Socialist Economic Bulletin

By Michael Burke

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

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

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

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

The US ‘sugar rush’

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

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

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

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

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

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

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

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

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

Source: Federal Reserve Economic Databank

Misery at work

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

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

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

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

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

Johnson’s role

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

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

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

and increases to:

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

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

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

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

By John Ross

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

By Tom O’Donnell

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

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

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

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

The aim of austerity

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

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

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

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

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

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

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

Chart 3

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

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

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

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

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

Even more austerity

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

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

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

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

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

By Michael Burke

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

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

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

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

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

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

Source: ONS

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

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

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

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

Source: ONS

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

By Michael Burke

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

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

Facing facts

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

Table 1.  Total Managed Expenditure (TME)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Fiscal policy matters

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

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

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

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

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

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

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

Calling things by their real name

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

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

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

By Diane Abbott

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Diane Abbott is MP for Hackney North and Stoke Newington.

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

By John Ross

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

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

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

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

The IPCC’s scientific evidence

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

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

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

Table 1

Changes in population

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

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

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

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

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

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

Table 2

The detailed situation of advanced and developing economies

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

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

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

Table 3

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

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

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

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

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

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

The real situation on climate change

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

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

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

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

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

Table 4

Conclusion

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

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

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

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

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

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

By Michael Burke

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

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

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

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

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

Driving down pay, and keeping it there

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

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

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

Source: ONS

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

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

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

Not so fast on pay

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

Chart 1 Annual Pay Growth

Source: ONS

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

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

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

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

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

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

Brexit effect

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

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

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

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

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

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

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

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

Chart 2. UK and European-born Workers

Source: ONS

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

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

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

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

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

Conclusion

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

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

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

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

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

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

By Tom O’Leary

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

No prosperity

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

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

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

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

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

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

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

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

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

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

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

Little social development

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

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

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

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

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

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

Who benefits?

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

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

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

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

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

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

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

Why failure, why now?

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

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

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

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

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

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

Conclusion

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

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

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

By Tom O’Leary

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

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

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

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

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

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

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

A short note on profits

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

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

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

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

The G7 pandemic

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

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

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

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

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

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

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

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

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

Profits up

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

Chart 3. US Corporate profits, $ billions

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

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

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

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

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

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

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

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

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

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