Transform: Issue #5 | November 2018 | A Journal of the Radical Left

Transform: Issue #5 | November 2018 | A Journal of the Radical Left
– includes articles by regular SEB contributors John Ross and Tom O’Leary + many more

Get your copy here.

Ten years on from the near-collapse of the global financial system in 2008, there is little sign of capitalist recovery and renewal. The consequences of the austerity policies pursued by so many governments are now playing out: from the destruction of the social and economic gains made by working people over many decades, to the rise of the far right, the crisis of social democracy and the ‘weaponisation’ of racism and Islamophobia.

Right-wing forces, given succour by an increasingly belligerent Trump White House, have often emerged stronger from the crisis, but left and progressive forces have also challenged for power, posing political and economic alternatives. Unfolding political developments and new mobilisations in Britain and elsewhere demonstrate that the right is being fought and can be defeated.

Transform #5 looks at the continuing economic crisis, with articles on the Lehman crash of 2008 and how we can tackle the power of big finance; Corbyn’s economic policy in the context of the attacks that lie ahead; economic lessons from the left governments in Latin America; and how we can learn from the struggles against neo-liberal globalisation. We also take a look at the big global strategic issues: the implications of Trump’s trashing of the Iran nuclear deal, how the differing approaches of Trump and Xi Jinping are playing out, and an assessment of NATO at 70. The political impact of film propaganda is considered through a case study of Nazi cinema, the latest issue of Socialist Register is reviewed, and we pay tribute to the late, great Samir Amin.

Even the IMF rejects Trump’s false claim that the US economy is growing fast

By John Ross
The new US GDP growth data released by the US last Friday entirely confirms the earlier analysis of ‘US growth under Trump is the slowest under any US President since World War II’ that:
·         Peak US growth under Trump is the slowest under any US president since World War II.
·         US growth during the present business cycle is the slowest in any business cycle since World War II.
Therefore, claims by the Trump administration of ‘historic’ fast US growth are simply a propaganda falsification – what is striking about present US growth is how slow it is by US historical standards.
To show the actual facts of US growth, taking the latest data and showing only US Presidents in the 21stcentury, Table 1and Figure 1show that, using the method by which the US prefers to present data, quarter on quarter growth at an annualised rate:
·         Peak growth under Clinton was 7.5%
·         Peak growth under George W Bush was 7.0%
·         Peak growth under Obama was 5.1%
·         Peak growth under Trump, in the second quarter of 2018, was 4.2%
The latest growth data under Trump, for the third quarter of 2018, shows a decline in the US growth rate to 3.5% – i.e. growth under Trump is already falling from its peak without having attained the levels under previous US presidents.
Detailed data on other US president’s since World War II, prior to the 21stcentury, is given in ‘US growth under Trump is the slowest under any US President since World War II’ and confirms peak US growth under Trump is the lowest under any US president since World War II.
An alternative method of presenting US data, in line with China’s and other countries method of presenting GDP growth, based on real annual average growth is given below – but as will be seen that makes no key difference to the result. The claim of historically rapid US GDP growth under Trump is therefore entirely fraudulent.
IMF data shows the exact opposite of Trump’s claims that US growth will accelerate under his presidency
However, while it is important to understand the latest quarter’s shifts in the US economy, even more important for  successfully dealing with the Trump administration’s trade aggression against China, which is a threat to numerous countries, it is crucial to have an accurate understanding of the underlying dynamics of the US economy – as this both provides the objective context of the Trump administration’s actions and creates objective pressure on it. Such an analysis must:
·         Understand the term long dynamics operating in the US economy which propel the Trump administration’s actions,
·         Analyse the immediate situation within these trends which affect tactics in dealing with US trade aggression.
The earlier article‘US growth under Trump is the slowest under any US President since World War II’  demonstrated that because US growth under Trump is so slow by US historic standards, therefore within  the ‘zero-sum game’ framework currently dominant within the Trump administration, this means that it cannot pursue competition with China via rapid US economic growth, but instead it can only attempt to slow China’s economy. This determines the aggressive approach of the Trump administration and explains its earlier rejection of proposals of ‘win-win’ solutions by China.
As will be seen the present article, within this long-term framework, examines the short-term situation of the US economy and therefore the pressures this creates on the Trump administration. As always in dealing with a serious matter in making such an analysis there is no virtue in ‘optimism’, and no virtue in ‘pessimism’, there is only a virtue in strict realism. Therefore, this analysis is not made using sources biased in favour of China but instead uses the data of the latest survey of the world economy by the IMF – a source which has in the past frequently overestimated US and Western economic growth. Analysis of this data shows in detail that the Trump administration has a temporary ‘window of opportunity’ during which it will benefit from a normal upturn of the US business cycle during the rest of 2018 and early 2019, before the US business cycle will begin to turn down and negative economic pressures will mount on the Trump administration.  This means that in the US trade war, due to strong pressure this economic situation places on the Trump administration to go very rapidly, it is possible the latter’s short-term tactics will be aggressive. However, the negative pressures on the Trump administration will increase with time – that is in this struggle time is on China’s side.
The present analysis of the short term situation of the US economy in the business cycle shows the same pattern as the long term trends analysed in ‘US growth under Trump is the slowest under any US President since World War II’. That is, for propaganda purposes the Trump administration engages in falsification and distortion – of the type which led to President Trump being laughed at by international diplomats in his recent speech to the UN. This method was recently summarised by the US Nobel Prize for Economics winner Paul Krugman: ‘Do you remember political spin? Politicians used to deceive voters by describing their policies in misleading ways… But Republicans no longer bother with deceptive presentations of facts. Instead, they just flat-out lie.’. Faced with an administration which utilises such propaganda methods it is more than ever necessary to pursue the method of ‘seek truth from facts’ – and it is a duty of China’s media to present an accurate picture of the real situation of the US economy.

The latest IMF analysis of the world economy

The IMF’s new publication in October of its projections for the world economy is of particular importance as it covers almost the entire period up to the 2024 US presidential election – the period, therefore, not only of President Trump’s present term but of any possible second term. To be precise the IMF now makes projections from 2018-2023.
These projections are highly significant as although the IMF chooses not to make explicit comparisons of its projections for US growth to the claims of the Trump administration, for obvious reasons, the IMF’s data shows that it gives no credibility to the administration’s claims that it will produce a strategic acceleration in US growth. Indeed, the IMF’s projections, published to accompany its October World Economic Outlook, on the contrary project that the long term slowing of the US economy will continue to worsen under a Trump administration.
To give precise numbers, Trump projected that his presidency would lead to a strong acceleration in US GDP growth – stating, ‘I think you can go to 5 or 6 percent’. In stark contrast the IMF projects that average annual US growth until almost the end of even a second Trump presidency would be only 2.0% – less than half of the growth Trump claimed he would achieve. Furthermore, the long-term average US growth rate will continue to worsen – the 20-year moving average of US annual US growth is projected to drop from 2.4% in 2016, the last year before Trump became President, to only 1.9% by 2023.
It will be shown below that the facts of US economic performance under Trump are far more in in line with the IMF’s projections than those of the claims of the Trump administration – the latter have no factual basis. This article therefore systematically compares the projections of the IMF, and the facts of US economic growth, with the Trump administration’s claims.

Summary of US long term growth

Starting first with the facts of US economic growth under the Trump administration, as already noted the article ‘US growth under Trump is the slowest under any US President since World War II’ showed that far from peak growth under the Trump administration being fast, as it claims, it is slower than under any previous post-World War II US president. This is true whether this is measured by the way the US prefers to present data (a single quarter’s growth presented at an annualised rate) or the way China and other countries prefer to publish growth (actual year on year on year growth measured between the same quarters in two successive years). To briefly summarise data presented in detail in article ‘US growth under Trump is the slowest under any US President since World War II’:
·         Peak US growth under Trump (4.2%), calculated by the US method, was lower than under Obama (5.1%), George W Bush (7.0%), or Clinton (7.5%), let alone presidents such as Nixon (10.3%) or Truman (16.7%). Peak growth under Trump is the lowest for any of the 13 post-World War II presidents.
·         Taking actual year on year growth, the maximum rate achieved under Trump is 3.0%. By this measure growth under Trump is also the slowest of any post-World War II US president – lower than under Obama (3.8%), George W Bush (4.3%), Clinton (5.3%), or, for example, Nixon (7.6%) or Truman (13.4%).
The precise present situation of the US economy will now be analysed within this long-term framework.

The long slowdown of the US economy

The slow US growth by historical standards under Trump is merely one part of the long deceleration of the US economy during the last half century – this long slowdown constituting one of the most fundamental features of the US economy. Taking a 20 year moving average, to remove any effects of short term business cycle fluctuations, Figure 2shows that annual average US growth fell from 4.4% in 1969, to 4.0% in 1978, to 3.3% in 2001, to 2.4% by 2016 – the last year before Trump became president.
In the context of this long-term US economic deceleration, the data in the latest IMF projection shows that long-term US growth will continue to decline further, to only 1.9%, by 2023 – i.e. the IMF is projecting that the US long term growth rate, far from accelerating under Trump, will actually fall further.

Projections for US per capita GDP growth

Even more striking in its consequences is the slowdown in US per capita GDP growth which flows from the IMF’s projections which is shown in Figure 3.
Because the US has relatively rapid population growth of 0.7% a year US per capita GDP growth is substantially below its total GDP growth. Figure 3 shows that US long term average annual per capita GDP growth fell from 2.8% in 1969 and 1978, to 2.4% in 2002 to only 1.5% in 2016. By 2023 US per capita GDP growth is projected to fall to only 1.1%.
Such a slowdown in US per capita GDP growth necessarily considerably impacts the domestic US situation – this is particularly the case as recent sharply increasing inequality means that for the majority of the US population living standards rises more slowly than per capita GDP. Whereas in the earlier post-war period more rapid US per capita GDP growth, and greater equality, could sustain US internal political stability, and widespread belief in the ‘American Dream’, the far slower per capita GDP growth of the recent period has necessarily been accompanied by increasing US domestic political tension – which is reflected clearly in the political and social clashes in numerous fields surrounding and following the election of the Trump administration.

US medium term growth

Turning to assess the objective ability of Trump to achieve his claims to lift the US economy to a fundamentally more rapid rate of economic development, with growth rates of 5% or 6%, it is worth first considering the situation facing his administration in light of long-term trends in the US economy.
As data and projections by the IMF are available for seven out of the eight years of a possible two term Trump presidency Figure 4 therefore shows the seven-year moving average of US annual economic growth. This, as with other measures, shows the US economy’s steadily slowing growth rate. On this measure, average annual US growth has fallen from 5.3% in 1968, to 4.4% in 1989, to 4.0% in 2000, to 2.2% in 2016 immediately before Trump came to office. To achieve growth rates of 5-6% over the period of a two-term presidency the Trump administration therefore would have to achieve rates of growth which have not been seen in the US economy for half a century – and in a situation where average US growth rates have been systematically falling for fifty years.
The IMF’s projections show absolutely no confidence in the Trump administration’s claims to be able to lift the fundamental US growth rate. On the contrary, Figure 4 shows that the IMF projects US annual average growth rates falling still further to 2.0% – compared to 2.2% in the last year before President Trump came to office.
As two years of the Trump presidency are already passed it is also useful to consider the IMF’s projections for the next five years – Figure 5 shows this, together with historic data on average US annual average GDP growth over a five year period.
This data again shows the same declining trend of US growth rate as other measures. Taking a five-year moving average US annual economic growth fell from 5.9% in 1966, to 4.6% in 1987, to 4.3% in 2000, to 2.2% in 2016. The IMF projects US average annual growth will fall further, to 1.8% by 2023. Therefore, once again to achieve its claims, the Trump administration would have to achieve growth not seen by US economy for a half a century – the IMF clearly has no confidence in this and, on the contrary projects US economic growth falling further.

Trump and business cycle

Given the extreme divergence between the facts of US economic growth, and the projections of the IMF, compared to the claims of the Trump administration, why can the latter attempt to give any credibility whatever to what are clearly false claims? The answer is that the Trump administration attempts to put forward such false assertions by making claims regarding normal fluctuations in the US business cycle to disguise the real underlying trends in the US economy.
The means used by the Trump administration to attempt to conceal the real state of the US economy may be clearly seen by comparing trends in the US business cycle to US medium/long term economic growth. To demonstrate this Figure 6 therefore shows US year on year growth compared to a 20-year moving average of annual growth. This data confirms that factual trends in the US economy correspond to the analysis predicted by economic theory. That is:
·         There are numerous short-term business cycle economic fluctuations determined by a wide range of fundamental and incidental economic factors (cycles in profitability and economic spare capacity, the situation in other countries, even the weather).
·         But these are oscillations around a long-term growth trend determined by fundamental economic factors – that is the US economy’s growth is periodically oscillating above and below its medium/long term growth rate.
Therefore, to take simply the situation under 21stcentury US presidents, the explanation of the trends outlined earlier is shown clearly in Figure 6. During the 21stcentury the long-term annual average of US GDP growth has progressively fallen from 3.2% in 2000 to 2.2% in 2018. However, above and below this long-term average, which is determined by fundamental structural features of the US economy, there are numerous inevitable upward and downward business cycle fluctuations. This combination of long-term slowdown with cyclical fluctuations produced the declining peak year on year growth rates under US presidents already noted – 5.3% under Clinton, 4.3% under George W Bush, 3.8% under Obama, 3.0% under Trump. Such a combination of a falling underlying growth rate with cyclical oscillations therefore produces the trend of peak growth under each of these presidents being lower than the previous one.
The method of the Trump administration’s propaganda misrepresentation/fraud is to attempt to present purely normal upward short-term business cycle fluctuations as changes in the fundamental US growth rate. To be precise regarding the most recent period, as shown in Figure 6a downward oscillation in US economic growth in the second quarter of 2016 meant year on year GDP growth fell to an extremely low 1.3% – 0.9% below the 20 year moving average of US growth. Merely to maintain the 2.2% moving average of US growth it would therefore be necessary for US growth to rise to rise to approximately 0.9% above the 2.2% long term average – that is US growth could rise to approximately 3.1% without this indicating any fundamental acceleration of the US economy. Therefore, not merely is the  3.0% year on year growth rate under Trump in the  third quarter of 2018 the lowest peak growth under any-US president since World War II but it is not even yet as fast as the approximately 3.1% growth in a quarter that would still indicate no acceleration in the US’s underlying growth rate – indeed growth under Trump could actually rise moderately further from its present level without this indicating any acceleration in medium/long term US growth.

The US business cycle

This fact that the present US growth rate under Trump, far from being exceptionally high, represents merely a normal upturn of the US business cycle of course has a corollary – that the US business cycle will turn down again.  Figure 7 shows this is precisely the IMF’s projection. This calculates that after 2.9% growth in 2018 US growth will fall to 2.5% in 2019, and then 1.8% in 2020 and 1.4% by 2023.
It is, of course, possible to argue with some of the IMF’s detailed projections – for example the IMF’s projected decline of the US 20-year moving average annual growth to 1.9% by 2023, from 2.6% in 2016 before Trump assumed office, may be considered excessively steep and a 20-year growth rate of still slightly above 2% may appear more likely. Nevertheless, such details clearly do not alter the fundamental trend. There is no reason, either from previous trends in the US economy or from its fundamental structural trends, to believe there will be a fundamental upturn in US growth. All that has occurred under Trump is a normal upturn of the business cycle, which will therefore inevitably be followed by a downturn in the US business cycle.

Conclusions for US tactics in its trade aggression

To analyse implications for the US-China‘ trade war’, more accurately US trade aggression against China, IMF projections are fully in line with fundamental economic trends in the US economy – also providing an independent analysis of these. The IMF’s projections clearly totally refute claims by the Trump administration that it has created a fundamental acceleration in US growth and they instead give a clear perspective for the US economy during the period in which it is launching trade aggression against China. Taking individual years, they indicate:
·         During the rest of 2018, due to the normal upswing of the business cycle, US growth should continue to be robust – which, of course, does not exclude disturbances in US financial markets.
·         US growth during 2019 will be slowing compared to 2018 – with the implication that growth will be fast in the first half of 2019 and declining in the second half.
·         By 2020 the US economy will be slowing significantly to only 1.8% growth – which implies per capita GDP growth of only just above 1%.
Taking this economic data in the context of the Trump administration’s trade aggression against China indicates that from a purely tactical viewpoint Trump has well timed the launching of his ‘trade war’ – and is attempting to gain from the purely normal upswing of the US business cycle. This means tactically for the Trump administration:
·         Tariffs against China necessarily increase prices in the US, which puts downward pressure on US living standards, and tariffs and retaliation by other countries will lead to US job losses – as is now well documented by US media. However, the negative consequences of these effects for US living standards will be minimised by the upswing of the US business cycle – therefore allowing Trump to avoid some of the political unpopularity of tariff measures.
·         The Trump administration’s tariffs have negative consequence for US companies – Ford, to take a single example, estimates that the tariffs will cost it a billion dollars. But the upswing of the business cycle while it continues will offset these negative effects.
·         Given the upswing of the business cycle Trump hopes that US share prices will continue to increase – although, as share markets can anticipate economic trends, this is not certain.
·         By misrepresenting the perfectly normal upswing of the US business cycle as an historic acceleration in the US economy the US hopes to be able to tempt other economies to enter into anti-China trade blocs with the US.
The problem for Trump, however, is that because what is occurring is a normal business cycle upswing, the cycle will inevitably turn down in 2019/20. This means that in this downswing of the business cycle:
·         Tariffs will put upward pressure on US inflation – and therefore downward pressure on US living standards.
·         The direct and indirect job losses from tariff increases will no longer be offset by rising employment created by an upswing of the business cycle.
·         The downswing of the business cycle will put downward cyclical pressure on US share prices.
It is for this reason that the Trump administration has only a relatively short period during which the US business cycle will be aiding it. By 2019-2020 trends in the US business cycle will turn against the Trump administration. It is for this reason that the Trump administration is forced to attempt to go fast in its trade aggression against China – therefore time is against Trump, and in favour of China, in terms of trends in the US economy.
It is also for this reason that the Trump administration attempts to carry out systematic false propaganda presenting the purely normal upswing of the business cycle as a fundamental acceleration of the US economy. Given its short favourable window of opportunity it is necessary for the Trump administration to attempt to convey an image of the ‘historic’ growth of the US economy in order to bluff China into surrendering to US demands – therefore the US conceals that growth under Trump is the lowest under any post-World War II US president and that what is occurring at present is merely a normal upturn in what is the slowest business cycle since World War II.

Conclusions for China

In practical dealing with the US trade aggression there are numerous factors known only to those engaged in such discussions. Therefore, this article implies no position on any specific discussions with the US. There are also specifically domestic political factors in the US, such as the November mid-term US elections which are not analysed here. But evidently the fundamental economic situation in the US business cycle has a significant effect on the overall situation of US trade aggression against China. It is clear that:
·         Analysis in China must estimate that at the present, due to the upswing of the business cycle, the US is at the peak of its favourable economic position in the trade war and the US economic position will weaken in 2019-20 as the US business cycle turns down.
·         Due to this situation the Trump administration may adopt aggressive tactics in the short term so as to attempt to gain favourable results before its economic position weakens.
·         It is of both international and domestic importance for China to show the falsity of US propaganda on its supposedly ‘historic’ growth so that – internationally as the US is attempting to lock other countries into trade pacts against China in part by claiming that the US economy is undergoing historically high growth.
For these purposes it is also crucial for China to have an accurate analysis of the state of the US economy. There is, in principle, little obstacle to achieving this. While extremely strong criticism may be made of the false propaganda claims of the Trump administration official US economic statistics are among the world’s most systematic. Similarly, IMF data and predictions are entirely public – which allows systematic comparison of IMF predictions with actual results. That is, the crucial data for analysing US economic trends is all public. Particularly in a time of US trade aggression it is therefore vital for China that its think tanks and research institutes carry out an accurate analysis of trends in the US economy.
*   *   *
This article was originally published in Chinese.
The above article was published first in English by New Cold War.

US growth under Trump is the slowest under any US President since World War II

By John Ross

The US is fighting the trade war against China on two fronts.
·         The first is the US external economic attack on China, primarily centred at present on tariffs. This is designed by US policy to create objective economic problems for China.
·         The second is the US attempt to influence international debate. This is trying to use US propaganda to spread an entirely false view of the international situation and in particularly of the real state of the US economy.
The most central propaganda falsification on this second front is to attempt to present a view of the US economy as undergoing ‘very strong’ growth. The aim of this propaganda falsification is to attempt to claim that it is pointless for China or other countries to resist the US due to the latter’s economic ‘dynamism’ – and therefore that China should accept the Trump administration’s trade demands and also abandon its socialist model of development in favour of the ‘dynamic’ US one.

This US propaganda claim of ‘strong growth’ is in fact the reverse of the facts. The reality is that far from US growth under Trump being ‘strong’ it is in fact the lowest under any US President since World War II!

The aim of this article is therefore factual, to lay out in detail the factual realities of the US economy under the Trump administration – it therefore follows the Chinese dictum of ‘seek truth from facts’.

But establishing these facts is critical for judgement of the situation in the trade dispute with the US. The US is attacking China not because of ‘dynamic’ US growth but because US growth has fallen to such a low level by historic standards.

The entirely false economic claims of Trump

When President Trump claimed in his speech to the UN General Assembly on 25 September that, ‘America’s economy is booming like never before,’ and that, ‘in less than two years, my administration has accomplished more than almost any administration in the history of our country,’ the delegates literally broke out into laughter – as US media reported. The Washington Post headlined its report: ‘”People actually laughed at a president”: At UN speech, Trump suffers the fate he always feared.’ The UK Financial Times similarly noted: ‘President Trump prompted laughter and gasps.’
As Trump’s claim the US economy is ‘booming like never before’ is simply entirely untrue, as was his earlier one that growth under his presidency was ‘historic’, by which he meant historically high, it is therefore rather astonishing to see similar claims repeated in parts of China’s media. The reality is that under Trump, far from the US undergoing ‘strong recovery’, it is experiencing the slowest economic growth in any business cycle, and during any presidency, since World War II. As this article will show, the only sense in which economic growth under president Trump is ‘historic’  is in the sense that it is ‘historically low’.

US Post-War Business Cycles

To start with the most comprehensive data on US post-World War II economic performance, Figure 1and Table 1show the data for growth in all US business cycle since World War II. Table 1shows these eight US business cycles since World War II in chronological order – a business cycle is defined as the period between two recessions and a recession is defined, in the standard US manner, as two successive quarters of negative growth. As business cycles are of different lengths the key statistic for comparison is the average annual growth rate during the cycle – shown in the last column.
The feature which stands out from this data is clearly how much slower US growth is during this business cycle than it than in any previous one since World War II. To give a comparison to evaluate Trump’s claim regarding ‘historic’ fast growth, the most rapid annual average economic growth in any post-World War II US business cycle was in 1948-1953 at 4.7%. That was more than three times as fast as the 1.5% during the current business cycle. Indeed, it may be seen that in all previous US post World War II business cycles growth was faster than in the present one.
Looking in Figure 1,  at the end of the growth line for the present post 2007 business cycle, it can also be immediately seen that there is no significant acceleration during the Trump presidency – this will be demonstrated in detail below.


In order to show the trends in the post-World War II economy more clearly and in greater detail Figure 2sets out growth in US business cycles since World War II in descending rank of growth rate rather than chronological order. This shows the following clear pattern.
·         The fastest annual average economic growth in any post-World War II US business cycle was in 1948-1953 at 4.7%
·         The second highest annual average growth in any US post-World War II business cycle was in 1957-1969 at 4.3%
·         The third highest annual average growth in any US post-World War II business cycle was 3.4% in 1969-1973.
·         The fourth highest annual average growth in a US post-World War II business cycle was in 1980-1990 at 3.1%.
·         The fifth highest annual average growth in any US post-World War II business cycle was 3.0% in 1990-2007.
·         The sixth highest annual average growth in any US post-World War II business cycle was in 1973-1980 at 2.9%.
·         The seventh highest annual average growth in any US post-World War II business cycle was 2.5% in 1953-1957.
·         The slowest annual average growth in any US post-World War II business cycle was in the cycle from 2007 to the present, the latest data being for the 2ndquarter of 2018 – with an annual average growth rate of only 1.5%.
Figure 2 therefore shows clearly how much slower growth is in the present US business cycle than in any previous one since World War II. The claim that that the US is undergoing ‘dynamic growth’, due to rapid technological innovation or to Trump, is the exact reverse of the truth. What is striking about the present situation of the US economy is how slow its growth is compared to all previous post-World War II US business cycles

Growth under Trump – the US method of measurement

So far growth during US business cycles has been analysed. But the Trump presidency covers only a part of the present US business cycle – this business cycle has also been proceeding under the presidencies of George W Bush and Obama. Therefore, to compare presidencies, it might be claimed that growth under Trump is fast, whereas that under George W Bush and Obama was weak. But, once again, the facts show the exact opposite – it is growth under Trump which stands out as weak.
To show this Figure 3illustrates US GDP growth during the 21stcentury measured by the method by which the US publicises its economic data – i.e. quarter on quarter GDP growth annualised (for example growth in the 2ndquarter of 2018 compared to the 1stquarter of 2018 annualised). Figure 3shows that using this measure:
·         In the last period of the Clinton presidency peak US growth reached 7.5% in the second quarter of 2000 – the fastest growth under the Clinton presidency.
·         Under George W Bush there were successive peaks of growth of 7.0% in the 3rdquarter of 2003 and 5.4% in the 1stquarter of 2006.
·         Under Obama peak growth was 5.1% in the second quarter of 2014.
·         Therefore, the peak growth under Trump of 4.2% in the 2ndquarter of 2018, is slower not merely than under Clinton but also slower than under George W Bush and Obama during the present business cycle.

Real US year on year growth

It was demonstrated above that even taking the method by which the US choses to publicise its data growth under Trump is slower than under Obama, George W Bush and Clinton. However, there are significant problems in the way that the US publicises its GDP data – i.e. by annualising quarter on quarter growth. This is because:
·         First, as only a three-month period is used, short-term factors distort the data.
·         Second, because such short-term factors are approximately multiplied by four their effect is magnified[1]. This results in the peak growth rates achieved under all US presidents measured by the US method being exaggerated – Clinton never actually achieved 7.5% growth over a whole year, George W Bush never achieved 7.0% growth over a whole year etc.
·         Third, because different quarters are being compared a seasonal adjustment calculation has to be made which must be accurate for the data to be correct. But in the US it is generally known this seasonal adjustment is inaccurate – the first quarter growth in each year is understated, meaning growth in following quarters is exaggerated.
This method of China of publicising economic data is more robust than that of the US. China highlights the real year on year economic growth rate – that is it compares GDP in one quarter with GDP in the same quarter of the previous year (e.g. the second quarter of 2018 is compared with the second quarter of 2017).
China’s method of presenting GDP data is more robust for two reasons.
·         First, a year is a sufficiently long period to eliminate the influence of purely short-term factors – such as the weather.
·         Second, no seasonal adjustment need be calculated as the same quarter is being compared in each year.
Figure 4therefore shows the real US year on year growth rate achieved in different quarters during the 21stcentury. It may be seen that this immediately lowers the growth rates shown using the US method of presenting data that was given in Figure 3(for example, the actual peak year on year growth achieved by Clinton was 5.3%, not 7.5%). While the growth data calculated by real year on year growth are more realistic than the US method of publicising data, nevertheless it shows exactly the same pattern of the extremely weak peak growth of the US economy under Trump compared to previous presidents in the 21stcentury. More precisely
·         Peak real year on year US growth under Clinton was 5.3%.
·         Peak real year on year US growth under George W Bush was 4.3%.
·         Peak real year on year US growth under Obama was 3.8%.
·         Peak real year on year US growth under Trump is only 2.9%.
Once more it is therefore clear that what is striking about growth under Trump is not how fast it is but how slow it is.
US economic growth under Trump is the slowest under any US President since World War II.
So far, in comparing growth under US presidents, only those in the 21stcentury have been analysed. But the comparison becomes even worse for Trump if all US President’s since World War II are compared. Indeed, the extraordinary situation may be seen that peak growth under Trump is the slowest for any US president since World War II.
To demonstrate this Table 2and Figure 5shows peak growth under all 13 US Presidents since World War II. This data is shown in the way that the US itself choses to headline economic growth – one quarter’s growth compared to the previous quarter at an annualised rate. This data then shows clearly that peak economic growth under every previous post-World War II President was higher than under Trump.
In more detail, Table 2shows that, using the US method of presenting data, the peak growth under Trump of 4.2% in the 2ndquarter of 2018 was significantly lower than the maximum growth under the previous Obama administration of 5.1%. However, this peak under Obama was itself far lower than under former US Presidents. In addition to peak growth under Trump being lower than under Clinton, George W Bush, and Obama, as was already analysed, earlier Presidents achieved even higher growth rates – such as 10.3% under Nixon. Peak US post-World War II growth was achieved under Truman at 16.7% – almost four times as fast as the 4.2% under Trump.
It is therefore clear that in terms of peak growth rate, measured by the way the US presents data, Trump ranks last, 13thout of 13, of US post-war presidents.
Real year on year US economic growth
To double check the situation, it may again be recalled that the US presents its data in a different way to China. Having already given the results using the US method, Table 3and Figure 6therefore shows real year on year peak growth under all US presidents since World War II. This shows that also calculated by this method the peak year on year GDP growth under Trump, at 2.9% in the second quarter of 2018, is the lowest under any US president since World War II.
It was already noted that peak growth under Trump of 2.9% was lower than under Obama (3.8%), George W Bush (4.3%), and Clinton (5.3%). But Trump’s peak growth rate was also lower than under George H W Bush (4.4%), Ford (6.2%), Carter (6.7%), Nixon (7.6%), Kennedy (also 7.6%), Johnson (8.5%), Reagan (8.6%), Eisenhower (9.1%), and Truman (13.4%).
Therefore, whether growth is calculated according to the method used by the US, or that used by China and most other countries, peak growth under Trump is the lowest of all of the 13 US presidents since World War II. What is therefore striking is not that US peak growth under Trump is fast but that it is so slow in terms of historical comparisons.

The state of the US business cycle

Finally, given that peak US economic growth under Trump is slower than under any previous post-World War II US president, the only reason President Trump is able to make his entirely false claims of ‘historic’ growth is by  comparison to the extremely poor performance of the US  in 2016 when US growth fell as low as 1.3% in the second quarter – shown in Figure 7. But Figure 7equally shows that both the downturn in the US economy in 2016 and the recovery since then, were perfectly normal fluctuations within the US business cycle.
Analysing this trend in the US business cycle detail, it may be seen that the current long-term average of US real year on year growth is 2.2%. However, naturally, there are fluctuations above and below this. To give a rough approximation of the magnitude of these fluctuations, as the 1.3% growth in US GDP in the second quarter of 2016 was 0.9% below the long-term average then, merely to maintain the average, a 0.9% oscillation above the average might be expected. The long-term average of 2.2% plus 0.9% would be 3.1%. There is, therefore, nothing abnormally high in US growth in the second quarter of 2018 being 2.9%.
Trump’s claims on rapid growth therefore merely represent a normal fluctuation in the business cycle and in no way alter the fact that peak growth under his presidency is lower than under any US president since World War II.
Furthermore, there is a clear implication of the fact that even the slow peak growth under Trump is simply a normal upward oscillation in the US business cycle. This is that this will be followed by a perfectly normal downward oscillation in the business cycle. Indeed, this is precisely what is predicted not only by the long-term averages of US growth shown above but as is predicted by the IMF. As Figure 8shows the IMF projects that after extremely poor US growth of 1.6%, for the whole of 2016, US growth will accelerate to 2.9% in 2018. After this, however, US growth will decelerate to 1.9% in 2020 and 1.7% in 2021 – this would represent a perfectly normal oscillation in the US business cycle.
To understand the impact of this trend on US domestic politics it is important to note that the US has a relatively fast rate of population increase – 0.7% in 2017. Figure 9 therefore shows both the actual increase in US per capita GDP to 2017 and the IMF’s projections for the increase in US per capita GDP after this. As may be seen, the IMF projects annual US per capita GDP rising to 2.1% in 2018 before falling to 1.1% by 2020 and only 0.9% by 2021.Therefore, the increase in US output per person is actually significantly below the US total GDP increase. Furthermore, due to rising US inequality, the increase in actual real incomes of the majority of the US population is lower even than the increase in per capita GDP.
With such a slow increase in per capita GDP it is evident that current domestic political tension and instability in the US will continue – as has been seen in the sharp internal US political clashes since 2016.


There are numerous consequences internationally and for US domestic politics of the very slow growth of the US economy under Trump compared to previous US post-World War II presidents. However, the precondition for analysing these implications is to establish the facts – which is the purpose of this article.
These facts leave no doubt.  Peak growth under Trump is the lowest for any US president since World War II, and US growth in the present business cycle is the slowest in any since World War II. In summary, US policy is determined by how slowly its economy is growing by historic standards.
The starting point for any serious analysis of the Trump administration must be how slow its economic growth is compared to previous US post-World War II presidencies. Once that is done then the features of the Trump administration’s policies become clear.
*  *  *
The Chinese language version of this article was originally published by New Finance on 6 October 2018.
[1] Strictly speaking the annualization is carried out by ((1+g)^4)-1) where g is the growth between one quarter and the next.

The above article was published first in English by New Cold War.

Austerity isn’t over. It will resume, but it has been suspended for one year

.947ZAusterity isn’t over. It will resume, but it has been suspended for one yearBy Tom O’Leary

The claim for the latest Tory Budget is that ‘austerity is coming to an end’, and has been dutifully echoed by the Tory press and the BBC.

In reality austerity policies will continue long into the future, extending the longest recorded fall in living standards in this country. The exception is the calendar year 2019, where both Government Consumption and Investment will rise as a one-off, before planned cuts in future years.

This is not an end to austerity, but a single event. On the face of it, it looks like preparation for Brexit and/or a general election either later in 2019 or early 2020 when the effects of the one-off increase in Government outlays is still being felt. This is exactly what George Osborne did in 2014, as part of the Tory Party’s plans for a 2015 general election.

Government Outlays

The Table below is taken from the Treasury ‘Redbook’ (pdf) 2018 that accompanies the Budget. It summarises the Office for Budget Responsibility’s (OBR) forecasts for key economic variables in light of its own economic analysis and its assessment of the Government’s Budget.

The Table shows there is an increase on both Government Consumption and Government Investment in 2019. They are both much higher, relatively speaking than in the two preceding years 2017 and 2018. It is also important to note that the growth rate of both these sector of Government outlays fall away again in subsequent years. Both of these were also revised substantially higher solely for 2019, compared to the March 2018 Spending Review, whereas other years have almost all been revised lower compared to March.

This is not a sustained increase in either Government Consumption or Government Investment, which would meet the claim of austerity ‘coming to an end’. Instead, it is simply a one-off event.
It is not possible to say whether this is in response to Brexit risks, where the economy will surely be worse than otherwise especially if there is no deal with the EU. It may be instead a plan to temporarily stimulate the economy ahead of an intended election. Or both. But it is not end to austerity, which will resume in subsequent years.
Negative outlook

The OBR Table also reveals a deep and abiding pessimism about economic prospects. By 2023 this business cycle will be very mature, as the last recession ended in mid-2009. Yet even without a renewed downturn real GDP growth is officially projected to average no more than 1.5% annually over the entire period. Chancellor Hammond explicitly states that the trend growth rate for the economy has been lowered by the financial crisis. On official forecasts, sluggish growth is the new normal.

The driving force of the economy is Investment, and with it the increasing participation in the division of labour through foreign trade. This is not the OBR’s framework, which remains stuck in a neoliberal/Treasury paradigm that Consumption drives growth. Even so, the OBR’s forecasts are noteworthy for expecting no increase in net trade, and the worst ever growth rate of fixed Investment over such a prolonged period.

Without better growth than is forecast, it is extremely difficult for living standards to rise.

Crucially, the OBR expects corporate profits to slow even further from 3.5% growth recorded in the first half of 2018. It projects that the slowdown will continue with just 2.8% profits’ growth in 2019 and only matching the average real GDP growth rate for the economy in further years.

It also notes that business Investment has risen by just 1.9% in the two years since the EU referendum and fell outright in the first half of this year. If the OBR is even close in its assumptions about profits, it is difficult to see where any rebound in business Investment will come from.

In fact, with weak growth from both business Investment and the Government, the OBR’s entire forecast even of very weak growth rest on a renewed increase in household indebtedness. The Chart below is Chart 3.23 taken from the OBR’s Economic and Fiscal Outlook to accompany the Budget.

It shows household debt rising once more, from 133% of household incomes in 2015 close to 150% of incomes in 2024. 
Chart 1. OBR Projections for Household Gross Debt to Incomes
According to the OBR, average earnings growth will not be contributing much at all to increased household consumption, as real average earnings growth measured against CPI inflation will grow by just 4% over 7 years. Measured against the RPI, real average earnings will fall by 2.8% over the same period.
This is at a time when the unemployment rate is expected to remain at historically low levels. Contrary to widespread assertion, wages are not set by ‘supply and demand’. Wages are set within the absolute limits of starvation level of the workers and the entire value of their output. Within those limits there is a struggle between classes for the income share of that output.
The current government, like its predecessors, is vigorously pursuing the interests of employers within that struggle. The net effect to date has been to depress real wages, but not to boost profits sufficiently to promote business Investment, as already noted. Therefore, austerity will continue after 2019 to achieve that outcome. Unless, of course they are stopped.
In a follow-up piece, Labour’s Budget alternative will be examined.

The changing character of the workforce

By Tom O’Leary

The British workforce is undergoing tumultuous changes. It is important for both economic policy and political strategy to grasp the nature of those changes. In addition, a factual analysis of the character of the workforce is a useful corrective to ill-conceived political analysis based on misplaced notions about what it is to be a worker.
This piece will focus mainly on one important aspect of the character of the workforce – its composition by skill category, according to designation by the Office for National Statistics (ONS). All data cited is available here. 

Workforce composition

In April-June 2018 there were a little over 32.3 million workers in the paid workforce. The biggest single category was ‘Professional occupations’, which accounted for 6.5 million of the total. If we take both this category together with ‘Associate professional and technical operations’ (the second-largest category) these two account for 11.2 million workers, more than one-third of the total.
Chart 1 below shows the ONS categories of employment at April-June 2018, ranked according to size.
Chart 1. UK Occupational categories at April-June 2018, millions
This current composition of the workforce is a product of enormous changes in a relatively short period of time. In 17 years, the British workforce has been transformed. In April-June 2001, there were a little over 27.6 million people in the workforce.  The current total represents an increase of 17%, or 4.7 million workers.

The overwhelming majority of this rise has been in the same two categories, Professional and Professional and technical occupations. Together over the last 17 years the number of people in these two occupational categories has increased by 4.2 million workers. This represents most of the net change in jobs over the last 17 years.  The Professional category alone has almost doubled over 17 years.

Elsewhere, some other occupational categories have declined in number. Managers, Admin/Secretarial and Machine Operators have each seen job losses of 300,000. Chart 2 below ranks the changes in those job categories since 2018.
Chart 2. UK Changes in Occupational Categories in the 17 years to April-June 2018, millions
Managers have declined as businesses have set out to ‘de-layer’ management structures to achieve greater profitability. Admin and secretarial jobs have declined as part of that process, and with the growth of personal computers as a key tool for an increasing number of jobs. Machine operators have declined with the dearth of manufacturing and related industry investment.

Other important changes have also taken place, aside from these skills-based changes. Table 1 sets out some of the key changes in the composition and terms of employment over the same period. Rounding means some categories will not sum to the total.

Table 1. Key changes in the UK workforces 2001 to 2018, millions
Source: ONS
There have been important changes across the board. The proportions of workers categorised as self-employed and part-time have both increased in the workforce as a whole. The number of workers on zero-hours contracts has quadrupled over the period. And, while this is still a very small proportion of the total workforce, it represents a long-term threat to the pay, conditions and organisations of the labour movement.

The conscious and persistent efforts to widen the casualisation of the workforce have registered some victories over the period. Despite this it is important to note that the biggest single change in the workforce has been in the growth of full-time workers, representing more than two-thirds of the total increase.

One important development is the relative growth of women in the workforce. This is a gain for all workers as women’s greater participation in the workforce tends in the direction of greater collective provision of domestic and carer chores, even though austerity has pushed sharply in the opposite direction. The biggest gainers are women themselves who can be liberated from financial dependence and domestic drudgery through paid employment, although of course this is not necessarily automatic.  

Professional workers

Important as each of these changes are, numerically by far the largest change has been the growth in the categories of professional workers (Professional and associate professional technical ONS designations). These are therefore worth examining in greater detail.

They are not ‘Managing Directors’, senior bank executives, or managers of NHS Trusts and so on. These are in the first ONS category of Managers, Directors and Senior officials, and their number has sharply declined over the period, as shown above. Instead, they are teachers, doctors, nurses, accountants, finance and ICT professionals.

They are overwhelmingly employed (9.66 million), full-time (9 million) and increasingly women, now making up almost half of these two categories (47.7%).

The five biggest categories of professional jobs all range between approximately 1 million and 1.5 million workers. In descending order, business and statistics (eg, accounting/auditing), teaching, health, ICT and sales jobs account for 6.57 million workers. This is of a total of 11.19 million workers in these Professional categories.  

There have also been major changes in the numerical strength in the occupations within these categories, which accounts for their dominant role in the changes in the workforce as a whole. Chart 3 below shows the changes in the leading Professional occupations over the last 17 years within the Professional categories.
Chart 3 Change in numerical strength of UK Professional occupations, 2001 to 2018, thousands
Source: ONS
The biggest single increase over the period has been in business, finance and statistical occupations, a rise of 760,000. But taken together, ICT and sales professional categories have risen by 1.13 million combined. In addition, health, teaching and social welfare jobs have increased by slightly more than these, for a combined total rise of 1.15 million.

Clearly, there are different trends at work. The growth of the already outsized British finance sector has continued, registering little impact of the financial crisis. In addition, the tightening or at least greater complexity of the regulatory and accounting regime governing British firms continues to generate jobs, although the performance of British firms or their regulation has not noticeably improved. But firms are also increasing their capacity in certain limited areas, such as IT and in sales. At the same time, certain key (mainly public sector) jobs continue to grow in health, teaching and social welfare (including social work and housing). 

Total public sector employment has been reduced by just over 200,000 over the period to over 5.3 million. This represents a decline from 20.1% of the workforce to just 16.5%. Higher union densities in the public sector mean that union memberships have also been hit as a result. Of the only two Professional categories that registered declines over the period one was the civil service, the other was research.

Politics and workers

The occupational categories used by ONS are based on skill levels required to perform the job (not the skills of the worker, which can be far higher). But when they were initiated they also tended to indicate income and to some extent social position. ‘Professions’ had distinctly better pay and conditions than manual workers.

The current categories were re-designated in 2010 to reflect changing skills (nursing saw a big rise in required skill levels) but the current types of classifications were introduced in 1990. Other versions go back much further.

Unfortunately, political debate in this country is often confused by reference to those much older versions. In particular, pollsters use the ABCDE categories of occupations (with C split into 1 and 2), which purport to assign views by class. This is wholly spurious.

These categories are over 50 years old and are tool of advertising analysis used by publishers and advertisers in the National Readership Survey, solely in Britain. These are completely non-Marxist, that is non-scientific categories. It is arguable that there may have been some alignment between these categories and social classes when the NRS was formulated, but now they lead only to utter confusion.

For example, pollsters, centrist commentators and outright enemies of the left argue that Labour has lost the working class, because it won the ABC1 categories in the 2017 election. This is despite the fact that the ABC1 categories includes teachers, doctors, nurses, IT workers, as well as mechanics, electricians, brickies, butchers, bakers (alas, no candlestick makers).

The categories C2DE include both lesser-skilled workers, as well as those at the margin of the workforce and pensioners. It should come as no surprise to any observer of British politics that, unfortunately, pensioners overwhelmingly do not vote Labour.  They are also the single biggest category, with over 12.5 million pensioners in the UK.

Labour’s policies to attract pensioners deserve a lot of work. But it must first be recognised that there is a political hostility to a left leadership of the Labour Party which currently increases with age. In fact, age is almost the single most reliable indicator of voting intention. It was one of the great feats of the Corbyn 2017 general election campaign to massively increase the turnout in younger age groups who had increasingly been disinclined to vote.

Similarly, it is widely arguedthat the Leave vote was a workers’ vote on the same spurious basis, and that the Remain vote was concentrated among the liberal, metropolitan elite. Northern Ireland and Scotland are not normally included in such categories, and they both voted Remain by some margin. So too did most of the cities including London, Leeds, Glasgow, Edinburgh, Bristol, Manchester, Cardiff and Belfast, Leicester and Newcastle. In general, workers live in cities and predominate there.

None of the arguments using NRS categories as a substitute for class analysis turns out to be correct. They cannot. This is because the NRS is a peculiarly English obfuscation of class, similar to blue and white-collar, or accent or (formerly) which newspapers people read.

Class categories are actually based on social relationship to the means of production. Owners of the means of production are the capitalist class. Those who own virtually nothing except their own labour which they are obliged to sell are proletarians.  Others form intermediary layers. The last several decades have in part actually been characterised by the proletarianisation of many professions, including teachers and doctors and other medics, as well as the numerical growth of those professions.

As workers are the exploited class all sustained social progress rests on their shoulders. They must take up all instances of oppression and discrimination to make progress, and to create the alliances necessary to advance.

Likewise, a Labour victory depends on appealing to that combination of the workers and all the oppressed.  These must first be correctly identified, taking account important changes and building support by championing the interests of the workers and the oppressed in their totality.

Sustaining the economic recovery in Portugal

By Tom O’Leary

Portugal is finally on the brink of ending the slump that began with the Great Recession at the start of 2008. But the economy remains far from a full recovery and important challenges lie ahead for the Left-supported government.

In the 1stquarter of 2018 the level of Portuguese GDP rose once more and is now just 0.75% below its level of the 1st quarter of 2008, which was immediately followed by recession. At some point this year the economy will finally surpass its pre-recession peak level. The low-point of the recession was reached in 4th quarter of 2012.

From the pre-recession peak in early 2008 to the low-point of activity and the end of 2012 the economy contracted by 9.6%, one of the sharpest falls in the whole of Europe (although less than half the depth of the Greek catastrophe). Since the end of 2012 the economy has been expanding.

The content of the crisis was twofold. Consumption fell by €15.1 billion, taking both government and private Consumption together. Investment fell by the even greater amount of €16 billion, even though Investment was a far smaller proportion of GDP. In percentage terms Consumption (private and government combined) fell by 9.7% in the slump, in line with economy as a whole. Investment fell by a far greater amount in percentage terms, down 36.25%.

As with other countries, the main driving force of the Portuguese crisis was therefore the slump in Investment. Chart 1 below shows the change in real GDP and its components during the slump. Net exports rose over the period, partly off-setting the sharp falls on other GDP components. But this was overwhelmingly due to a slump in import demand, not a surge in exports.

Chart 1 Change in Real Portuguese GDP and its Components in the Downturn, €bn

The impositions of the Troika have had a devastating effect on the Portuguese economy. The ‘bailout’ was not for Portuguese workers and the poor. It was a bailout of the creditors of the Portuguese government, who included both Portuguese and international banks, as well as investment and hedge funds, and other vultures. Vicious austerity was the price the Portuguese population was made to pay. They were also burdened with the debts of the creditors.

It is important to register the actual timeline and causality of the crisis. The Portuguese government did not apply for Troika a bailout until April 2011. The government had already imposed austerity measures of its own under the pressure of European Central Bank, the ratings’ agencies and others. Before the bailout of creditors the economy had already contracted by 3.1% and Investment had fallen by 20%. This was a crisis initiated by Portuguese and international big business, and a government acting in their interests. The Troika formalised and deepened that process.

Turning to the recovery, as Chart 2 below shows, that expansion has clearly accelerated since the beginning of 2016. This coincides with the new government in office, the Socialist minority government supported by the Left Bloc, the Communists and the Greens.

Chart 2 Portugal Real GDP Index

The acceleration under the Socialists is clear from the evidence. In the first 3 years since the economy began to expand once more, from 2013 to 2015 GDP rose by just 4.2%. But the signifcant acceleration in growth from 2016 onwards means the economy has expanded by 5.3% in little over two years.

The sharp change of policy under the new government is associated with the acceleration of growth. The Socialists, and the other parties supporting it in forming a government, stopped imposing new austerity measures. This alone has been enough to prompt an economic recovery.

To be clear, it is not increased government spending which has caused a recovery. The government has not increased its own Consumption at all. According to OECD data the annual level of government Consumption was €34.256 billion in the 4thquarter 2015, the last of the outgoing government. It was barely changed at €34.494 billion in the 1st quarter of 2018. The idea that increased government ‘stimulus spending’ has prompted Portugal’s recovery is not factually correct.

Instead, the government stopped imposing new austerity measures. This allowed a rise in private Consumption, and an increase in Investment, which is shown in Chart 3 below. Investment remains very far from recovery. But it has been on an accelerating trend. In the 3 years after 2012 when the economy began to expand once more, Investment rose by 9.0%. In little more than two years of the Socialist minority government investment has increased by 14.6%.

Chart 3 Portugal Real Gross Fixed Capital Formation Index

The decisive factor in continuing to ensure sustained growth will be to extend and improve this upturn in Investment.

As already shown, the fall in Investment was the decisive element in provoking the recession. The major fall in living standards came later, imposed by the Troika. In order to maintain recovery, raise living standards and undo the impact of the crisis, the further expansion of Investment is required.

Before the crisis, Investment comprised over 22% of GDP. It is now just 16% of GDP. If that Investment share of GDP is not restored or improved, it will be difficult to sustain the same pre-crisis levels of growth in living standards. General government Investment (Gross Fixed Capital Formation) has only just begun to turn up. Chart 4 below shows the Nominal level of general government Investment.

Chart 4. Nominal Portuguese Government Gross Fixed Capital Formation, €bn

Given the time leads for Investment (in transport, infrastructure, affordable housing, ports and so on) the new government can only be responsible for the level of public Investment in 2017. This showed a modest upturn.

The private sector cannot be relied on to maintain increased Investment. The Government must significantly increase its own Investment to maintain recovery over the medium-term, and to underpin rising living standards.

The IMF has called on the government to increase lending to small and medium-sized enterprises (SMEs). This is entirely the wrong prescription. SMEs will never deliver the large-scale Investment the economy requires, or direct towards the areas required, in housing, infrastructure, transport, new technologies and so on. Instead, the government should invest on its own account to achieve the increase in the productive capacity of the economy that is required.

How precisely that is achieved would require detailed knowledge greater than the current author’s. But the following options would come under consideration:

*Borrowing for investment – a public sector budget surplus is now expected and Eurozone government interest rates are extremely low

*Pressing for increased investment from the European Investment Bank and other supranational bodies

* Using remaining state-owned companies to increase their own investment

*Encouraging productive (not speculative) Investment in the real economy through Foreign Direct Investment.

Other avenues may also be possible. The decisive issue is to maximise the level of Investment to boost sustainable growth and living standards. This is the major challenge ahead.

Jeremy Corbyn is right – manufacturing matters

By Tom O’Leary

The multi-faceted attack on Jeremy Corbyn’s leadership of the Labour Party continues to include unjustified attacks on his economic policy. The liberal press, led by The Guardian and The Independent mounted a completely specious attack on his economic policy, even claiming that he was adopting the economic nationalism of Donald Trump.

Anyone who read the speech would know this is untrue. Instead, Corbyn was offering a sharp critique of the ruling economic ideology, which has for decades argued that finance and banking was the key to prosperity. “We’ve been told that it’s good, even advanced, for our country to manufacture less and less and to rely instead on cheap labour abroad to produce imports while we focus on the City of London and the financial sector,” Corbyn said.

But advocates of that economic model Britain, which has effectively adopted since Margaret Thatcher in the 1980s, also hit back. Because of the crash, their overt rallying cry cannot be to subordinate everything to the banks and the finance sector, which was Thatcher’s rallying call. Instead, it is to downplay the role of manufacturing and deride any attempt to revive it. It is also claimed that services are much more important. As banking, finance and their related services such as financial accounting, financial law and so on, are the largest, most profitable parts of the services sector, it is easy to see that this is the Thatcherite argument in a new, less open form.

The verdict of history

Thatcherism was a disaster for the British economy. This can be gauged on the actual performance of the economy during and since her time in office. The explicit claim for her project was that it would end Britain’s role as ‘the sick man(!) of Europe’ and its relative economic decline. In fact, the Thatcherite project of privatisation, union-busting, deregulation and lower government investment and spending led to even lower growth. This is despite the fact that she enjoyed the enormous windfall of North Sea oil revenues, which only started to gush as she entered office.
Chart 1 UK GDP 1948 to 1979
The period after the Second World War happens to divide into two neat periods until the 2008 crash, both of 30 years duration. 1948 represents the beginning of ONS GDP data. Thatcher came to office in 1979 and British economic policy has been dominated by Thatcherite ideology ever since, despite repeated changes of government. The crash of the 2008 and subsequent recession and stagnation can be traced back to those policies.

The verdict is clear. In the 30 years prior to Thatcher UK GDP rose by 145%. In the 30 years including her tenure and subsequently the economy grew by just 114%.

Far from reversing the relative decline of the British economy, the Thatcherite model accelerated it.

This can be seen starkly in the relative decline of manufacturing over the same period, shown in Chart 2 below.
Chart 2. UK Manufacturing, 1948 to 2017
In the 30 years prior to Thatcher, British manufacturing output more than doubled, rising by 123%. In the 30 years that included her terms in office and subsequently, manufacturing output rose by just 16.1%. From the recession onwards it has also remained in a downturn, falling by a further 5.9% since 2008.

Why manufacturing matters

The Thatcherite, or neoliberal argument against manufacturing is that it is old-fashioned and outdated. Modern economies, it is argued are increasingly based on services.

It is true that in all almost all advanced industrialised economies workers are increasingly employed in services sectors of the economy. Yet almost every other OECD economy has a greater proportion of manufacturing in GDP than the UK’s miserably low level of 9.2% (World Bank data). Germany’s manufacturing content is more than double that level at 20.7%. Chart 3 shows manufacturing as a proportion of GDP in selected industrialised economies.
Chart 3 Manufacturing Share in GDP of Selected Industrialised Economies
Because manufacturing requires a larger scale of fixed investment than service sectors (sometimes vastly more) the value created by each manufacturing workers is far greater than the average worker.

The greater output of manufacturing as compared to services sectors allows both greater reinvestment and higher pay. Crucially, manufacturing outputs are also the inputs for a host of other sectors, including energy, construction and many service sectors themselves, including transport, storage, communications and distribution. A weak manufacturing sector hampers the ability to develop all these other sectors.

This is nothing to do with economic nationalism. On the contrary, as an advanced industrialised economy, the manufacturing sector in Britain is one of the sectors most integrated with the world economy. It is often an important link in a Europe-wide or even global supply chains. To take the car industry, about one-third of all inputs to the British car industry are imports. At the same time, almost 80% of all cars produced here are for export, and 55% of all engines manufactured here are for export.

The complexity of these supply chains and the interconnection of markets can be highlighted in the following way: In 2016 the top 5 UK goods imports were all manufactures, electrical machinery, mechanical machinery, cars, ‘other manufactures’ and medicinal and pharmaceutical goods. Together they accounted for 42.9% of all imports and amounted to £185 billion. They are almost mirrored by the top 5 goods exports of mechanical machinery, cars, electrical machinery, medicines and pharmaceutical goods and aircraft, which together accounted for 45.4% of all exports and amounted to £132 billion.

It is not the case that British Minis are being sold Germany, while German BMWs are being sold here. The reality is that components of both are researched, designed, tested and manufactured in both countries, and many more besides. The value added per British car worker is almost £100,000 per annum, which as far greater than the UK workforce as a whole (by more than 50%). A decisive element of the high value-added is this integration in highly specialised multinational supply chains.

Participation in the international socialisation of production/division of labour is decisive for the development of the economy, on which prosperity depends. Anything that develops manufacturing, one of the sectors most linked to the world economy, will enhance that process, which is what Jeremy Corbyn proposes to do. By the same token, anything that blocks or interrupts the economy’s links to the rest of the world will also hit manufacturing hard.

The crisis in the NI economy never really ended

The crisis in the NI economy never really ended
By Tom O’Leary

The latest release of key data for Northern Ireland (NI) has had business organisations wringing their hands about the weakness of the economy. The CBI said the economy “looks to be on the brink of recessionary territory” after the economy contracted in the 1st quarter of 2018. In fact, the economy has contracted in three of the last four quarters. 

But this is not a short-term problem. Over the longer run, it is clear that NI economy has never recovered from the Great Recession. It remains in a crisis.

Chart 1 below shows a comparison of overall growth rates for NI, Scotland, for the UK and for the Irish Republic (RoI). It is reproduced from the Northern Ireland Statistical Research Agency (NISRA).

Chart1. NI, UK, Scotland and RoI Growth

Source: Northern Ireland Statistical Research Agency (NISRA)

The Northern Ireland Composite Economic Indicator (NICEI) is very far from being as authoritative as a measure of GDP. But it is the most advanced measure so far developed, and movements in the Index are likely to be good indicators of the trends in NI output overall. 

The chart shows that the overall level of output in NI has been exceptionally weak even on a comparative basis. This is highlighted in the table below, which shows the level of growth since the low-point of the recessions in the respective countries or regions, as well as the level of growth since the 1st quarter of 2006, the first available data.

Table 1. Changes In Output, %, Q1 2006 to Q1 2018
 *Data to Q4 2017 only
**NICEI, others GDP
Source: NISRA

Even if the data for RoI is disregarded entirely, based on the widely remarked upward distortions to GDP, the comparative performance of the NI economy has been miserable. This is despite the fact that UK-wide and Scottish growth rates have themselves been extremely weak over the period.

[The economy of the RoI has hugely inflated GDP levels, based on the government policy of attracting spurious investment from overseas, which is in reality a tax avoidance scheme. As a result, much economic data is meaningless. However, on one real measure RoI’s total real wages have risen by a very slow 7.4% over the last 10 years. Yet even this miserable level compares favourably to -3.75% for the UK over the same period].

As the Table shows the NI recession lasted 3½ years to 4 years longer than elsewhere. The NI recession only ended in the 2nd half of 2013. The recovery since that low-point has also been minimal. And the level of output in the NI economy still remains more than 4% below its pre-recession peak. The other economies have all recovered, at least to some extent.

Looking wider, most of the EU countries hit hardest by the Great Recession have made some sort of recovery, including Spain and Portugal. Italy is one of the worst-performing major economies in the world. Since the 1st quarter of 2006 the Italian economy has contracted by 2.4%. But the NI economy has been even worse. Only the ravages inflicted on Greece in the interests of its creditors put it in a separate category, having contracted by 21% since the beginning of 2006.

Disastrous public-private partnership

The disastrous performance of the NI economy has two sources, both the private sector and the public sector. As Chart 2 below shows, both the private and the public sectors have contracted since 2007. When the Tories came to office in 2010 they abruptly reversed the growth in the short-term rise in the public sector, which had been promoted in 2009 in response to recession.

Meanwhile, the NI private sector went into recession at the beginning of 2007, probably reflecting its links to and dependence on the private sector in RoI, where the recession began before the recession in the UK.

This highlights the structural problem of the NI economy as a whole. Its natural link is the RoI economy, especially via the private sector in NI. But the public sector in NI remains dependent on the parsimony of the Westminster government, which refuses to invest and insists that the private sector will, without any evidence.
A refusal to invest is hardly unique to NI among the Western economies. The entire OECD economy remains in an investment blight. This characterises the period we are in.
But the NI economy faces a longer-term, structural problem. When NI was created in 1922 it was part of the British Empire, which was still a globally sizeable market, even while it faced with mounting competitive challenges. NI shipping, manufacturing, linen and banking were an important component of the Empire’s output. But the Empire is long gone. Most of those industries in the North have gone with it.
Now, the world has three major economic units, the US, China and the European Union Single Market which together account for roughly 60% of the world economy. NI’s links to the EU Single Market now face severe disruption via Brexit. It will be left as an adjunct of the UK economy, which represents now just 2¼% of world GDP (according to World Bank data), and continues to decline. The latest decline in NI economic activity is a pointer to those strategic difficulties. The NI is suffering a declining participation in the world economy. Brexit will accelerate that.
The private sector in NI has already begun to anticipate the potential effects of Brexit, where the simple size of the UK market means there is only limited rationale to invest, for any enterprise, wherever its ultimate location. The incentive to invest in NI is even more curtailed than for the UK. The Westminster government has exacerbated these trends both through the ill-conceived Brexit policy itself, as well as its own repeated refusal to invest in the NI economy.

Economic lessons from the left governments in Latin America – and a comparison to China

By John Ross


This article is based on Marxist economic theory and macro-economic study of Latin American countries combined with two primary direct experiences:

· The author is a specialist on China’s economy – having written over 200 articles on it, published in English, Chinese, Spanish, Portuguese, French and Russian over a 26-year period.

· He was directly involved in some economic discussion in Venezuela during the period of Chavez, including directly with President Chavez (articles related to this in Spanish and English may be found at http://thevenezuelaneconomy.blogspot.com/).

However, the author has insufficient knowledge of the detailed situation in all Latin American countries and this article does not deal with directly political issues. This article therefore only deals with certain key economic issues which can be clearly seen both in the trends in Latin America and in comparison, to Asian countries – particularly China. It is therefore circulated for discussion in the expectation of inevitable criticism and improvement – these are greatly welcome.


The new wave of social struggles in Latin America

Recent events in Latin America entirely refute the claim in the Western media that the right wing was carrying all before it in the continent. Certainly, the right wing in Latin America is strongly coordinated by outside forces, and the left in Latin America does not have the same advantages in easy unification and coordination – despite the great successes and achievements of the ‘pink tide’ at the beginning of the century. But the reality is that both the right and the left have very deep social roots in Latin America and that there will be a prolonged period of struggle between them. To take simply some recent key events.

· The election of the new left President of Mexico, Andrés Manuel López Obrador, popularly known as AMLO, is an important advance for the whole left internationally, especially in the Americas.

· Polls show that in Brazil Lula would win the Presidential election – which is why a fraudulent state policy is being carried out to imprison him and ban him from the election.

· A new economic crisis in Argentina has forced its neo-liberal government to humiliatingly go to the IMF – discrediting it and launching a new round of social struggles.

Confronted with this situation the Latin American right is increasingly using a strategy proposed by the US of ‘lawfare’ – that is the use of an unelected judiciary, which in reality is controlled by the right and the US, to block popular politicians.

The ‘Brazil Wire’ news service carried an excellent description of strategy noting: ‘ The US has launched a new kind of war on Latin America and it’s called “lawfare”: using the local legal system to oust unfriendly but democratically elected politicians while ignoring corruption by their allies on region’s far right.’

This noted the launching of this strategy to deal with the ‘pink tide’ of the election of left wing governments in Latin America: ‘Hillary [Clinton] gave a speech in 2009 in which she said, “having a functioning democracy isn’t enough in Latin America, we have to support these countries to have strong, independent judiciaries.”’

This strategy also drew on the experience of the right wing in Italy, where similar methods were used a decade earlier to install entirely corrupt governments which carried through massive privatisations. There is a direct link of this to the Lava Jato (Car Wash) campaign being used against the left in Brazil: ‘in 2004 Lava Jato’s inquisitor judge Sergio Moro published a paper called “Considerations of Mani Pulite”, his interpretive thesis on the 1990s Italian – with US cooperation – anti-corruption probe which decimated Italy’s political order, in particular its center-left, and paved the way for both the political emergence of Silvio Berlusconi, the most corrupt leader in its history, and a wake of privatizations of its massive public sector nicknamed “the pillage of Italy”. Mani Pulite in particular, its use of the media to whip up public indignation and support of convictions served as the prototype for Moro’s own operation Lava Jato, launched a decade after his paper…. this new intensified order of privatization, all starting with a scam corruption trial causing media indignity and the overthrow of democratically elected governments with social welfare programs, only to be replaced by truly corrupt leaders who sell off all the goods’’

The bias in such right wing campaigns was blatant: ‘two of the former presidential candidates from the conservative PSDB party, which is the main conservative opposition to PT in Brazil and a long time friend of the United States, have been implicated in tens of millions of dollars worth of bribes with audio and video evidence and had all charges thrown out against them, even though you can just go online and see the evidence yourself, whereas ex-president Lula was given a 9.5 year prison sentence for supposedly receiving $200,000 worth of reforms on a luxury apartment that the prosecutors and judges – who are the same people in this investigation – cannot prove that he ever owned or set foot in. There’s no proof. Lula himself recently said in a speech, “the least they could do is give me the deed to this place.” So it is very selective. You don’t see any politicians from the conservative PSDB party going to jail in Brazil over this…

‘there is a general consensus among the majority of the Brazilian people that this is a witch hunt against Lula. The majority of the people consider him to be innocent. 96% of the Brazilian people reject the Coup president Michel Temer. He’s got a 4% approval rating. And I would also say that most people, probably slightly over a 50% majority, believe that Lava Jato is a witch hunt targeting the PT party, that has had disastrous results for the Brazilian economy.’

The aim of this ‘lawfare’ is to prevent left wing politicians running for office who would be elected, or to attempt to block them in general from campaigning on policy within their countries. This anti-democratic ‘lawfare’ has seen:

· Lula blocked from running for president in Brazil – as already analysed.

· In Argentina former left President Cristina Fernández de Kirchner has been charged with treason, a crime punishable by 10 to 25 years in prison. The right-wing government, in office since 2015, was already unpopular before it signed a bailout deal with the IMF and its support is expected to further decline. Kirchner would be a strong candidate for next year’s Presidential election, so the aim is to block her from running.

· On 3 July the National Court of Justice of Ecuador ordered the preventive detention of the country’s former President Rafeal Correa and requested that he is extradited from Belgium where he is currently living.

Confronted with this assault on democracy and social progress the first and unconditional requirement is international solidarity from progressive forces in every country.

The second issue, however, is preparation of the struggles by an analysis of the strengths and weaknesses of the previous ‘pink tide’ in Latin America – the series of left wing governments that were elected across the continent from 2000 onwards.

The strengths of these progressive governments are well known. They bought about a radical reduction in poverty, inequality and increase in popular living standards. This ‘revolution in distribution’ was the common achievement of all of them and a tremendous contribution to progress both in the continent and globally. But objective analysis shows that only in certain cases was this accompanied by a ‘revolution in production’ – that is the ability to protect their economies from the downturn in international commodity prices which started in 2014 as an aftermath of the international financial crisis. It is therefore useful to examine the different experiences and the reasons for them in terms of economic policies. The main economic examples will be analysed in turn.

Political success and economic success – Bolivia and Nicaragua

The most combined experience of both continuing economic and political success, the two of course being interrelated, was in Bolivia and Nicaragua. In both cases the left has retained political power. The economic record of the left governments in these countries is shown in Figure 1

· In Bolivia Evo Morales was elected President in December 2005 and has been re-elected to office ever since. The Bolivian economy has grown in every year since Morales was elected with the total expansion of per capita GDP up to the end of 2017 during his term being 46% with an annual average growth rate of per capita GDP of 3.2%.

· In November 2006 Daniel Ortega was elected President of Nicaragua and has been re-elected to office since. The Nicaraguan economy has grown in every year since Ortega was elected with the exception of 2009 when it was hit by the international financial crisis. The total expansion of per capita GDP up to the end of 2017 during Ortega’s turn in office has been 38% with an annual average growth rate of per capita GDP of 3.0%.

This relatively smooth and substantial economic growth, of course, significantly underpins, and helps explain, the political success of the governments in Bolivia and Nicaragua.
If the reason for this impressive economic success in Bolivia and Nicaragua is examined, its key macro-economic factor is shown in Figure 2 – the significance of this will become even clearer when less successful cases are analysed.

It should be recalled that GDP is divided into two parts:

· Inputs into production, that is investment – in Marxist terminology Department 1 of the economy

· Consumption which, by definition, is not an input into production – Department 2 of the economy in Marxist terms.

As ‘nothing can come from nothing’, only inputs into production can increase economic output. Figure 2 shows how an increasing proportion of the economy devoted to fixed investment underpinned Bolivia and Nicaragua’s economic growth.

· The percentage of fixed investment in Bolivia’s GDP rose from 14.3% to 20.8%.

· The percentage of fixed investment in Nicaragua’s GDP rose from 24.9% to 30.1%.

This high/rising percentage of fixed investment in GDP is in line with the pattern, as will be shown below, of the successful Asian socialist economies such as China.

To summarise, Bolivia and Nicaragua both carried out not only a ‘revolution in distribution’ but also a ‘revolution in production’ – sustained increases in economic growth even when faced with negative trends such as the fallout of the international financial crisis and the decline in commodity prices after 2014. This is a decisive factor underpinning both their economic and political success.

Economic success, political defeat due to betrayal– Ecuador

Ecuador constitutes a special case in Latin America in that the political setback came from treachery from within the camp of the left.

Rafael Correa was elected President in December 2006. He was re-elected President to three terms as president until 2017. His successor, Lenin Moreno, was the nominee of Correa’s party Alianza País. However, in office Moreno subordinated the country to the US. To attempt to block Correa’s support in the country the fraudulent arrest warrant already noted was issued in July 2018.

Despite great economic obstacles in Ecuador, which does not even have its own currency but uses the US dollar, great economic and social progress was made under the Correa government as clearly summarised by the US Center for Economic and Policy Research (CEPR).

· Annual per capita GDP growth during the past decade (2006–16) was 1.5%, as compared to 0.6% over the prior 26 years.

· The poverty rate declined by 38%, and extreme poverty by 47% percent. The reduction in poverty was many times larger than that of the previous decade.

· Inequality fell substantially, as measured by the Gini coefficient (from 0.55 to 0.47).

· The government doubled social spending, as a percentage of GDP, from 4.3% in 2006 to 8.6% in 2016.

· Public investment increased from 4% of GDP in 2006 to 14.8% in 2013, before falling to about 10% of GDP in 2016.

This increase in the proportion of fixed investment in GDP in Ecuador can be seen in Figure 2 above – it rose from 20.9% of GDP in the year before Correa was elected to a peak of 27.6% of GDP in 2013.

In 2015-2016, in addition to problems created by the increase in the exchange rate of the dollar, with no ability to devalue, Ecuador was struck by severe natural disasters such as the eruption of the Cotopaxi volcano and the El Nino phenomenon and, most substantially, the severe earthquake, which killed at least 676 people with over 16,600 injured and which by itself had a negative impact of 0.7% on GDP. This led to the necessity in the short term to devote more of the economy to consumption, in order to maintain the population’s living standards, but there was no confusion on the fundamental strategy of increasing the level of investment in the economy. This simply tactical shift was politically successful in ensuring the election of the candidate of the Alianza País in the 2017 Presidential election.

Overall the development in Ecuador therefore was an economic success but culminating in a political defeat due to treachery by Correa’s successor Lenin Moreno.

Economic inability to deal with the effects of the decline in commodity prices creates political setback – Brazil and Argentina.

Brazil and Argentina were the two biggest countries in Latin America in which the left came to power, before AMLOs recent victory in Mexico – being respectively the largest and fourth most populous countries in the continent, and its largest and third largest economies.

· Lula was elected president of Brazil in October 2002. He was succeeded in 2011 by Dilma Rousseff who won re-election in 2014 until being removed from office by a fraudulent ‘constitutional coup d’etat’ in August 2016 – with Temer becoming president, whose current approval rating is 4%.

· Néstor Kirchner became Argentina’s president in May 2003. He was succeeded by Cristina Fernández de Kirchner who remained in office until the right winger Macri was elected president in December 2015.

The economic dynamics in Brazil and Argentina are shown in Figure 3

· In Brazil, under the left government, the economy grew steadily until 2013. Per capita GDP in 2002-2013 rose by 33%, an annual average 2.6%. However, from 2014-2016 Brazil’s per capita GDP fell sharply by 9%.

· In Argentina per capita GDP grew by 58% from 2002-2011 – an annual average 5.2%. However, after 2011 GDP growth stalled and by 2015 per capita GDP had fallen by 3% compared to 2011.

Such a negative economic trend in the final periods of the left governments in Brazil and Argentina necessarily undermined their support. While they had made a ‘revolution in distribution’ delivering great progress for the population of their countries, they unfortunately did not succeed to make a ‘revolution in production’ – that is the ability to develop an economic policy capable of continuing substantial economic growth when faced with economic difficulties such as the aftermath of the international financial crisis or the fall in commodity prices.
Major political difficulties faced these governments – for example in Brazil the PT did not possess a majority in the legislature and the 1990s had seen many aspects of neo-liberalism institutionalised in the Central Bank and other bodies. Very negative economic circumstances were also inherited by Brazil’s left-wing government in exceptionally high interest rates and an overvalued exchange rate. Nevertheless, confronted with such strong objective difficulties, compared to positive examples in Latin America and the experience of China, it appears there was an insufficiently clear perspective on strategic macroeconomic direction which had negative consequences when the period of high commodity prices came to an end.

Turning to the explanation of the difference between the left wing governments which achieved both economic and political success and Brazil and Argentina, this can be clearly seen by comparing Figure 4 below with Figure 2 above.

· In Brazil the percentage of fixed investment in in GDP did rise significantly from 2003 to 2013 – from 16.6% of GDP in 2003 to 20.9% of GDP in 2013. However, from 2014 onwards it was allowed to fall, dropping to 16.4% of GDP by 2016.

· In Argentina the increase in fixed investment was shorter lived than in Brazil– from 15.1% of GDP in 2002 to 19.5% of GDP in 2007, before falling to 15.8% of GDP in 2015.

Therefore, whereas in Bolivia and Nicaragua, and for most of the period of the left government in Ecuador, the percentage of fixed investment in GDP rose continuously, underpinning economic success, no comparable scale of increase took place in Brazil and Argentina. This meant that Argentina and Brazil were not so capable of resisting the negative economic trends unleashed by the aftermath of the international financial crisis and the fall in commodity prices.

A special case Venezuela – the left in political power but problems in the economy

Venezuela constitutes a special case in Latin America. Chavez was elected president in 1998 and assumed office in February 1999. Initially he faced great opposition from capitalist control of the state oil company PdVSA, the overwhelmingly dominant economic resource in Venezuela, which created great economic difficulties. But the popular uprising of April 2002, to defeat the attempted anti-Chavez coup d’etat, by destroying capitalist control of the army, transferred the centre of state power into the hands of the working class. The working class has retained state power in Venezuela until the present – a great victory. In December 2002-2003 Chavez defeated the management strike in PdVSA – thereby for the first time securing firm control of the country’s most important economic institution.

These victories were followed by rapid economic expansion in Venezuela. Between 2003 and 2008 per capita GDP rose by 52% – an annual average 8.7%. Despite a moderate economic setback in 2008-2010, due to the impact of the international financial crisis, recovery then took place and in 2013 Venezuela’s per capita GDP was still 50% above its 2003 level – an annual average increase over that period of 4.1%. Chavez died in March 2013 and was succeeded by Nicolas Maduro who has remained President until the present.

From 2013 onwards, however, Venezuela’s economy sharply contracted primarily with both a fall in the price of oil and a decline in oil output. By 2017 Venezuela’s per capita GDP was 39% below its level of 2013 and 8% below its level of 2003. This economic contraction, whose social consequences were greatly exaggerated in the Western media, did not prevent the working class retaining power, with Maduro securing re-election in 2018. But it undoubtedly lowered support for the government, with Maduro’s voting falling by 1.3 million between 2013 and 2018. The economic situation in Venezuela was identified by Maduro as a key issue to address. These overall economic dynamics are shown in Figure 5.
Turning to analyse these trends in Venezuela they are greatly affected by the oil price – shown in Figure 6. The key Venezuelan macro-economic variables, fixed investment and saving, are shown in Figure 7.
For most of the period of Chavez presidency Venezuela was sustained by a sharply rising oil price – which rose from $12.2 on 1 February 1999, the date of Chavez inauguration as president, to an all time high of $145.3 on 3 July 2008. There was then a very severe fall during late 2008 and 2009, due to the international financial crisis, but by 29 April 2011 the oil price had recovered to $113.9. It was still $105.7 in July 2014. After that, however, in line with other commodity prices, the oil price fell sharply reaching a minimum of $26.2 on 11 February 2016. It then recovered to over $70 by July 2018. These trends are shown in Figure 6.

The results of the very high oil price during most of the period prior to 2014 was to create a very high level of total savings in Venezuela – total savings are equal to savings by companies, savings by individuals, and saving by the government. This very high oil price created very high company savings – total savings in the Venezuelan economy reached 42% of GDP in 2007.

As investment is financed by savings such a high level of savings would have permitted a very large increase in fixed investment in Venezuela, of the type seen in Bolivia, Nicaragua, or Ecuador – or of the type seen in China as analysed below. But although fixed investment in Venezuela recovered from their extremely low level of 2003 they never reached even the level of 1998. That is, Venezuela was not transforming its savings into fixed investment – as were, in contrast, Bolivia, Nicaragua, Ecuador or China. These trends are shown in Figure 7 – data in an internationally comparable form is only available up to 2013.

Without a high level of investment Venezuela’s economic growth could not be sustained in the face of the downturn in international commodity prices after 2014, and, even more directly damaging, without a high level of investment the rate of production of oil could not be maintained.

Therefore, Venezuela did not follow the successful economic path of Bolivia, Nicaragua, and Ecuador. This economic failure, as already noted, had a negative effect on the situation of the government – despite the overall great political success of retaining state power.


Finally, in addition to noting the positive lessons from Latin America, it is worth making a comparison of these experiences in Latin America with the successful socialist economy in China – as China’s experience and progress is still considerably underestimated in parts of Latin America.

In the almost 40 years since the beginning of China’s economic reform China’s economy has grown every year without exception. Its annual per capita GDP has increased on average by  8.4% a year over the 39-year period from 1978-2017. China experienced no serious economic crisis following the international financial crisis beginning in 2008.

As a result of that growth China has changed itself from a situation where in 1980 every country in Latin America had a higher per capita GDP than China to one in which by 2017 China had a higher per capita GDP than every country in Latin America except Panama, Chile, Uruguay, Argentina, Mexico and Costa Rica – China overtook Brazil in 2016. By 2023, on IMF projections, China’s per capita GDP will also overtake Mexico and Costa Rica.

Translating that into terms of the percentage of the population of Latin America, as Figure 8 shows:

· In 1980 100% of the population of Latin America lived in countries with a higher per capita GDP than China.

· By 2017 only 23% of the population of Latin America lived in countries with a higher per capita GDP than China and 77% lived in countries with a lower per capita GDP than China.

· By 2023, on IMF projections, only 7% of the population of Latin America will live in countries with a higher per capita GDP than China and 93% will live in countries with a lower per capita GDP than China.

To understand the scale of this transformation, however, it must be understood that China is far larger than Latin America – China’s population of China, at 1.4 billion, is more than two times that of the continent of Latin America.

Figure 9 therefore looks at the combined population of China and Latin America and notes the percentage of that combined population with per capita GDPs above and below China’s – that is, in a sense, it treats China as though it were a Latin American country for purposes of comparison. This shows that as recently as 1997 every country in Latin America, and therefore 100% of the population of Latin America, lived in countries with a higher per capita GDP than China. But, as already noted, by 2017 only 23% of the population of Latin America lived in countries with a higher per capita GDP than China and 77% lived in countries with a lower per capita GDP, while by 2023, on IMF projections, only 7% of the population of Latin America will live in countries with a higher per capita GDP than China and 93% will live in countries with a lower per capita GDP. As a result of this development China achieved the fastest increase in living standards of any major country.

In short, due to its economic policy, China has transformed itself from a country poorer than any in Latin America to one with a higher per capita GDP than all except the very richest Latin American countries. In particular it has overtaken Brazil in per capita GDP.
What, therefore, explains this extraordinary economic development in China and how does it interrelate with the lessons from Latin America? Figure 10 shows the similarity of China’s macro-economic development to the most economically successful left run governments in Latin America – Bolivia, Nicaragua and Ecuador. It shows that China’s growth, like theirs, was underpinned by a sustained and considerable increase in fixed investment. The contrast to the failure to raised fixed investment in a sustained way in Brazil, Argentina, and Venezuela is clear.


The lessons of the advance of the left in Latin America from 2000 onwards, during the ‘pink wave’, was one of the most inspiring and progressive in human history. The lives of many millions of people were improved.

It is also a complete myth, spread by the right, that the right wing has swept all before it. On the contrary the continuing success in a number of Latin American governments, the new left victory in Mexico, continuing struggles in Brazil and Argentina and elsewhere show that the left, as well as the right, has deep social roots in Latin America. The fact that the right in Latin America has to resort to ‘lawfare’ is precisely because it believes that if a democratic process were allowed to unfold the left would win.

At the same time, to confront the new round of struggles, it is necessary to draw lessons, both positive and negative, of the previous wave of struggles in Latin America. A key part of that is to draw the economic lessons. Study both of the successful examples in Latin America and of the socialist economy of China is crucial for this.


The above article was originally published here on the Brazilian website Opera Magazine

Misplaced optimism from the Bank of England Governor

Misplaced optimism from the Bank of England GovernorBy Tom O’Leary

The Bank of England Governor has declared that the UK economic outlook is improving. He may be right in a limited sense. The recorded growth rate of the 1st quarter of just 0.2% may not be as dismal in subsequent quarters. But there is little room in the medium-term outlook for misplaced optimism.

Carney said, “A number of indicators of household spending and sentiment have bounced back strongly from what increasingly appears to have been erratic weakness in Q1. The UK labour market has remained strong, and there is widespread evidence that slack is largely used up. Pay and domestic cost growth have continued to firm broadly as expected. Headline inflation is still expected to rise in the short term because of higher energy prices.”

But this only highlights the misconceptions about the drivers of economic growth and its consequences. The first indicators Carney relies on are Consumption data. But Consumption growth cannot drive economic growth, and is destined to fall back unless production and living standards are rising.
Consumption is a consequence of output, not a contributor to it. The growth in Consumption therefore requires the growth in output. Chart 1 below shows the real GDP growth rate (in blue, on the right-hand scale) alongside the proportion of GDP in real Final Consumption Expenditure (orange, on the left-hand scale).

Chart 1. UK Real GDP Growth and the Proportion of Final Consumption Expenditure in GDP, 1970 to 2016

Over time, in common with most Western economies, in the UK the proportion of GDP directed towards Consumption has grown. The corollary is that the proportion of GDP devoted to Investment has fallen. At the same time, the growth rate of the economy has slowed as the proportion of GDP directed to Consumption has risen and the proportion directed to Investment has fallen.

This apparent correlation between the falling proportion of GDP directed towards Investment is that it is associated with a decline in the growth rate of GDP. Peaks in Consumption are associated with troughs in GDP growth. If we take prolonged periods, such as the build-up to the Great Recession in 2008, this included a rise in the proportion of Consumption in GDP from 81% at the end of the 1990s to a peak of 87.8% in the depth of the recession in 2009.

This impression is confirmed by examining the data statistically. Chart 2 below shows the correlation between GDP growth and the proportion of Final Consumption in GDP. As the chart clearly shows, the correlation is a negative one, with a downward slope. As Final Consumption rises as a proportion of GDP, GDP growth itself slows.

Chart 2. UK Real GDP Growth & Proportion of Final Consumption in GDP, 1970 to 2016

Correlation is not causality. But the data completely belies the notion that economic growth, and the rise in living standards that growth allows, can be driven by rising Consumption over the medium-term.

Instead, the relationship is better understood as the relationship between Consumption and Investment, which both follow output. If output is not consumed, but saved and invested, it lays the basis for further output. However, if all output is consumed, then there is no possibility of increased output, and it will decline over time as capital (the means of production) are themselves consumed in the production process (through wear and tear, dilapidation, and so on). It is the increase in Investment which leads to the development of the means of production, which sustains an increase in production.

On this fundamental point, Carney’s assessment is wrong, even if better quarters ahead are possible in terms of GDP compared to the 1st quarter of 2018. Improving household spending and consumer sentiment cannot sustain increased growth over the medium-term.

The decisive factor is Investment. And here, the outlook is very far ‘bouncing back strongly’. Chart 3 below shows the rate of growth in Investment (Gross Fixed Capital Formation).

Chart 3. UK Growth in Gross Fixed Capital Formation, %

Investment (GFCF) fell in the 1st quarter of this year compared to the 4th quarter of 2017. Measured on the less erratic basis on yearly comparisons, it has been on a declining trend since the 1st quarter of 2014 and is now just 1.5%.

This Investment weakness and lack of growth in productive capacity is the source of Mark Carney’s other concern of rising price pressures. It is the dearth of Investment which is causing capacity constraints, from which he sees rising inflationary pressures. But even that standard interpretation may be misplaced. 

His view that the strength of the labour market is leading to pay pressures is belied by the fact that real earnings growth remains close to zero. The focus on the falling unemployment rate may be misleading, along with the rise in the employment rate, both of which are at levels not seen in a generation or more.

This is because the number of hours worked per week in the economy is stagnating. Chart 4 below shows the total number of hours worked, in millions. The low-point following the recession was 914.4 million hours worked in the 1st quarter of 2010. But it peaked at 1,034.2 million hours in the 2nd quarter of 2017 and has since stagnated.

Chart 4. Total Weekly Hours Worked, millions

Although there are more people in work (and fewer unemployed workers) they are working shorter hours. Therefore total hours worked are not increasing. The growth of part-time working, zero hours contracts and perhaps even shorter time for full-time workers do not reinforce the idea of a labour market that is going to produce much higher wages. 

The lack of Investment means that the significant creation of jobs over the last period is dominated by lower productivity, lower-paid jobs. It is also at the same time leading to genuine capacity constraints. The Bank of England Governor’s optimism is misplaced. Consumer spending cannot sustain stronger growth over the medium-term. So, the weakness of Investment means that a strong recovery from here is highly unlikely.