How bad will Trussonomics be?

Liz Truss (Picture by: Tim Hammond/No 10 Downing Street)

By Mark Buckley

The economic policy of the new Tory government will be determined by three main factors. These are the absolute and relative crisis of the British economy, the specific features of the current crisis and the ideological and policy baggage that these particular Tories bring with them.

The net result will be a significant deepening of the crisis, as the medium-term ruling class project of ‘Americanising’ the British economy and society will be sharply accelerated ahead of the next election.

The project overall has no prospects at all of meeting its stated aim of increasing the trend rate of growth in the economy. However, the sole important obstacle to severe further damage to living standards, public services and wider society that are central to the project is the resistance being mounted by many trade unions and their members.

Objective crisis

The word crisis can seem overused, especially in relation to the fortunes of the British economy. But there are few other ways of describing both the structural and contemporary straits it is in.

Structurally, net national savings are negative. This is the sum of all capital available for Investment, which is the key determinant of medium-term growth. Possibly the oldest capitalist economy in the world has stopped producing net capital for some time.

Marxists understand that the accumulation of capital is both the motor force of capitalism itself, and also the potential means by which the economy can expand and satisfy human needs. At a certain point the development of productive capacity in the economy comes into conflict with capitalism itself, for example when capitalists do not expect to realise profits. That is precisely the case currently. When capital accumulation has turned negative capitalists run down assets and effectively de-invest. This negative Investment in turn leads to lower growth and/or stagnation.

As the chart below shows, negative net national savings are now a common feature across many of the advanced industrialised economies. This explains the global capitalist stagnation over the medium-term. But net national savings first became negative in Britain much earlier than comparable economies and has been lower for almost the entirety of the last 50 years.

As a result, the crisis of the British economy on this key measure is both relatively and absolutely worse than its main capitalist rivals.

Source: World Bank

Contemporary crisis

The last two decades up to 2021 have been the weakest in terms of real GDP growth in Britain since the end of the Second World War. On the official forecasts from the Bank of England the first half of the following decade beginning this year will mainly be characterised by ‘stagflation’, with both high levels of inflation and economic stagnation or even contraction in the economy.

Over the entire period there has been a concerted drive to increase profits by increasing the exploitation rate. The post-War decade of 1951 to 1961, which was the strongest of all in terms of real GDP growth, ended with firms’ operating surplus at 37 per cent of the level of the compensation of employees. That has now risen to 43 per cent.

This is a highly significant shift. To illustrate it, a return to the post-War distribution of National Income would see employees’ compensation rise by £126 billion. In answer to the claim that ‘there’s no money left’, a return to the 1960s status quo would mean extra £2,800 per year for every adult in the country including pensioners.

However, this shift in the share of National Income has not been decisive on two crucial areas. First, it has not improved the competitive position of the British economy in relation to its international rivals, as the long-term widening of the trade and current account deficits illustrates. Secondly, the extraction of greater profits has not been sufficient to generate any increase in business Investment. In addition to these points, there is the issue of Britain’s much lower level of net savings, as noted above.

So, while the working class and its allies have been on the defensive over the long term, the profits offensive by the British ruling class has been insufficient from their perspective to achieve a decisive turn in the situation.

If such a decisive turn can be effected, it will require much more decisive action than has been imposed to date, and a much more serious defeat of the working class. This is the context of the current government economic programme and effectively determines its content.

The meaning of Trussonomics

The point of most mainstream economic commentary is to obscure the underlying forces in the economy, the fundamental trends and the key effects of economic policy.

When there is finally some major fiscal intervention by the Truss government, there will be almost zero analysis of the objective situation, no recognition of the central role of profitability (or lack of profitability) in a capitalist economy and no understanding of the mechanisms by which the government could achieve its stated objective of ‘reaching 2.5 per cent GDP growth.’

This ignorance may well apply to the Truss government itself, as they are seemingly enthralled by the claimed success of the Thatcher government in boosting growth and delivering prosperity. Those claims are false. They seek to repeat all the main Thatcher policies, wars, attacks on unions, greater exploitation, privatisation, deregulation and even a new City ‘Big Bang’; a free-for-all in the finance sector.

However, Thatcherism was a disaster for the British economy and failed even in its own terms of raising the rate of growth of the British economy. Instead, growth was temporarily boosted by the inrush of North Sea oil revenues. These reached a peak of 3.4 per cent of GDP in 1983 and accounted for just under 25 per cent of GDP over a 20-year period.

Without those revenues, the British economy would have suffered a catastrophic slump. Thatcherite policies included tax cuts, deregulation which paved the way for the later banking crash and privatisation which has led to the chronic underfunding of public services. The defeat of NUM strike undermined union militancy for a generation or more. Racism was whipped up to divide the population, along with attacks on women and on gay and lesbian rights.

From both public statements and their own publications, these Tories clearly intend to repeat this failed experiment. But there is a crucial difference in the current period and the early 1980s. This again relates to the North Sea oil revenues.

While the official level of unemployment in British economy was approximately 3 million for six consecutive years under Thatcher, for those in work real incomes rose. This was mainly due to the income tax cuts that eventually led to the consumer boom and bust.

No such revenues are available now. High inflation, which has been welcomed as a way of reducing real wages, means that the mass of the population is experiencing its biggest fall in living standards on record.

There were three key factors that allowed Thatcher to win two elections despite the economic wrecking ball and mass unemployment. These were war, a craven Labour leadership that spent its time attacking the left and most importantly, rising living standards for the majority of the population.

This government cannot rely on the last of these. They will instead face the opposite for the entirety of their time in office, until the general election which cannot take place later than December 2025.

One option that arises is that this government will pursue its massively unpopular agenda of tax cuts for big business and the rich, deep pay cuts in real terms for everyone else. As a result, this will almost guarantee a Tory loss at the general election. But then the ruling class will expect Starmer to maintain all the key aspects of the Truss settlement.

Some difficulties

There are a number of objective difficulties in carrying out this policy. These include the different responses in the public and private sectors, the extent of the crisis in public services which could lead to outright collapse and in terms of international relations, the collision course that has been set with the Irish government, the EU and the Biden Administration over the government’s plan to rip up the N Ireland Protocol.  

Ultimately, the decisive factor will be the resistance of the working class. But these other issues are far from unimportant.

The disparity between private and public pay settlements is glaring. Public sector workers, who on average are more highly qualified, now have lower pay than private sector counterparts. In the 12 months to July private sector pay rose by 6.2 per cent, while public sector pay rose by just 2 per cent.

Both sets of workers are experiencing sharp falls in real wages as CPI inflation was 10.1 per cent in the same month. The falls in the public sector pay are qualitatively greater as the government attempts to use them as a battering ram, setting a ‘going rate’ across the entire economy that significantly increases the rate of exploitation.

The disparity is important, especially as it can lead to certain public sector workers ‘voting with their feet’ and switching to better pay and/or conditions in private sector. This would only exacerbate the crisis levels of understaffing and underfunding that already blight education, public transport and above all the NHS.

Despite the crisis in public services, it is clear that the Truss government intends to increase military spending in a substantial way. Support for the US-led war in Ukraine is the priority, but post-imperial posturing has also led to intentionally provocative naval missions in the South China Sea. There seems no limit on the reckless manoeuvring the British government will do in order to prove its faithful lapdog status to the US.

Despite this, the plans around the N Ireland Protocol, and by extension the Good Friday Agreement are meeting broad opposition from a range of international forces. The government sees Brexit, which is the centre-piece of the ‘Americanisation’ project as a touchstone, and unfinished business. The EU, the Biden Administration, the Irish government and the population of Ireland, see the Protocol as the opposite, a measure promoting peace and stability. Something will have to give.

Growing resistance

It remains the case that the growing militancy of the workforce is the most important opposition to the government’s plan to revive British capitalism. If the ruling class can achieve a decisive defeat, then all other issues pale into insignificance.

Despite the hiatus around the royal funeral, the militancy of organised workers was broadening and drawing new sectors and unions into struggle.  A key task in the next phase will be as far as possible to deepen the struggle, with longer or more effective action. Most importantly this includes the greater co-ordination of the strikes themselves across unions and across sectors.

It is already possible that further action this autumn will make this strike wave surpass the dispute on pensions in 2011. If so, it will be the largest since the miners’ strike in 1984-85, although considerably short of that scale, when 27 million days were lost to strikes.

In the ONS chart below, 6,7 and 8 represent working days lost in the miners’ strike of 1972, the winter of discontent in 1979 and the 1984-85 miners’ strike respectively. 9 is the public sector pay dispute in 2011.

Days lost through strike action in Britain since 1891

Source: ONS

Rising militancy has already had an effect inside other unions and in the Labour Party. Starmer was forced to backtrack from his threats against MPs supporting picket lines, and there has been a reordering of the left in the constituencies. Overall, it remains in retreat but is now geared towards demanding Starmer does not accommodate to the Tories, rather than capitulating to him. There are sure to be pro-strike motions put forward at Labour Party conference.

Meanwhile, the TUC could provide a forum for greater strike co-ordination at its rescheduled conference. Groups of unions can take matters into their own hands and try as far as possible to develop the current momentum, to the maximise the pressure on government and to push back on pay and on job losses.

Because of the scale of the crisis and the attacks on the working class and the oppressed are so great, the stakes in the period ahead are higher than they have been for decades.