of policy as George Osborne, David Cameron and the Lib Dems adopted. It is Robin Hood in reverse.

No-one should be fooled by the kerfuffle over a proposed corporation tax increase.

This is not due to be implemented until the financial year beginning in April 2023.

So any tax payments are years away and the government could scrap it at any point.

The missing elements of a Budget

This government specialises in not implementing measures it has previously announced.

One of those, dating from the general election, is that it would tackle the housing crisis that it helped to create.

But the Budget subsidies for mortgages and deposits are useless on their own.

There needs to be a huge programme of affordable homebuilding, otherwise these measures simply drive prices even higher, making homes even more unaffordable.

There was also next to nothing in the Budget about tackling catastrophic climate change, either in terms of investment to combat it or providing for a green recovery.

Two different Commons committees have said there are no plans to put government declarations on climate change into practice.

The Public Accounts Committee (PAC) says ministers have “no plan” to meet climate change targets, two years after setting them in law.

And the business committee says the vital UN climate conference scheduled will fail unless its goals are made clear.

In addition, the 110-page “Red Book” document from the Treasury, the word “inequalities” or “inequality” were mentioned just once!

And this was in the false messaging about levelling up, which we now find is only happening in Tory areas.

In addition, the government has not published an equalities impact assessment of the Budget.

Yet black and Asian people have been much more disproportionately hit by the economic fallout of the crisis, along with poorer households and young people.

They have also been disproportionately hit by the death toll in the pandemic. The Budget literally had nothing to say about any of this.

Underlying all of this is a complete failure to grasp the real relationship between the economy and the pandemic.

Notoriously, the Treasury’s Eat Out to Help Out scheme could not be sustained because cases and then deaths rose again, and the scheme itself probably contributed to that.

At every stage, “putting the economy first” has been disastrous for lives, and for livelihoods.

The OBR forecast is now that unemployment will rise to 5.9 per cent, while we know Covid-19 cases are likely to rise once more with schools and colleges reopening again on Monday.

Instead of dealing with the pandemic, the Tories are using it as backdrop for a renewed austerity policy against the bulk of the population.

Diane Abbott is Labour MP for Hackney North and Stoke Newington.

The above article was first published here by the Morning Star.

Pre-Budget Briefing

From the Office of Diane Abbott MP  diane.abbott.office@parliament.uk

*In March 2020 the official forecasts for the year were that GDP would grow by 1.1% in real terms and by 1.8% in 2021, and that the unemployment rate would remain steady at 3.8%

*In the event the economy contracted by 9.9%, a virtually unprecedented slump in peacetime and one of the worst outcomes in the G7.  Unemployment has risen to 5.1% and a recent survey for the Resolution Foundation shows that many more expect to lose their jobs.

*The importance of this disparity is not to highlight forecasting errors, but to underline the gravity of the current crisis and its effects on real people’s lives, as well as to highlight a key failing of this government.

Under This Government, The Economy Isn’t Working

*That failing is not just the disastrous response to the pandemic, which means that this country has one of the highest per capita death tolls of any advanced industrialised country.  It is compounded by the false notion that there was a trade-off between public health and economic well-being.  There is not, and repeated delays in lockdown and repeatedly ending them too early to ‘save the economy’ have led to both a public health and an economic crisis of enormous proportions.

*As is frequently the case at the approach of a Budget, the economic crisis is portrayed primarily as a crisis of government finances.  But this again mistakes a symptom for a cause.  Government finances are under pressure because of the economic crisis, and the economic crisis is a reflection of the failure to suppress the virus.

*Those economic consequences are stark.  1.4 million new people have begun to claim unemployment benefit since the pandemic began.  Millions of people have seen their pay slashed.  Young people, and Black and Asian workers have borne the brunt of job losses.  Others have been ‘fired and rehired’ on lower pay and worse terms, while the government has stood idle.

*Underlying this bleak scenario is the fact that some basic functions of the economy are not working (as shown in the chart above). There is lots of misplaced talk of government largesse, of the ‘gap narrowing between Conservatives and Labour on spending’ and even that the current Chancellor is ‘carrying out Corbyn/McDonnell spending plans.’.  The fact is that a public health and economic crisis is exactly the time to increase Government Consumption. Yet this government cut it.  ONS data shows that General Government Final Consumption Expenditure fell by 5.7% in real terms in 2020 compared to 2019.  To be absolutely fair to the Chancellor, this is exactly what he said he would do in the last Budget, which is a renewed bout of austerity.

*Naturally, with over a million people losing their jobs, millions more either in fear of losing of their jobs and/or having to live on much lower pay, Household Consumption fell by 10.7%.  The government as a whole has allowed the pandemic to drag on for a year, rather than for weeks in those countries which suppressed the virus.  But the fall in Household Consumption simply highlights that the Chancellor has also not done enough to support jobs and incomes for employees, and hardly done anything at all for the millions of self-employed and The Excluded.

*The other area of extreme weakness is in Business Investment.  In all the heat generated about the role and level of corporate taxes, there has been very little light shed on the key variable these are meant to influence, which is Business Investment.  Supporters of cutting taxes on profits frequently claim that this will boost Business Investment.  Yet, while this country has one of the lowest level of taxes on company profits in the OECD, unfortunately it also has one of the lowest rates of business investment too.  And Business Fixed Investment also fell by 10.7% in real terms in 2020. The weakness of Business Investment is a chronic one, which has become acute and is not much higher in 2020 than it was 2005.

*Economic prosperity cannot be sustained by encouraging Consumption.  The terrible effects of the Lawson and Barber booms pale into insignificance to the damage wrought by the Chancellor’s wholly misconceived ‘Eat Out to Help Out’ scheme (research from the University of Warwick says it was associated with one-sixth of all new cases over the summer).  More fundamentally, people cannot sustainably increase their Consumption unless their incomes are also rising. That requires rising incomes and rising output, which both require rising Investment.

*In addition to the current public health crisis there are multiple crises of the British economy, including in dilapidated infrastructure, unaffordable housing, run-down public services and severe inequalities.  Probably the most dangerous and pressing of all is the crisis of climate change.  None of these can be address by increasing Consumption and require increased Investment instead. 

*Currently, despite lots of talk of incipient inflation, the UK government can borrow for more than 25 years at an interest rate under 1.4% per annum.  Investment in all of these areas outline above yields a return on investment that is far greater than the cost of borrowing.  It is irresponsible not to borrow to investment when interest rates on government bonds are so low (even below the rate of inflation!).

*The economic plan to revive the economy must begin with suppressing the virus (and transferring the private sector shambles of Test & Trace to the public sector).  All those who cannot go to work should be furloughed on full pay up to £25,000 a year and the same should apply to the self-employed. In addition, a wartime level of borrowing to invest should begin both to overcome the current crisis and to tackle the longer-term structural issues that blight our economy and wider society.

*The virus must be suppressed, the underlying economic factors must be addressed, and the pressing issues of climate change, housing, jobs, inequality and so on must be tackled, otherwise they will all simply deteriorate further.

By Tom O’Leary

Keir Starmer’s speech on A New Chapter for Britain was heralded as a breakthrough moment where he would simultaneously set out his vision for the economy and society while beginning to outline a wholly different economic policy.  If that was its purpose, it failed miserably in every respect. 

But the speech does have some value as it highlights some striking misconceptions that are unfortunately quite widely shared across the labour movement. These are important to deal with because they are disarming the movement in the current crisis.

Starmer’s policies

The concrete pledges in the Starmer speech are as listed below:
No £20 cut in Universal Credit
Funding for local authorities to prevent ‘huge rises in Council Tax’
No pay freeze for key workers
Extend business relief and the cut in VAT for hospitality and leisure
Loans for small business start-ups
And, ‘update and extend’ the furlough scheme

Though generally welcome, all of these are limited, short-term measures in response to a feature of the current crisis.  They are not a vision for either a more prosperous or less unequal Britain over the medium term, or even a policy to reverse this crisis.

There is too some confusion over the plan to introduce a ‘British Recovery Bond to raise billions’, which is clearly aimed at private individuals by giving “millions of people a stake in Britain’s future”. It is wholly unclear how this would differ from existing National Savings Schemes, or how it would add much for investment, given the outstanding level of ordinary government debt is just under £2.5 trillion.

SEB has long argued for a substantial increase in government borrowing for investment. But this seems to fall way short of that.

Common fallacies across the labour movement

As insubstantial as the Starmer speech is, its paucity is indicative of a wider malaise across the labour movement.  This can be encapsulated in large sections of the labour movement adopting and repeating the Tory slogan of, ‘Build Back Better’, which is the ‘Land Fit for Heroes’ of our era. The promise that there is no intention to deliver.

The idea that they are engaged in ‘deficit-financing growth’ is a myth exposed by their own Budget in 2020. Instead, leaving aside one-off measures to cope with the fall-out of their damaging Brexit, Budget 2020 showed cuts to total government spending over the medium-term. 

The innovation was that there is a planned increase in government investment, rising from a pitiful 2% to an extremely modest level of 3% as a proportion (of exceptionally weak) GDP.  Even before the wider economic effects of the pandemic were apparent, the Office for Budget Responsibility (OBR) forecast 10 years consecutive growth that never once reached an annual rate of 2%, which would be historically unprecedented – and which was largely a Brexit effect.

But the government also planned to reduce government spending overall, by cutting public services and public sector pay. So, far from deficit-financing growth, the outlook even before Covid-19 was that inducements to the private sector to invest would be paid for by workers and the poor.  This is more like austerity-driven stagnation.

The scale of the crisis

Unfortunately, the OBR’s view of economic prospects is much closer to reality than the Build Back Better boosters of the Tory Party.  In fact, the OBR could not know a year ago how the government was actually going to proceed with economic policy beyond its fiscal plans, so its own projections are also probably too optimistic in the short-to-medium term.

What the government has done is to launch a ferocious assault on working class and the poor, and has provided every encouragement to employers to do the same.  Far from ‘better’, measures already enacted will make matters far worse for the overwhelming majority of the population unless they are resisted and reversed.

Starmer’s speech blithely ignores all of this.  Yet this is the central issue that the labour movement must grasp unless it is to go down under an enormous defeat. To demonstrate that this is not hyperbole, the charts below illustrate the real trends in the economy, focusing on the labour market.

Since March 2020 the number of people claiming unemployment benefits has risen by 1.4 million, more than doubling in less than a year despite the furlough scheme.

Chart1.

For those in work, hours have been slashed, down by 7% since the pandemic began.

Chart2. UK Total hours worked (millions per week)

In addition, redundancies peaked at over half a million in the 3 months to September.  But total redundancies since March 2020 have amounted to well over 1 million.

Chart 3. UK Redundancies, 3-month rolling data, thousands

In its own analysis the office for National Statistics shows that the current rate of redundancies currently exceeds the rate after the financial crisis.

Chart4. UK Redundancy Rates Compared, the Pandemic Versus the Financial Crisis

Meanwhile, the reported rise in average annual pay is misleading. As already noted, payroll employee numbers have fallen sharply and these have been concentrated among the lower paid, which pushes the average for the remaining employees higher.

Taken together these trends amount to an all-round attack on the pay, hours and conditions of workers, especially lower-paid workers.  They are underpinned by the rapid rise in unemployment, which both increases the available supply of labour and undermines union bargaining positions.  In addition, the freeze on pay in the public sector (accounting for 5 million workers) is designed to place a cap on all workers pay. 

The outlook is even more bleak. According to the Resolution Foundation 8% of all those currently in work either expect to lose their jobs or have been told they will lose their jobs.  Even if only half of them are right, this would mean another 1.2 million unemployed.

Conclusion

It is this crisis that economic policy should seek to address, with strong public investment, job-creation and redistribution. 

First though, it requires accepting the reality of the scale of the crisis. Secondly, it needs to be understood that these are the economic indicators behind the widespread ‘fire and rehire’ policies, a conscious effort by the employers and this government to increase the rate of exploitation. They are not a response to lockdown, still less a natural outcome of a pandemic.  Thirdly, the ambition for economic policy must be commensurate with the scale of the attack that is being mounted. Otherwise, we are simply accepting defeat without a fight.

This is what Starmer neglects.  The labour movement as a whole cannot afford to be so complacent.