Britain - Recession or not, something needs to be done about it

Sept/Oct 1998

For quite some time - and even prior to the announced closure of the Fujitsu factory in Blair's constituency - the newspapers have been full of claims and counter-claims that the British economy is sliding into recession. But is it?

And what exactly do they mean by "recession"? The problem is that it depends on whose point of view one chooses to adopt. From the point of view of abstract economics, there is a recession when the size of the economy shrinks - regardless of what exactly is shrinking. By contrast, the average boardroom executive or shareholder will probably see a recession whenever his ability to make profits or dividends is reduced. But from the point of view of the working class, which is what interests us here, a recession exists when there are a lot fewer jobs and significantly worse conditions to go with them.

The Blair government still denies, for the moment, that the British economy is in recession. It claims that... "the government's policies are working to keep inflation low; the British "fundamentals" are strong; never again will the economy go through the "boom and bust" of the Thatcher and Major years." As for the recent spate of job losses, this is really nothing to worry about because... the government's policies are working to keep inflation low... and so on and so forth.. In fact, Brown and the average "New" Labour MP interviewed on TV seem to be able to go on in circles like this for hours, like broken records.

As opposed to Labour ministers, many economic commentators speak today of the economy as being on the "brink" of recession. But how can they tell that it is the brink and not the real thing? Or do they just think it ill-advised to contradict Blair or Prescott, who, in a recent interview on Radio Four, claimed "we will begin to see, certainly by the beginning of next year, the turn around in the economy that we want."?

At the same time, the CBI, Blair's favourite fan club, now predicts that growth in the economy will not be the original 2.1% estimated for 1999, but only 1.2%. A business trends survey (8 September) adds that there has been a major change in mood among companies over the last four months and that they expect a much sharper drop in output than they had previously. All economists agree that conditions in industry are set to get worse. And many remark that already in May, the trade deficit (the value of imports minus that of exports) was the biggest since July 1990 - when "recession" was "official".

The new wave of job cuts

The most significant statement, from our point of view, comes again from the CBI. They predicted at least 100,000 more job losses in manufacturing before the end of next year. Of course, the CBI does not want to paint too black a picture against Blair's rosy one. So it immediately adds that an increase in service sector jobs should absorb these job losses. Yet their colleagues of the Chartered Institute of Purchasing and Supply (another bosses' outfit) are not convinced, since they state that growth in services by this September had been slowing down for the fifth consecutive month - meaning that new jobs are not very likely to be coming from that quarter.

For working people, whose wages are a lot less secure and a lot more "flexible" than Blair's, the current wave of redundancies and closures certainly feels like a recession.

Announcements of job cuts have been gaining momentum in the last few months, especially in the North East, where between mid- August and mid-September, it is estimated that a job was being lost every 10 minutes. From the closure of the Siemens and Fujitsu semi-conductor plants (combined, 1,700 jobs lost), the pending closure of Grove's crane plant (670 jobs), to the closure of the Vickers tank plant in Leeds (650 jobs), to mention just a few examples, the prospects look grim.

And it is not just the North East which is affected, despite the media's reporting bias towards this region, because some closures happen to be in Blair's constituency and that of his right-hand man at the Department of Trade and Industry, Mandelson. The car industry, for instance, has predicted 15,000 job losses in parts manufacturing. Rover announced 1,500 job losses in July, in the Midlands and South East. Among the other job losses announced, there is Molins, in Peterborough, which makes machinery for cigarette manufacture (400 jobs); the computer companies Compaq and Digital, in Scotland (500 jobs); Blue Circle, which has closed two cement plants in Plymouth and Ipswich (250 jobs). Add to that the job cuts in British Steel (2,400 this year plus another 10,000 planned over the next four years), the loss of 4,000 jobs in textiles this year, Cable and Wireless (1,500 jobs), the closure of outlets by the AA, C&A, and MFI (2,800 jobs) and the list is still not complete.

In the last three months alone over 30,000 industrial jobs have been axed according to the reports that can be found in the papers. But this is only taking into account larger companies - i.e. those which the newspapers bother to write about. This says nothing, in particular, about the resulting job losses among the galaxy of small and medium subcontractors working for these large companies. Likewise, for instance, it is not difficult to guess what the situation is in the small retail industry. The papers have been repeating for months now that high street sales were "disappointing". If chains like C&A and MFI are closing down outlets, this probably means that they expect sales to fall even further. If they are right, this can only affect large numbers of jobs in small and medium-sized shops.

And this is not even the end of the job cuts wave. As this journal goes to press, there are new announcements every day. On top of these, there are some large-scale restructuring plans which are currently in the making, as a result of company mergers, threatening thousands more jobs: for instance, MSF has predicted that the merger of pharmaceutical companies Smithkline-Beecham and Glaxo-Wellcome would result in the loss of 10,000 jobs in Britain; experts have put the number of jobs to be cut as a result of BP's takeover of Amoco, the USA's fourth largest oil company, at somewhere between 6,000 and 20,000; as to the most recent announcement, that of the merger of Shell's European refinery and distribution operations with that of Texaco, no-one has yet put a figure on the damage for jobs, but it is likely to be large.

No slump in profits

The main justification invoked by companies for cutting jobs is that their profits are somehow threatened. Some of them point to reduced profits, although by no means all of them. The argument is that since various economic factors are denting profits, this justifies job cuts. It is an all too familiar song - "if profits fall, jobs have to go". Workers are supposed to agree to lose everything so that the comfortable incomes of shareholders can remain at the same high level! But what is presented here as "economic necessity" is really nothing more than a social choice. For instance insisting that returns on investment should remain at 20% or more, as they are now, is not an "economic necessity", not any more than paying dividends to big shareholders is. Unlike workers, who cannot live decently without wages, these big shareholders could easily make do without their dividends!

But are companies in dire straits anyway? No, the fact is that most of them are not, particularly British companies which are, on the whole, making very substantial profits, more so than their competitors, thanks to high profit margins, low tax bills and, above all, low wages. Why otherwise would shares on the London Stock Exchange have been maintaining such high levels this year? Why have they been less affected by the recent financial shockwaves than in most of the other industrialised countries? Because the British economy is particularly healthy? Yet financial players do not buy shares on the basis of economic health - which they cannot assess accurately anyway - but rather because they expect their value to increase. This means the main players anticipate high profits for British companies and since these players are none other than British bosses themselves, they should know what to expect.

Companies' wealth is also reflected in the rocketing inflation of "fat cat" salaries. Over the last decade or so, the large salaries, share options and pension fund premiums paid to company directors have become an important channel through which the capitalists redistribute company profits among themselves, rather than relying mainly on dividend payments, which they have to share with many other players, such as small shareholders or institutional investors. So that the variations of directors' income reflects more or less the variations of company profits and wealth.

The extent to which directors' earnings have been increasing is shown by the fact that their sum total has become large enough to actually skew the figure for the average earnings index. The most recent official data shows a 5% annual increase for this index. But the Office of National Statistics which computes this index, itself admits that at least half of this 5% increase is due to directors' earnings only - which soared in average by 18% last year.

The raw figures speak for themselves. For instance, Sir Clive Thompson, chief executive of Rentokil and chairman of the CBI, the man who was quoted by the Guardian saying that his staff's average £8,727/yr pay is justified because it is the "competitive rate", gave himself an 18.3% rise in salary which took him to £1.5m/yr. The highest pay rise this year - of 801.6% - went to Don Tidey of Associated British Foods, taking him to £2.2m/yr. According to the trade union journal Labour Research there are at least two company directors with incomes of over £10m a year, 13 who get between £5m and £10m, and 410 directors of public and private companies who are paid over half a million.

Included among these well-paid directors are those of companies which have been prominent in cutting jobs - like the chairman of Cable and Wireless, with £1.1m/yr and that of Magnet Kitchens with £631,183 this year. And this is not surprising since the profits of the companies responsible for the biggest job cuts do not show even remote signs of serious strain, even if, in some cases, they have gone down somewhat compared to last year.

Take, for example, British Steel, which has been cutting jobs consistently over the past year. This is a company which regularly makes an annual profit of around £1bn. There is no argument that it is highly profitable. All through the present "crisis" it has continued to pay an unchanged, substantial dividend to its shareholders. So what happened this year? They claimed that their profits had "tumbled", from £451 to £315m in the first quarter - which will still leaves them close to their usual £1bn profit over a full year! Profits "tumbling"? British Steel then proceeded to "shed" 2,400 workers by April this year and predicted that to restore profits it will be "forced" to shed another 4,000 workers by the end of September and 8,500 more by March 2001. Using the pretext of a small reduction in profit, British Steel is merely implementing the last of a long series of restructuring exercises, aimed at disposing of the least profitable production facilities. This, to push profits up even more, regardless of the effect it might have on its own workers, those of its subcontractors and the entire areas which are thus turned into wastelands in the process.

The same can be said of another profitable company, BOC (British Oxygen Corporation), which has announced 500 job cuts in Britain and 4,400 in its overseas operations. Their excuse is an 18% drop in profits in the first nine months of the year compared to the previous year. But this will still leave them with around £360m to play with over the full year, which is enough to pay the annual wage bill for an additional 18,000 skilled workers! This cost- cutting restructuring is all the more hypocritical as, two years ago, BOC blackmailed its workforce here into agreeing to annualised hours, flexible working and no more overtime premiums, in the name of saving jobs!

There are other examples aplenty. BMW, the owner of Rover, who announced 1,500 job cuts in July this year announced at the same time a 17% profit increase for the year. But just like General Motors-owned Vauxhall a few months ago, Rover is actually using job cuts and the threat of more to come, to blackmail its workforce into agreeing to more flexible working conditions - an "annualised hours" system which would allow Rover to eliminate lay-off periods and cut their overtime wages bill. They may well also be trying, like Vauxhall also did this year, and Ford last year, to bargain for substantial government subsidies, in the name of "saving jobs". In this case there is not even any question of a reduction in profits. Rover is plainly and crudely trying to boost already increasing profits at the expense of workers.

Hypocritical pretexts

Of course there are many supposedly "economic" explanations and excuses given for the reduction in manufacturing output and to back up the present round of job cuts and closures. The three main "culprits" being: the high interest rates, which make it expensive to borrow money for investment; the high exchange rate of the pound, which is said to put companies producing for export under pressure; the impact of the Asian financial crisis and the shrinkage of world markets with the accompanying glut of certain products like semiconductors. (This latter explanation was given for the closure of the Siemens and Fujitsu plants). No doubt the experts will also use the latest Russian rouble collapse as another justification somewhere along the line.

The point is not, of course, to deny that all these factors and some other similar ones may be affecting companies. But to what extent and why this should justify cutting jobs left, right and centre, is quite another issue. In any case, all these excuses raise a whole range of questions; the working class is entitled to clear answers - and has every reason to demand them.

Take the high exchange rate of the pound, for instance. We are told that this is a major problem for companies like British Steel, who claim that its profits have been "ravaged" by it (even if, as pointed out before, this is gross exaggeration). Yet a large part of British Steel production is now located abroad, so that the high pound should not have such a big effect on its profits, and in fact should make their mostly imported raw materials and their range of products manufactured abroad cheaper. Besides, British Steel's record shows that in the period between 1991 and 1995, the lower exchange rate of the pound at the time did not prevent them from slashing 8,000 jobs - but maybe they told their workforce at the time, that they were cutting jobs because of the low pound?

Likewise, Rover has blamed the strong pound for undermining its efforts to export. This is an outright lie, since Rover's exports increased by 6% last year, at a time when the pound was already high! Then Rover joins all the other car manufacturers in threatening to outsource more car parts production abroad with the loss of 15,000 jobs. But Rover conveniently forgets to mention the savings it has made, thanks to the strong pound, on the parts which were already imported from abroad - yet this represents 15% of the parts they outsource, so that the savings cannot be insignificant.

Who can believe, anyway, that big companies are so naïve as to be "caught out" by the problems of changing currency rates. In fact, thanks to deregulation of the financial markets they have become experts at playing on the currency market as well as the stock exchanges. All big companies use the financial markets to hedge their risks, including in terms of currencies. All of them earn a sizeable (and actually increasing) proportion of their profits from "financial operations", including manufacturing companies. And they can be trusted to have made the best of the financial opportunities offered by the high pound on the financial markets.

The excuse of high interest rates is not much more convincing than that of the high pound. The big companies complain that this makes borrowing too expensive for them, and that as a result they are at a disadvantage against their foreign competitors when it comes to investment. But what prevents large companies, which are involved in financial dealings across the world on a daily basis, from borrowing abroad at lower interest rates if they wish to? Nothing, of course, and they do, but that is not what they tell their workers when they push them onto the dole!

As to the south-east Asian financial crisis, it is not all bad news for British companies, far from it. The cement giant Blue Circle for instance, has just taken over two Malaysian cement businesses for £250m - that is one million pounds for each one of the workers they are making redundant at the same time in Britain! Indeed, for many British companies, the plight of the south-east Asian economies is a golden opportunity to buy businesses there on the cheap and to take over entire markets from ailing local competitors. And they have the nerve to turn to their workforces and demand that they pay the bill!

On the other hand, what about those companies who depend mostly on imports? Surely, since the high pound cheapens the cost of imports, this should improve their prospects, by allowing them to sell cheaper, thereby reducing the drop in high street sales. But it has not. In any case, not in the case of supermarket magnates who have been using the advantage for themselves and their shareholders alone - as was shown by a recent survey published in the Sunday Times, which found that supermarket prices were actually higher by 30% than those on the continent for the same products, including basic foods!

Profits come first, not economics

This last example, and a rather decisive one at that, shows that the main motive behind today's policy of the bosses has nothing to do with high pounds, economic crises or high interest rates, but their drive for increased profits. Significantly, it was in the 1980s, with a weak pound and low interest rates for much of the decade, that British bosses embarked in the largest job cutting spree ever.

The idea that economic factors - such as the latest hypocritical pretexts invoked by companies to cut jobs - are what makes them expand or reduce production, thereby creating or cutting jobs, is a delusion and a dangerous one. For it is in the name of this delusion that Blair and Major before him, have blackmailed workers into agreeing to drastic cuts in their conditions - under the pretext that only profitable companies would create jobs and therefore cut down unemployment.

It is a delusion because it is assuming that, for instance, the bosses are interested in increasing production in the first place. But this is simply not true, as we can see today. All these profitable companies which are cutting jobs across the country are only doing so in the pursuit of profits. If they can reduce production and maintain their profits, they will do it, simply because this allows them to risk even less capital. And of course, if in the process they can increase their profits further, which is often the case - for instance by using the savings on wages to play bingo on the financial market, as many companies do - so much the better. In fact, it would probably take a very large increase in demand for companies to decide that, after all, it is worth taking the risk of expanding their production. And even then, before risking new capital to create new jobs and invest in new factories, they would rather make their existing workers kill themselves at work.

In a nutshell, this is in fact the sad story of the past decade. When the "recovery" arrived, under Major, in the early 90s, hardly any new jobs were created in production industries. Production did increase but the overall workforce kept going down year after year. And investment did not pick up. The low industrial investment was serious enough for it to have been one of the main planks of New Labour's manifesto commitments. But today, the country still has the lowest level of investment as a share of national income of all the G7 countries.

There was certainly a lot of truth in what Brown said, when, in response to those who blamed his strong pound policy for the present job cuts, he accused the low productivity of British industry compared to its competitors. Except that, with his obsessive servility to capitalism and the capitalists, he blamed the workforce and its alleged lack of skills, instead of blaming the real cause of low productivity in Britain, i.e. the companies' failure to invest. In any case, the figures are there to prove Brown's point, with British productivity levels estimated to be 20% lower than those in France and Germany and 40% behind the USA.

In fact, a recent report published by the Department of Trade and Industry concluded that the British industry's "stronger comparative performance was due primarily to increasing input from labour, rather than more effective use of labour. It was more to do with activity than productivity." In other words, more than in any other industrialised country, British profits, which are comparatively higher than elsewhere, are the product of workers' sweat and little else.

Yet no doubt Brown would have liked to see the bosses increase their investment. While pursuing and expanding the policy of his predecessors in terms of handouts to companies, he did try to entice them into increasing investment and creating jobs, using all sorts of incentives. However it just did not work. The bosses took the money and did nothing. But Brown and the Labour government looked the other way, thereby colluding with their theft.

The fact is that the extensive availability and use of low-paid workers is a disincentive to invest in more modern equipment. In this, Blair's government has been colluding too, by maintaining the downward pressure on wages. And the minimum wage which is now set to be introduced next April at only £3.60/hr or £3/hr depending on age, ensures that this pressure will remain.

As to blaming the low level of skills among the British workforce, this is an excuse which will not wash. Because, despite the huge cuts in apprenticeships and technical training places for young workers, it is not the case that there is a significant shortage of skilled workers compared to jobs on offer. For many years now big companies, like Ford for instance, have been using skilled workers on the assembly lines, claiming that there were no skilled vacancies for them, and so completely wasting their abilities. And what about the large number of skilled workers made redundant over the past years, who have never been able to use these skills thereafter?

Instead, bosses have made up for their failure to invest by increasing the exploitation of workers. The past period has been marked by savage speed-ups coupled with the forced introduction of "flexibility" in order to screw more work out of the existing workforce. This way they make the profits without the investment, but the workers pay for it with their health, and sometimes their lives.

Likewise, not only do the bosses choose to screw workers physically in order to maximise their profits, but they also are screwing down their wages even further, for the same reason - since what really counts for them is not even productivity, but "unit costs" as they say. So while pay restraint is official government policy, under the hypocritical pretext that higher wages will cause inflation, the reality is that workers' wages are actually dropping.

Labour's recipes can't work

What was Blair's response to the large scale job cuts in the North East of England? He said he could do nothing about the "twists and turns of world markets", but he could "do something to help the hurt", by setting up emergency job centres, called "Rapid Response Units"! Even if this could help the "hurt", unfortunately they are going to have to suffer their pain until next April when the Regional Development Agencies which will run these Units come into being. And what will then be available? All the wonderful opportunities of the "New Deal" will be on tap for those workers thrown on the scrapheap.

So how effective is this "New Deal" so far? Companies are offered £60-£75/week subsidy per worker taken on under this scheme. It was supposed to lure the bosses into creating new jobs, and 40% of unemployed youth were meant to have been placed by the New Deal by June this year. But in unemployment blackspots, like Lambeth in London, only half the target number of young unemployed have been placed in jobs, and this was with an already reduced quota (scaled down to 30%) to allow for the problems it experienced as one of the most deprived boroughs in the country. Where have half of these placements been found? In charitable organisations.

This is scarcely surprising when one considers that the local authority, which could and should be offering jobs, prefers to employ temporary workers. More than half of government's own departments have still to make firm commitments as to the number of recruits they will take, seven months after the introduction of the "New Deal". This is hardly giving a lead in job creation!

Government policy, while endlessly asserting that the "New Deal" is all about "job creation", was not actually designed in such a way as to force companies to create jobs nor to invest. What it is designed for is to give the bosses extra cash, in the hope that they will prove reasonable and so actually create real new jobs. But it is not enough to have good intentions, assuming that Blair has some. And since the bosses do not oblige, the government is paralysed, because their own policy dictates that they nevertheless have to keep public funds pouring into the bosses' pockets.

In fact the two plant closures which have been prominent in the news, Siemens and Fujitsu, provide another illustration of Labour's paralysis. The Siemens plant had been built with the aid of a government subsidy of £44m and had only been in operation for two years! The Fujitsu plant was built only seven years ago with a subsidy from the government of over £50m. But there is not even one element of compulsion written into the government's handouts to make these conditional on keeping the plant in operation. This is precisely what allows them to "cut and run" if they wish to do so. These relatively few jobs are therefore created at enormous expense, paid partly by the taxpayer, and the right of companies to cut them is underwritten by the government's act of omission.

Yet, despite the already long list of closures of such plants, the government itself was still boasting of the huge number of jobs being created, by "inward investors", attracted by their incentives. But what shining examples did they give? Scotland's inward investment agency, "Locate in Scotland", said that 14,500 new jobs were to be created in the region, and that 3,000 jobs would be "safeguarded". But 7,000 of these "new" jobs are in "call centres" - big offices with telephone operators who are usually part-time and low-paid. But, according to Scottish Industry minister, Brian Wilson these jobs "will be particularly welcomed by women looking to return to work..." He does not seem to conceive that women workers might actually need a full-time wage!

While it is foreign companies which hit the headlines, they are not the only ones which benefit from government subsidies. Any company can benefit from regional aid. But this does not prevent them from shedding jobs, as the case of Molins in Peterborough, British Steel in Sheffield and BOC prove.

What objectives for the working class?

Any idea that companies can be lured, even with large handouts, into investing and creating jobs is a con, as has been already shown over the past years. Any idea that they might restore the jobs they have cut over the past months, or even stop cutting more, if the pound or interests rates go down - which is what trade-union leaders and some Labour left politicians argue - is just as much an illusion and a diversion from the real issues.

The fact is, that as long as they can get away with it, the capitalists do what is best for themselves, regardless. They keep their eyes glued to their profit charts and that is all there is to it. As long as there is no compulsion on companies to deliver the goods by investing and creating jobs, then there is no guarantee that they will and every reason to think that they won't.

This does not mean that even this government could not do anything about the threat of rising unemployment, or rather that the working class cannot force it to do something. But it does mean that this would involve forcing the government to take a number of very drastic measures against the capitalists. Because there cannot be an effective fight against unemployment, and and effective policy of creating jobs, without, among other things, banning job cuts by profitable companies to begin with; without forcing the large companies to reinvest their profits productively; without using taxation, or even requisition, to take from the rich some of their wealth, which is currently useless to society, in order to turn it into new production and new jobs in public services, which is the most effective and direct way to create new socially useful jobs.

There are circumstances where governments have proved perfectly capable of taking such drastic measures. During wartime, in fact, because these periods were considered emergency situations by the capitalist class and it was in their interests that the government intervened in order to control the economy. What governments do in wartime for the benefit of the bosses, they could do in peace time for the benefit of the working class, provided they were given no other choice by the working class itself.

Today, the real number of people out of work but who want a job is estimated to be well over 4.2m - that is 14.4% of the workforce, and not the 1.3m or 4.7% that the official statistics cite. Such a situation is a state of grave emergency for the working class, and in fact the overwhelming majority of the population, requiring urgent action. It reflects an enormous waste of potential for society, while at the same time it implies severe hardship for a very large part of it: it is estimated that 15% of the British population live in poverty, with everything that goes with it, including social exclusion and the lowest life expectancy in Western Europe.

So what is dictated by such a situation, where a tiny minority at the top of scale are wallowing in mountains of profits, other than compelling them to cut down their gains in order at least, for a start, to repair the deteriorating fabric of society?

There is no other way for the working class to fight the growing threats which are piling up, other than to adopt such an objective for its fights to come. Brown's litanies and the trade-union leaders' fairy tales all rely on the bosses' goodwill. The working class knows better. And it is the only force in society with the potential strength to impose its will on the capitalist class and its politicians.

20 September 1998