By Stephen MacAvoy
There is increasing awareness that the deep cuts proposed by the Tory-led government – amounting to £81bn in 2014/15 alone – pose a threat not only to living standards of large sections of society who did not cause the crisis, but also risk sending the economy back into a downturn or years of low growth.
As Danny Blanchflower, a member of the Bank of England’s Monetary Policy Committee, described recently in the New Statesman:
“There is a growing consensus against the cuts among commentators, from Martin Wolf and Samuel Brittan in the Financial Times to Anatole Kaletsky in the Times (none of whom can be called a left-winger), as well as from the first ministers, deputy first ministers and finance ministers of Scotland, Wales and Northern Ireland. In addition, the Nobel Prize-winning economists Paul Krugman and Joseph Stiglitz have both written stinging critiques of Osborne’s dangerous gamble.”
As Brendan Barber, TUC General Secretary, pointed out at the recent TUC rally:
“the great myth in this debate is the more that you cut, the quicker you reduce the deficit. The biggest contribution to reducing the deficit in any conceivable plan comes from economic growth.”
The cuts are likely to see 1.6 million job losses across the public and private sectors by 2016, according to the latest estimates by the Chartered Institute of Personnel and Development. Even by his professed goal of reducing the deficit, Cameron’s cuts agenda is likely to fail. The public finances may well worsen as huge numbers are made unemployed, more benefits and less income taxes are paid. This is what occurred in Ireland.
Given that the recession has been driven by a collapse in private sector investment, it is also welcome that a number of economists are calling for the state to step in to address what in effect is a private sector investment strike. As Nobel Prize winner Joseph Stiglitz recently said about the US economy:
“This is the time for the US to make the high productivity investments it needs. Spending on things such as high speed rail and green technology would actually improve America’s balance sheet. Higher growth would generate more tax revenue and lead to a lower long-run national debt…”
Ed Balls made similar points in his Bloomberg Speech.
All of these arguments are totally correct and need to be at the heart of the case against cuts.
An additional point in the debate is that, in pursuing this cuts agenda, the Tory-led government is following a perfectly rational policy. Its goal is to restore profits – even if this means years of slow economic growth or large increases in unemployment.
The sole aim of the capitalist system is to make profit on investments. All other interests, including those of the majority of the world’s population, are immaterial to this goal.
The recession has had a negative impact on profits. The UK economy entered recession in the second quarter of 2008 and remained so for 6 quarters. Not only is the economy smaller now than before the recession began, but the share of this (smaller) economy going to the capitalists has also fallen.
The table below shows one estimate of how the capitalists’ share of the economy has been hit in the recession. It is based on categories in the UK national accounts published by the Office of National Statistics (ONS). It shows that the share of GDP going to the capitalists has fallen from 34.51% in the first quarter of 2008 (before the recession began) to 32.18% in the second quarter of 2010.
The aim of the cuts package is therefore to get profits back up for the small minority of the population which owns the means of production. It is not about boosting growth or jobs, which is not the concern of the capitalists, as Cameron likes to claim.
It will do so by reducing the share of the economy going to the working class and so in turn increasing the share going to the capitalists. In Marxist terms, the aim of the cuts is to increase the rate of exploitation: that is, the proportion of value that is created by labour which is unpaid and instead goes to the capitalists.
Increasing the rate of exploitation is especially urgent, as in a recession output tends to fall faster than wages, meaning that initially the share of value going to the worker increases. Firms do not immediately sack their workers, especially the more highly skilled and, therefore, initially the average wage can be steady or even rise as output and employment falls.
This can be seen in the accompanying graph which uses the ONS category of ‘compensation of employees’ as an estimate of the proportion of the economy going to labour. The main trend is that for years the proportion of the economy going to the worker has fallen. But what is also clear is that as output collapses in recessions, this share increases.
As the capitalists do not wish to see the new less-favourable rate of exploitation embedded its priority becomes to drive wages lower and cut back on other parts of the economy that make up working class living standards such as the public services.
From the perspective of the individual capitalist, in order to get the rate of exploitation back to its pre-recession levels it has to drive down pay. Across the economy as a whole, the reduction in welfare benefits and wider cuts to public services all reduce the social wage of the worker. Moreover reductions in wages payable will fall as hundreds of thousands or more are made unemployed and so the pool of available workers increases.
The Tory plans will also see taxes cut for the capitalists, which is already happening. Corporate rate of tax will fall from 28% to 24% over the next 4 years. This is not to encourage the capitalist to invest more, as the tax relief on investment is also simultaneously being cut. Instead, it is simply to allow capitalists retain a greater proportion of surplus value, unencumbered by the ‘burdensome state’. That is, to reduce capital’s pathetically small contribution to social welfare provision.
All of these measures will reduce the share of the economy going to the working class and, in turn, increase the share going to the capitalist.
There is another way forward. The state itself could step in to directly increase investment – as has been done in other capitalist economies, but most successfully in China. However this would mean more of the economy moving outside of the private profit making sphere and is therefore opposed by the capitalist class as a whole.
In fact the very opposite is proposed through privatisation, for example of Royal Mail, which would see sections of the economy currently under state control turned into profit making opportunities for private shareholders.
The recession and the policy responses underlines that there is a clear divergence between the needs of the majority of society and the small layers of those dominated by the financial sector capital to pursue profits.