For five years past from 2002 to 2007 the world economy was in a boom. The boom has actually been quite vigorous, with annual growth rates of 5%. This obviously raises the question as to whether capitalism is entering a new golden age like that of the post-War boom.
Our answer to that is in the negative. If we look at the growth figures for the advanced capitalist countries they show an average growth of 2.8%. These are fairly ordinary figures for boom years, characteristic of the slower period the world economy entered into after 1974.
What is different is that the ‘emerging economies’ are growing strongly at 7.8% a year. China has been growing at 11% and India at 9% since the end of the last recession. We have to be careful here. It is not the case that the less developed countries’ economies have all caught fire. We are mainly talking about India, China and other Asian economies. The pattern elsewhere is much more nuanced.
If we strip out these ‘emerging countries’ (which are of course very important to the world economy in view of India and China’s huge populations) it is business as usual. Commentators are unanimous that the world economy cannot decouple from the still overwhelming importance of the USA in a period of downturn. These economies cannot become the motor of world economic growth.
The engine of world economic growth over these past five years has been the American consumer. 4-5% of the world’s population have been apparently responsible for 19% of the increase of demand in the world economy.
Now at first sight this is strange, since most American consumers are workers, and working class incomes in the USA have been stagnant for the past thirty years. The American consumer is spending more not because their income has increased, but because their wealth has risen. For most Americans the only real wealth they have is their home. This house is not just a roof over one’s head, but also an appreciating asset that can be borrowed against.
We have pointed out for years that rising house prices are a classic bubble. Now the bubble has burst for all to see. US house price are in free fall. New house building is at a standstill. All commentators agree that the stimulus to world output given by the American consumers spending money they haven’t got was bound to come to an end in 2008 in any case. The USA is entering recession. It is probably in recession already.
Sub-prime mortgage crisis
The sub-prime mortgage crisis burst in the summer of 2007. It emerged that the banks were lending for mortgages to people with no income, no jobs and no assets. This recklessness has produced a hidden iceberg of bad debt that threatens to sink large chunks of the US and global financial system. The sub-prime mortgage scandal will exacerbate and bring forward a recession that was on its way in any case. One thing is certain. If the US goes into recession, so does the world.
The next stage in the current financial crisis is the credit crunch. This means that the banks become suspicious of one another, and either refuse to lend or demand much higher interest rates than usual. Normally inter-bank lending is a routine part of the financial system. Economists discuss how central banks routinely adjust Official Bank Rate, the rate at which the central bank lends to the high street banks. This bank rate is assumed to be the tip of a pyramid of lending. The next level down in the pyramid, the rate at which banks lend to one another is supposed to automatically adjust to the change from the top. That is not happening. That means that the central banks are no longer in complete control of the situation.
Why has it all seized up? The sub-prime mortgages have been bundled up into ‘structured investment vehicles’ and sold on to other financial institutions. They usually end up in the banks as a reserve asset. It is normal financial practice under capitalism that what is a liability for one person (e.g. a mortgage) can be an asset for another. After all it provides a steady income stream. The problem is that millions of people are in the process of defaulting on their mortgages. The banks have no way of knowing which SIVs will continue to yield a revenue and which are duds. It is this uncertainty that has brought about the credit crunch. The collapse of Carlyle Capital Corporation and Bear Stearns, the fifth biggest bank in the USA, shows in the starkest terms that the financial institutions are all interlinked, that crisis quickly spreads through the financial system and that the present financial crisis is not going away.
The central banks of the world have decided to throw money at the national banking systems to try to overcome the freeze in inter-bank lending. It is possible that this could avert the immediate financial crisis. It is not certain that this will lead to a ‘soft landing.’ How far have the financial authorities lost control? Will it work? The situation is fraught with difficulties for world capitalism. It should be emphasised that the current crisis is the result of bubbles deflating. Re-blowing these bubbles is not a solution in the longer term. It will not make the problem go away. If it ‘works’ it will make things worse later on.
It was the credit crunch in turn that brought down Northern Rock, in the first run on a bank in Britain for 140 years. It is an irony of capitalism that a bank that does not have a single sub-prime mortgage on its books should be laid low by dodgy dealings in Florida or Pennsylvania. But that is evidence that a world division of labour, and a worldwide spread of risk and calamity, is governed by the global financial system. We are all dependent on one another in the world market, but we don’t realise it till something goes wrong. And things are almost bound to go wrong from time to time if the world economy is interdependent but unplanned.
Northern Rock has had to be nationalised. After months of dithering, Brown and Darling have hurled more than £50bn of taxpayers’ money at the bank to keep it afloat and stop the panic from spreading. The myth of New Labour’s exonomic competence has taken a damaging knock.
Northern Rock’s strategy was to borrow short on the money markets to lend long to mortgage holders. This aggressive business plan had won the management many plaudits in the past. Northern Rock grew fast. Then the money markets dried up and the bank was left stranded.
Marx noted in a footnote to Capital that, “The monetary crisis defined in the text as a particular phase of every general industrial and commercial crisis, must be clearly distinguished from the special sort of crisis, also called a monetary crisis, which may appear independently of the rest and only affects industry and commerce by its backwash. The pivot of these crises is to be found in money capital and their immediate sphere of impact is therefore banking, the stock exchange and finance.”
There is no doubt that the present crisis originated in money capital. It is the second type of crisis discussed in the quote, rather than one triggered by a crisis in ‘the real economy’. Events are showing the huge backwash effects it will have on a world economy which appears to be on the verge of a recession. It is likely to bring the recession forward and could make it the most serious slowdown for decades.
We believe that the misselling of sub-prime mortgages is not a practice confined to the USA. The level of repossessions in the UK has risen sharply since the crisis broke out. House prices are falling and housing sales are frozen over. And it’s early days yet. More unpleasant surprises lie in store for finance capital in Britain.
Commentators like Will Hutton have emphasised that this is the most serious financial crisis in Britain for thirty years. Let us not forget that the 1970s was a period of the most severe economic crises since the Second World War, and one where these economic problems posed revolutionary possibilities in this country for the first time for decades.
It is worth looking briefly at previous financial crises, like the Wall Street crash of 1929. Contrary to the general impression, the stock exchange collapse did not come out of a clear blue sky. The USA was clearly entering recession from the spring of 1929, contrary to the situation with the present financial crisis, which is only beginning to infect the ‘real economy.’ Car sales, a decisive sector of the economy at that time, were already collapsing in the spring of that year. But the subsequent years after 1929 were not ones of a spiralling downward economic decline. For long periods the situation would appear to have stabilised. Then people would wake up to find, for instance, that the Kredit Anstallt bank had collapsed and the crisis had entered a new phase. So it is likely to be in the coming months and years. The present crisis will travel through different stages of difficulty and disaster.
The UK in the ‘neoliberal’ era is a country with instability built into its foundations. Yes, most people’s living standards have improved. But this has been at the cost of both partners going out to full time work, with child care as a constant problem, particularly for the woman, with increased intensity of work, with overtime often unpaid, and with a mountain of debt hanging over workers just to get a roof over one’s head. Workers have survived so far. But it is like riding a bike. The real problem is how to avoid falling off when the thing stops.
The UK is one of the most heavily indebted countries in the world. Whereas Americans owe $1.42 for every dollar they earn, in Britain we owe £1.62 for every pound earned. These debts that have kept capitalism afloat now lurk like so many land mines below the surface as we enter a period of capitalist crisis.
Recession – when, not if?
Economic commentators have been predicting the next recession for 2008 or 209 in any case, even without the effects of the financial crisis upon the real economy. One of the problems in economic prediction is this interaction between developments in the real economy and apparently accidental occurrences in the world of high finance. Recession could be brought forward or made worse by the present financial crisis, as some argue the ‘new economy’ bust in 2000 acted as a trigger for the last recession in the following year. So economic developments are uncertain.
But the alarms are clearly ringing for the world economy, and for Britain. What would recession mean for politics in Britain? It is elementary that it would not produce an immediate outburst of revolutionary zeal. That did not happen in the recessions of 1929 or in 1974. But a few years later there were revolutionary repercussions from the Wall Street crash. The question of power was posed in Germany, France and Spain as a result of complex processes, of which the economic crash was at least in part responsible. Likewise the 1974 recesssion did lead to revolution in Portugal and a revolutionary situation in Spain, though it cannot be regarded as the exclusive cause.
What would a downturn in the next year or so mean for consciousness? It would pose a big question mark over the ability of the British economy to sustain increased living standards for the majority year after year. As we have indicated, workers in Britain live a highly geared life, just managing to balance the stress of life at work with the compulsion to get head over heels in debt in order to pay for a house and to keep a family. For many, the repossession of their home or getting stuck in negative equity or losing their job would be the last straw. For all, it would be a warning. The mood would be one of profound insecurity. Insecurity can turn into fear, or it can turn into struggle. A recession will change the terms of the debate. It could actually cause millions of people to call into question the basic principles of the ‘neoliberal’ phase of capitalism that has dominated their lives since 1974.
World recession: is Britain immune?
There’s an old saying that, ‘When the USA sneezes, we all catch cold.’ Alistair Darling and Gordon Brown claim that Britain is best placed to be immune from the looming world recession. They’ve even commissioned a Treasury report to try to prove it.
Don’t believe them. The chill winds of economic crisis are coming our way. The parallels between the US, which is already in the mire, and the UK are stark.
· Both economies have had consumer booms that were fundamentally unsound, based on a housing bubble.
· A housing bubble is when house prices go up because people are buying, and people are buying because prices are rising.
· A housing bubble means people feel richer. They can borrow on the basis of the rising price of their house. In effect they can use their house as an ATM.
· In both the USA and the UK consumers, who weren’t really getting much better off, went on a spending binge based on their rising paper wealth.
· In both countries the government built up massive deficits by spending more than they were getting in tax.
· Both countries accumulated huge debts with the rest of the world, in effect living at their expense.
· In both countries, the currency took the strain of the trade deficit, and went into an uncontrolled slide.
· Now the bubble has burst
This has already started happening in the States. It is no wbeing played out here.
According to John Authers (Financial Times April 3rd 2008) “Since 1988 US house prices have risen 155%.” (They’ve taken a dive recently, and they’re going to go lower). “UK prices, in spite of a slump in the early 1990s, have risen by more than 300%.
The sub-prime crisis in the States has caused defaults, the bubble has burst, and the banks are in schtuck. House prices have already fallen sharply. Capital Economics reckons we could see a worse fall in house prices here than across the pond – down 25% by 2010. Why not?
US consumers racked up debt that was 128% of household income. UK consumers have gone one better. We managed 175%. Households have traditionally been the sector of the economy that was always in surplus. Yet in both Britain and the USA households have moved into deficit – by 4% of GDP in our case.
It’s a financial crisis, right? In recent years the British economy has been booming in...finance. A third of all growth in the economy has been generated in finance, mainly in the City and Canary Wharf. Now that’s gone into reverse. At least 10,000 jobs are to go right away, with knock-on effects later on.
It’s not just the consumers that have been partying like there’s no tomorrow. Governments on both sides of the Atlantic have been spending money as if it were going out of fashion. Bush’s profligacy is well known. He’s been wasting huge sums on weaponry and dishing out tax cuts to the rich, with no thought for how to make the figures add up. He’ll leave a legacy of government debt that stands at $9.2 trillion and is still going up every day.
Meanwhile Gordon Brown has wasted £170bn of our and future generation’s money on bent PFI schemes. This is the direct equivalent of Bush’s tax handouts to the rich. From a government surplus amounting to 2% of GDP in 2002, Britain has moved to a deficit of 3%. This is important, because the government can’t now reflate its way out of the pickle we find ourselves in, as they are trying to do in the US with tax cuts.
Not only have the consumers and governments gone on a spree – so have the countries. Enabled by these wonderful new global capital markets, both nations have built up huge deficits with the rest of the world. Britain and the USA both have current account deficits of 6% of GDP. That means that we as a nation and the Americans are spending $106 for every $100 we earn abroad.
In the old days you just couldn’t do this. The Labour government in 1967 was forced to bow the knee, devalue and tear up its reform programme on account of a much smaller deficit – about 2% of national income run for a few months. More recently Britain has been permitted to run a deficit of 5-6% of national income for years at a time by borrowing the difference. No doubt the bankers will want their pound of flesh in time. Now the international banks are just like the high street version. They’re basically factories churning out debt. Their livelihood actually depends on our collective financial irresponsibility.
The current account deficit means that foreign capitalists are building up claims on UK assets to cover the difference between imports and exports. Traditionally both Britain and the USA, as imperialist countries, have relied on the export of capital to maintain their control and exploitation of other countries. (The export of capital was identified by Lenin as a key feature of imperialism.) In simple terms, imperialist countries make their living by plain old parasitism. Britain has enormous overseas assets of £5,000bn in 2005 (4 x GDP that year), a world record. But the net asset position is being nibbled away in both countries, as both countries live beyond their means and fall into debt. The layers of fat are melting away.
So both Britain and the USA are spending more than we earn, consuming more than we produce and borrowing to make up the difference. It can’t go on for ever. We can see that from what is now happening in America.
Then there’s the dollar’s slide. A country with a deficit like the USA can expect the dollar to become worth less against other currencies. Now there is one way they can prop up the dollar. That is by jacking up interest rates so holders of dollar-denominated assets will get a better return. But Bernanke at the Fed is desperately driving rates down to try to stave off the recession. Bernanke is reckless – he could forfeit the confidence of foreign owners of US assets. Then the dollar slide would become an avalanche. As it is, every day the dollar hits new lows against other currencies.
Since Britain is a country with as big a deficit as the USA, there is as much pressure on the pound as on the dollar. Sterling has fallen against the Euro from 1.45 in November to about 1.25 at the time of writing. There’s one important difference with the States. The Monetary Policy Committee of the Bank of England is charged with setting interest rates so as to stop inflation getting out of control. This rule comes from the monetarist dogma that monetary policy should be directed solely at the threat of inflation, and it can’t be used to influence the level of economic activity in a capitalist economy. The real effect of raising rates will be to dampen economic growth though, especially investment, and that is supposed to cut inflation. It’s a pretty blunt instrument.
Really inflation is more than 4%, way above the permitted maximum. So the MPC can’t do a Bernanke unless it fiddles the figures. It is doing that by using the Consumer Price Index which does not accurately show the rate of inflation workers face. The Bank doesn’t have a lot of wriggle room. Britain is a ‘small’ economy, dependent on what happens elsewhere in the world, above all in the USA. Raising rates will hurt. But even cutting them would accelerate the decline of sterling against the Euro. And that will hurt too, by making imports dearer.
If the sterling goes down in value, as it has been, that makes exports cheaper and imports dearer. In theory, that should correct the deficit over time – but that’s economic theory, not the real world. It hasn’t helped the Americans. And it won’t get us out of a hole.
Just as it made us feel rich once, so the housing market is taking us into recession. House prices are the link between the world of high finance and ‘the real economy.’
As a result of the housing bubble bursting, the era of cheap credit is now at an end. The bankers have pulled the plug. The days of 100% mortgages have finished. Now, if you want a mortgage, the bank wants 25% of the value of the house up-front. That amounts to kicking away the lower rungs of the housing ladder for first-time buyers. Mortgage approvals have also taken a tumble. And some banks have declared outright that there are no mortgages except for existing customers. So you can’t buy a house at any price. The actual housing market is freezing, with HBOS predicting a 30% fall in transactions this year. New housing starts are down by 24% this year.
House prices are now falling in Britain as well. March saw prices down 2.5%, the biggest monthly fall since 1992. There are predictions of three million households in negative equity next year, trapped in homes they can’t afford just like in the 1990s. The Citizens’ Advice Bureau reports a worrying 35% rise in borrowers coming to them asking for help with their mortgage arrears. Dispossessions loom.
Britain is subject to the same processes as those that have already laid the USA low. The structure of British capitalism is very similar to that of the US, specially the out-of-control role of finance capital. In both cases house prices have been in a bubble that is bursting. The same house of cards of unstable credit structures has built up in both countries. They gave a false feeling of wealth. It was only this dance of the millions that kept the boom going.
Now, when house prices collapse, they will bring real impoverishment to millions of people. So the banks that dished the money out are struggling. House building is the first part of the ‘real economy’ to take a hit.
Relative decline halted?
In the past we talked about the special crisis of British capitalism. This analysis was based on Trotsky, particularly in his book Where is Britain going? It applied the notion of combined and uneven development to the first capitalist nation. From the 1920s Britain was perceived as falling behind its rivals. By the 1960s Britain was regarded as ‘the sick man of Europe.’
Has this special crisis disappeared? Yes and no. The crisis and relative decline was essentially a problem of the manufacturing sector. But this sector has severely contracted, at least in view of its former glory. So the problem of the relative decline of British manufacturing industry has been ‘solved’ by its virtual extinction! Formerly the ‘workshop of the world,’ Britain began deindustrialising earlier and more drastically than the other major capitalist powers. Indeed the Tories raised the slogan in the 1980s that ‘manufacturing doesn’t matter.’ They did so partly to cover the wanton destruction to industry caused by the mass unemployment of the 1980s, unemployment that their policies (and huge policy mistakes) had made worse.
Traditionally the relative decline of British capitalism expressed itself as a balance of payments crisis, of an excess of imports coming into the country, over and above our exports being bought by the rest of the world. Under a fixed exchange rate regime, this would lead to a run on the pound to pay for the excess of imports over exports, and the government would be forced either into a humiliating devaluation or deflation of the whole economy. As we shall see, this problem of uncompetitiveness has not gone away.
City and industry
On the other side of the coin from manufacturing the City of London has emerged apparently victorious in its contest with New York to become the world’s leading financial centre. The UK commands 20% of international lending compared with America’s 9% share. This is a blessing and a curse to British capitalism. On one hand hundreds of thousands are employed in the City and Canary Wharf on financial transactions. Though we all know about the £8bn in City bonuses paid out in Christmas 2006, most financial service workers have no share in this glitz and lead mundane working class lives. The majority work in high street banking, not the City.
‘Invisibles’ are a massive earner of foreign currencies, partly filling the black hole in the balance of payments left by the collapse of manufacturing. These are services. For the most part they are financial services. ‘We’ make $1trn a day from derivatives trading. On the other hand, the success of the City has partially covered up the catastrophe occurring in the regions dependent on traditional manufacturing industries to make a living.
Exchange rate policy has been a traditional area where finance and industrial capitalism have clashed. Exporters of manufactured goods tend to favour a depreciation of sterling which makes their goods cheaper abroad. The City supports a strong stable pound so that foreign capitalists can have confidence in leaving their money here. Brown has taken the City’s side.
He has followed a policy of malign neglect in relation to the exchange rate, a policy instrument that remains available to finance ministers even in a ‘neoliberal’ age. The rate of exchange can be manipulated by using interest rates. In this he continues his short-sighted and stupid policy of keeping silent when the Tories pegged the pound into the Exchange Rate Mechanism in 1990 at what was clearly an over-valued rate. Sterling has clearly been over-valued for most of the past ten years. It has actually been higher for nearly all the 1997-2007 period than it was when it was lodged in the ERM from 1990-92. So a million manufacturing jobs have gone under this Labour government. Till recently the overvalued exchange rate has made it very difficult for British manufactures to compete on the world market. The recent depreciation of sterling has come too late to be a panacea for British manufacturing.
The result has been a balance of payments problem that would have been regarded as catastrophic, and would have brought down governments in the 1960s and 1970s. The deficit on goods with the rest of the world in 2006 was £60bn, amounting to more than 5% of GDP. A surplus on invisibles (services) brought the deficit down a bit to 4%. The only thing that prevents a vast gulf opening up beween what the world gives us and what we give to the world is earnings on investments overseas. British capitalism has become a rentier economy once again, as it was in the nineteenth century.
More evidence that the prolonged upswing is unsustainable comes from the statistics on consumer debt. Since Labour was elected, consumer credit has gone up by 65% and mortgages by 94%. Over the same period real earnings increased by an average 22.4%. Economic growth was fuelled by people spending money they didn’t have. When the recession comes and many of these people find themselves out of a job, there will be major repercussions throughout the economy.
Manufacturing still matters
It is clearly impossible for a nation of sixty million people to all make a living in the world by playing about with coloured pieces of paper in the City. New Labour’s notion that the economy can move into a new era where all jobs are based on knowledge and design skills is clearly also a fantasy. One reason, of course, is that their skills training programme is a joke. Another is that it is very difficult to maintain and hone design skills if you’re not actually making anything. Our surplus from other countries in design industries halved from £1.4bn in 2001-2 to £700m in 2004-5 for that reason.
We discuss later the predominance of new employment in what is called the service sector. What most of these activities have in common – child minding, nursing, driving people around Salford in buses – is that they cannot be exported. They are not internationally tradeable.
Generally, manufactures can be sold abroad for goods we want. It is therefore disastrous to let industry go to the wall. Such is the government’s commitment to neoliberalism, that it has made no attempt to protect or even encourage British industry. If manufacturing is dying, that must be the will of the market, and the will of the market is the will of God!
Growth and the government
The economy has been growing continuously for more than ten years. Two and a half million extra jobs have been created. The government has admitted that 1.3 million of these went to immigrant workers. Till the recent wake-up call the economic problems of the past have seemed to many workers to be a distant memory. This situation has led Brown to boast about an ‘end to boom and bust’. Britain slowed down but did not actually go into the recession of 2001-3 that hit the rest of the world. This long period of upswing is bound to have an effect on consciousness. In fact, from a historic core rate of growth of about 2 ¼%, over recent years expansion has been moving a little faster at about 2 ¾%. The principal reason for this acceleration seems to be the huge wave of migration from eastern European countries that have gained accession to the EU. We shall discuss the political implications of this change to the British workforce later in the document.
What has government policy done to create this benign economic environment? The answer is -nothing. Capitalist governments have two policy levers at their disposal – fiscal and monetary policy. Fiscal policy relates to government taxing and spending. For the first years after 1997, Gordon Brown stuck to very tight Tory public spending limits. His predecessor Kenneth Clarke, who left him this straitjacket as a little parting gift, admitted he thought the targets were impossible. Later Brown loosened the reins and spent serious money on the health service in particular. In fact 89% more was being splurged on the public sector than in 1996-7, the last financial year the Tories were in charge. This should have transformed the quality of public services. But the perception is very different. Certainly the big queues for treatment under the Tories have mainly disappeared. But anyone who has visited a hospital recently can see that resources are still being withheld. The problem here was that a large amount of this cash was drained away by the fraud of PFI.
The fat years are now definitively at an end. The government has called a halt to expanding public spending. It is time to rein it in. This is in advance of a crisis in the real economy. Of course cutting state spending will make the crisis worse, when it comes. Brown is also trying to cut the living standards of public sector workers, using the threat of inflation as an excuse. It will come as a surprise to many workers that the rising price of bread, of milk and of petrol are caused by above inflation settlements to nurses and teachers, particularly as they have already been putting up with very moderate wage settlements.
What did Brown do about monetary policy? In the first week of power in 1997, he handed control over to the Monetary Policy Committee of the Bank of England. A major lever of government policy under capitalism was delivered over to a bunch of apolitical economic ‘experts’.
So, if the economy has behaved well over the past ten years, the government can take no credit for that.
That is not the way it will be perceived by the mass of the population. As long as the economy delivers improved living standards to the majority of the people, active political involvement is likely to remain low. As we have argued above, recession is coming to the world and so to Britain. It will mean time for workers to take stock.
Industrial perspectives: background issues
The most significant trend in the world today is proletarianisation. Global head counts are hard to come by and figures come with a time lag. The last estimate of numbers seems to have been by Filmer for the World Bank in 1995. He worked out there were 880m workers in the world. Since we know the ‘South’ has been industrialising fast, there are almost certainly now one billion humans who make their living exclusively by working for a wage. Together with their families, they have become a majority of the world’s working population.
Filmer estimated the peasant population at one billion in 1995. There continues to be a steady flight to the towns, so this number must have gone down since. It is probable that there are now more workers than peasants in the world’s workforce for the first time ever.
At the same time there were 480m described as self-employed. Most of these live in the towns. Their jobs are often casual and precarious. It would be wrong to characterise them as lumpenproletarians (to use Marx’s expression in the Communist Manifesto), though the ever-growing shanty towns and slums on the outskirts of all the cities of the ‘third world’ pose the prospect of growing a hardened lumpen layer over time. But the vast majority of these people aspire to regular full-time work, to the status of proletarians.
When we discuss deindustrialisation, we need to take the long view of the processes. In 1900, according to Feinstein, 47% of the labour force in the OECD (rich) countries was engaged in agriculture. Britain was an exception in this regard, as it was already fully industrialised. A hundred years later the numbers involved in farming had fallen below 5%. Most of these workers moved into manufacturing in the first instance. The numbers involved in farming fell, of course, because productivity rose there and many fewer workers were needed to feed the population. The process of rising productivity in both agriculture and industry meant that, over the course of the century, workers flowed first from agriculture into manufacturing; while later others were migrating out of manufacturing into the service sector. Feinstein reckons that about 30% were involved in industry at the beginning of the century and the same proportion at the end. So the other net result - that the service sector went from 25% to 67% over the course of the twentieth century - is actually the result of several conflicting economic trends.
Feinstein points out that a 3% annual growth in GDP, which is about average for most countries in the OECD for the twentieth century, will over 100 years produce a seventeen-fold increase in income. How is this extra income spent? Since the industrial sector has been at the cutting edge of rising productivity, the relative price of manufactures has fallen, and people will spend a smaller proportion of their income on them, while enjoying vastly more material prosperity in terms of manufactured goods than people a hundred years ago.
There has been much discussion of deindustrialisation in the advanced countries even as the global south industrialises apace. We need to be clear what this means and what it does not mean. Feinstein shows that, for the OECD (mainly rich) countries, manufacturing output increased faster than national income over the period 1950-1995, with the sole exception of the USA. Manufacturing has become relatively more important in their economies. The advanced capitalist countries have been producing more manufactures, despite increased competition from the less developed countries in this regard.
But, because of the dramatic increase in manufacturing productivity, it takes fewer and fewer workers to produce these goods. If a smaller number of workers are producing the same amount of manufactured goods, then each manufacturing worker has potentially more power to paralyse profits. This is not only true of industrial workers. The sharpened division of labour and the development of stock control programmes such as the just-in-time system means that relatively small groups of workers (as in rail and road transport) have the power to paralyse capitalism and cause an enormous loss of profits in a short period of time. And, when workers with this clout have showed themselves prepared to use it, they have made gains and the unions have gained members. The message is loud and clear – militancy pays.
But there are other sectors where productivity has not risen at all, sometimes over centuries. Pulling pints in a pub or looking after children may be two examples. The service sector is labour intensive. In consequence a relatively larger proportion of the population is likely to be employed in these sectors, as less are employed in manufacturing. The shifts in the pattern of employment caused by this slewed productivity growth are bound to produce significant changes in trade union membership and organisation, and in the consciousness of the different layers of the working class.
Manufacturing and services
These expanding areas of employment are generally referred to as the service sector. Production is divided into primary (agriculture and extraction, such as mining), secondary (industry) and tertiary (services). The service sector is not a Marxist term. In reality it is a ragbag of contradictory elements. Transport workers such as bus and train drivers, are counted as part of the service sector. In reality they know they are working class and most people would instantly and unhesitatingly identify them as such.
The term service sector is a hodge podge. Nurses, teachers and other useful members of society have little in common with bond dealers or corporation lawyers, who in any case are not workers at all. Yet both groups are described as working in the service sector. Some differences between service and manufacturing workers seem to be the product of statistical artefact. Workers at Gate Gourmet make convenience foods in the form of aircraft meals. They are manufacturing workers. Workers in McDonalds, who fulfill a very similar function, count as service workers.
The service sector is traditionally harder to unionise and it is easy for management to hire and fire, in general because of the low skill base and the fact that they have no legal rights for the first year of employment (two years under the Tories). The other side of this is that workers in such jobs have no loyalty to the firm, no commitment to the industry and drift from job to job. Sectors like the NHS and local authority workers are exceptions with a long tradition of unionisation. The fact that most health workers have taken the time to acquire a scarce skill, and in doing so have shown a commitment to the health service as a long term career, means they are more inclined to organise to defend their wages and conditions. Even if they have not gone through a formal education process, public sector workers have usually received in-house training, so they cannot be regarded as casual and unskilled. That enhances their bargaining power with their employers.
We now have not many more than 3 million workers in manufacturing compared with a labour force of 29 million. It should be noted that millions of workers in energy generation, construction, dockers, forklift drivers and other ‘distribution’ workers in transport, all hospital workers and virtually everyone in the public sector are excluded from the manufacturing sector. But most of these are seen as traditional working class occupations. There are 1.75m transport and communication workers, 6.7m in shop and distribution, hotels and catering (are female shop assistants in Woolworths middle class?), and 7m in health and education (hospital ancillaries heavily outnumber doctors in health).
Transport workers are even productive workers in Marx’s sense; that is, they produce surplus value for their employers. Note that Marx does not narrow the definition of productive labour to those who make things, as Adam Smith did. Call centre workers are working for a boss’s profits, so they are productive workers in that sense. There are nearly a million such workers. Workers who write computer programmes are also producing surplus value.
The changing working class
In fact the distinction between productive and unproductive labour is not important to the question of who is working class. The essential definition is – how do you make your living? Have you any alternative to working for someone else? Whether you actually perform productive or unproductive labour is irrelevant to your class affiliation.
Of course there are contradictory and transitional phenomena. The ruling class have always needed to work through stooges to do their dirty work for them, like all previous ruling classes. After all they have better things to do than supervise the working class! In a sense a stooge’s relationship to the means of production is irrelevant. If they have decided to become stooges and support the other side, the fact that they make their living through working for a wage is neither here nor there. We can use the contradiction between their ideological commitment and the way they make their living to neutralise some in the course of the struggle.
Blue and white collar
One important distinction between class and caste is that individuals can move between classes. That does not in fact obliterate class differences; it strengthens them. So we also have to look at the aspirations of workers, and whether they can fulfill these aspirations. Edwardian ladies of leisure may have taken up typing for a few years before entering into a well-appointed marriage. They never regarded themselves as members of the working class while they were slumming it. It goes without saying that their consciousness was a million miles removed from that of twenty-first century clerical workers in the private or public sector. For the vast majority of us there is no way out from wage slavery except socialist revolution.
The difference between blue and white collar workers was important at the beginning of the last century, with the beginnings of scientific management and the emergence of a managerial bureaucracy. These black-coated workers, as they were called, had markedly superior social status to those on the shop floor. In addition these layers were recruited from the old middle class. By and large they lived in different areas from industrial workers and had no social contact with them outside the world of work. Such people would often have investments to fall back on and kept servants. They could also be expected to share the outlook of the ruling class. Otherwise they would be unable to carry out their supervisory tasks satisfactorily.
How different now! The remorseless grinding down of the pretensions of the so-called middle class has been a feature of capital accumulation over the past century. Teachers may have regarded themselves as ‘different’ a hundred years ago. No more. They live in the same kind of housing stock in the same streets on the same sort of wage level as other workers. They have responded to their perceived change in status in a positive way by making their occupation one with a relatively high level of trade unionisation – in other words they have acquired working class consciousness.
Millions of white collar workers now work in conditions not fundamentally different from those manufacturing workers put up with. They are often in giant clerical factories, and their pace of work is measured relentlessly, often by the very computer that is their basic work tool. This has been the most significant change of the last century, that the so-called middle class has found its place in the labour movement. Regarding oneself as middle class today is actually a question of false consciousness based on the lack of effective trade unions at work and the illusions created by home ownership. Though consciousness lags, the old nineteenth century type middle class has ceased to exist..
The petty-bourgeoisie, who both work for a living, and own their own dwarfish means of production, is little more than a distant memory. The peasantry had been destroyed in this country long before Marx wrote Capital. In the countryside a tripartite class structure held sway, consisting of landlords, capitalist farmers and agricultural proletarians. Farm workers in Britain have always been extraordinarily difficult to organise. In the towns craft workers have long ago been displaced by mass factory production, except for isolated professions making luxuries. Their last hiding place, as small shopkeepers, is now being dive bombed by the supermarket express and metro convenience stores.
Working class consciousness
The definition of class is not a question of lifestyle, though it is true that workers who are conscious of their identity may share a certain lifestyle as they live together in a working class community. Certainly a worker of the Chartist era would not recognise wearing a cloth cap and keeping a whippet (long regarded as the parody of working class identity) as a badge of being working class at all. In any case the problem is that the development of capitalism tends to destroy settled working class communities, and their lifestyles with them. And capitalism is changing much faster now than it was in the time of Queen Victoria. In the nineteenth century, and for much of the twentieth century, the working class lived in separate homogeneous communities. The reason they no longer appear to do so is that they are now the overwhelming majority of the nation. They are between 80% and 90% by any criterion, with all the qualifications about intermediate layers and people in transition between classes.
Consciousness, of course, is not a direct reflection of social being. In general the ruling ideas of any era are the ideas of the ruling class. Workers come to class consciousness through struggle. The working class is many-layered, not a homogeneous lump. Occupational change produced by changes in capitalism is part, but only part, of the way consciousness changes. For long periods consciousness lags behind conditions. Then, in the course of struggle, it can take gigantic leaps. Over the last twenty years of government policies consciously designed to promote the idea that individuals can get ahead as individuals rather than advancing together in collective organisation, working class consciousness has become blurred.
But it is important that a growing 68% of us regard ourselves as ‘working class, and proud of it.’ Interestingly, a Guardian poll found that 56% of 25-34 year old regarded themselves as working class compared with 48% of 55-64 year olds. So much for working class consciousness dying out.
A history of struggle
The general pattern of the industrial class struggle in Britain has been of a repeated cycle of a buildup of grievances and discontents without an outlet, then an eruption of anger and struggle, and a relapse as the movement sinks back, exhausted for the time being.
Occupational change is a permanent feature of a dynamic system such as capitalism. In the past there was a deep division between craft workers (often with a five year apprenticeship) and mass production workers. The unskilled were regarded by the existing craft unions as unorganisable. Sometimes developments appear to stagnate, perhaps for decades, and then there is a leap of consciousness with the opening up of class struggle. 1889 was the year when labour ceased what Engels called its ‘forty year sleep’. In that year accumulated changes led to the successful organisation of unskilled workers such as dockers and gas workers. That was also the beginning of the modern giant general unions. In fact trade union membership, the level of struggle and, apparently, class consciousness then fell back after 1889, though not to the 1888 level, till the next labour upsurge in 1909-14.
That has been the repeated pattern: sections of the working class regarded as ‘backward’ and unorganisable moving into struggle, followed by a partial relapse. There was another upsurge after the First World War, possibly the biggest of the lot, then, after the defeat of Black Friday, a period of the classes measuring one another up before the General Strike of 1926.
It is also the case that a lack of strike action is not necessarily evidence of a defeated working class. The General Strike of 1926 was the most serious defeat the working class has ever experienced industrially. The formation of the National Government in 1931 and the mass unemployment that peaked in 1932 were all part of a period of defeats. But the years before the Second World War were ones of revival in some parts of the movement, for instance among armaments workers and bus drivers (driving was then a scarce skill). Certainly the labour movement was continuing to advance throughout the 1940s and 1950s. Strike statistics were low. This is because disputes were often short, since management settled at once to keep the wheels turning and the profits rolling in. Strikes were almost always unofficial, as the monolithic right wing bureaucracy acted throughout as a fire hose. And often they involved small groups of workers. Leapfrogging differentials was a common pattern of class struggle in those years. This means that assembly line workers would put in for parity with craft workers, who would then begin negotiations to maintain their differential. This sounds sectional. It is not the ideal way to bargain for the interests of the workforce as a whole. But it was often treated as a kind of game by the workers, aimed at getting higher wages all round. It seems there was not one national official stoppage from 1926 through to the bus workers’ strike in 1958.
The 1960s and 1970s were one of the stormiest periods in the history of British capitalism. The setting was the relative decline of British capitalism becoming more acute as the world moved towards recession. What was significant was not the fact of recession, but the way it illuminated that an era of prosperity and relative class peace was coming to an end. Workers were forced to come to an understanding that they had to fight to maintain the wages and conditions they had gained over the previous period of post-War boom. The ‘soft’ side of the ruling class was shown to be a mask as the boss class in Britain and elsewhere began to prepare private armies and strengthen the forces of the state for use against the working class.
Revolutionary and counter-revolutionary possibilities began to open up. The 1970s were a decade of struggle. The miners’ strike of 1984-85 was almost the last act in a period that was one of unprecedented turmoil and change in the memories of the participants. It is not altogether surprising that we have seen a prolonged lull since after such titanic struggles.
Industrial perspectives: the present period
Class and leadership
The past year has continued what, for Marxists, has been a frustrating period on the industrial plane. The possibility of a breakthrough was always there. Take the case of the Post Office. PO management have made it quite clear that they intend to get rid of tens of thousands of Royal Mail workers. The workers took solid official action, supplemented in some areas with up to two weeks’ unofficial time on strike. Yet the ‘left’ union leadership showed themselves desperate to settle with management, with all the basic issues unresolved and with the threat of mass redundancy still hanging over their members’ heads. There was a real prospect of a unified movement of millions of public sector workers against what was clearly signalled to be a co-ordinated policy of cuts in living standards for all of them. That opportunity, which could definitely have seen the government off, was fudged. Different union leaderships called for separate, ineffective one-day actions. The Unison local authority and NHS sell-outs can be given as an example of the failure of leadership. The power for a fightback remains latent. The TU leadership is the problem.
How has this relapse happened over the past years? A layer of leaders (especially over the last 20 years since the defeat of the miners’ strike, though they have always been there) has come up through the structures of the unions. They have taken the rep’s job for a number of reasons, other than political - to get out of work, ‘no-one else wants to do it’ etc. These individuals have now made it to the tops of the unions. Any one that shows any ability gets elected. The competition for places has declined. It just reflects the period and the lack of class struggle.
Today, a lot of the present generation of trade union leaders have either not been tested or are manoeuvring before any fight starts. The key issue for them in the last 20 years has been mergers. The decline in union membership has mainly been in the manufacturing industries. The overwhelming majority of the present union leaderships are incapable of recruiting in the service sector because it would mean unionising from the coal face like in the beginning of trade unionism. This job will become the task of new layers of young people either politically motivated or faced with no other choice, who will become political.
Those that were involved in politics in the 1980s have a different leadership style from other trade union lefts. In the past they were from the Communist Party, organised in the trade unions to take positions, and then from Militant in the 1970s and 1980s. There is no organised left wing presence of the same significance now as there has been in the past. This is general: a number of good individual fighters have come through. Not to become part of the union bureaucracy requires being backed by and being a part of a revolutionary organisation, which can explain the bigger picture.
The virtual disappearance of the CP as a serious force in the unions is an important development for industrial perspectives. Though never a serious force electorally, in the past the Communist Party has had a significant presence, particularly in the old-established industrial unions. Their influence went far beyond their actual membership. They managed to gain influence within the educational structures of the trade union movement, and acted as the core of the broad lefts. They had a tendency to hide their politics and concentrate on organisational manoeuvring. But their demise has left a vacuum. All that is left are Stalinist sects, of no significance in industry. There is no force at present that can replace them. But that is a task the Marxists must set themselves over time.
The last time the Communist Party was able to act as a lever on the mass movement was via the Liaison Committee for the Defence of Trade Unions in the 1970s. Then they were able to strike a chord to the extent of in effect calling an unofficial general strike (and putting pressure on the TUC to call an official general strike) in order to get the Pentonville Five dockers released from prison.
Other means such as overtime are being used to solve individual problems. If workers see no collective solution to their problems, they will look to an individualistic way out. Working class consciousness is based on an awareness of our collective power and underlines the need for collective action. Historically the middle class has been individualistic, convinced that they can improve their lot by their own effort, raising themselves above their fellows. Successive governments have attempted to play on and encourage this individualism in order to break down working class consciousness.
With inflation rising along with personal debt, wages will be a key issue in 2008 at the same time as the economy is taking a downturn, and bosses will be least likely to afford higher wage demands. It is worth stating again that, in periods of boom, wages normally rise. This has not happened for all workers in the last period. A lot of jobs are topped up by tax credits – such as those in Tesco etc. Workers have survived because the economy has grown, food and other goods have got cheaper and credit has been easy to get. Now that’s all in the past.
The power of the working class has not changed. What has changed is that a generation has left education and gone into work where trade unions either do not exist or are weak or have not resolved young workers’ problems - low pay, exploitation etc. An individual within a unionised workplace can make all the difference as to how trade unions are perceived.
The last upsurge
Clearly the past period of almost 30 years has been one of relapse. In the 1970s the trade union movement was officially led from the left for the only time in its history. Scanlon and Jones were the General Secretaries of the two most important unions the AUEW and TGWU respectively. In 1979 trade union membership peaked at almost 13 million. A series of strikes involved ‘unorganisable’ sections such as women workers in action for the first time. Women workers are now a majority in the trade union movement. Most households are totally dependent on both adults working to make ends meet. How far away it seems from the time when we had to argue against the notion that women only worked for ‘pin money.’
The strike struggles of the 1970s demonstrate that service sector workers were working class and knew it. In that decade the shop stewards’ movement became a power in the land. A quarter of a million workers were involved, many with 100% facility time. There was even the emergence in some workplaces of elements of workers’ control, such as shop stewards’ control over whether and how much overtime was to be worked. This powerful shop stewards’ movement is now marginalised, banished to some parts of the public sector and long-unionised parts of private sector industry. Facility time was in any case a double-edged sword, as it could serve to separate the stewards away from the rank and file they were supposed to be representing. Life could become cosy away from the pressures of the assembly line. But the movement cannot go forward again without the mass involvement of workers at a rank and file level.
Another set of rank and file institutions that have faded over time are the local Trades Councils. In some areas these are still worthwhile bodies. But their influence is much reduced from the 1970s when they were effectively charged with organising the days of action against the Tories and getting the workers out on strike. With an upsurge in militancy, they are likely to regain their vitality together with the trade unions as a whole.
There are natural limits to pure industrial action. The movement of the 1970s was undermined by mass unemployment after the election of the Tories, unemployment in part deliberately engineered by Thatcher as a weapon against the trade unions.
We draw a basic dividing line, contrasting the present period with the period of the post-War boom, which had relatively full employment, steadily rising living standards, and the working class in a favourable bargaining position on the shop floor. But even within the earlier period, we have to bear in mind the British ruling class was becoming increasingly concerned after World War II about its declining position in the world and more and more determined to settle accounts with the working class as a way of retrieving its former glory.
The first serious attempt to take on the working class was provided by the election of the Heath government in 1970, which represented a clear break with the post-War consensus. Of course Heath was ignominiously defeated but, as far as the ruling class was concerned, those tasks remained on the agenda.
The defeat of Heath in 1974 coincided with the first generalised capitalist recession since the War, and the beginning of a new era with slower growth and permanently higher unemployment. Throughout this era the ruling class strove might and main to roll back the gains the working class had made in the era of the post-War boom.
Though this section of the document is concerned with industrial per