UK industry; some predictions for 2015 onwards – and a Piketty review

The latest figures (April 2014) for UK manufacturing and industrial output showed an acceleration in expansion to reach 3% yoy growth for industry as a whole.

UK IP

Manufacturing output growth was even stronger at 4.4% yoy.

UK manufacturing output

But remember UK industrial output is still well below pre-crash levels, – some 11% below while manufacturing is still 7% down.

UK IP index

Another long-term feature is the decline in the UK’s North Sea oil and gas production. It’s straight downwards and is now 40% lower than in 2004.That does not auger well for an independent Scotland relying on energy revenues to do better if outside the UK.

UK energy

The UK’s capital goods sector is doing particularly better, but this sector (aerospace, engines etc) is mainly for export not domestic demand.

UK capex

All this brings me to make a few rash predictions about the UK and elsewhere for 2015 and beyond. I am ready to be shot down, but here goes.

1. The Scots will narrowly vote no to independence, reducing the uncertainty about the break-up of the UK for another decade. This will be a relief for British big business. Alex Salmond and the Scottish Nationalists will use the narrow defeat to get more concessions on tax-raising powers (already promised by the Conservatives) and will look for another vote down the road.
2. The improving UK economy over the next year (slightly faster growth; increased employment and possibly a small rise in average real incomes) will deliver an outright victory for the Conservatives in the May general election (something I forecast tentatively back in 2010). The UKIP vote will not be replicated in the election, so the Conservatives will win key marginal seats.
3. The Conservative government will ‘renegotiate’ the terms of staying in the European Union and the government will campaign for staying in at the proposed referendum in 2017 and the British people will vote to do so. Much depends here again on the state of the UK and Eurozone economies. In any new economic slump, by then likely, (see below), the UK economy will look the worse; and Europe better.
4. The global economic recovery will continue over the next year and the major economies will reach a peak in their post-crisis growth rates in 2015 (probably still below pre-crisis trend rates). This will be driven by an improvement in business investment in the real economy for the first time.
5. Rising capital accumulation will be accompanied by rising wages and relatively poor productivity growth. That is the formula for a fall in the overall rate of profit in the major economies in 2015.
6. By 2016, falling profitability will reverse the investment recovery and a new economic slump will be on the agenda.

Finally, my latest review of Thomas Piketty’s Capital in the 21st century, called Unpicking Piketty, has been published by Weekly Worker and you can find it here: (http://weeklyworker.co.uk/worker/1013/unpicking-piketty/).

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9 Responses to “UK industry; some predictions for 2015 onwards – and a Piketty review”

  1. proworks2013 Says:

    Michael – Only two criticisms here. One, if the UK economy does well, “the Conservatives” will win (a banal and not unexpected thing – even the working class will not overthrow a “job winner”, no matter how murderous), but what does that mean for the coalition, and how will the Liberal part in the “recovery” be handled by the ‘big C’ party? Two, mentioning Piketty’s Trotskyist parental background in a Stalinist rag is tantamount to asking their readers to not read on, don’t you think, or am I dredging up too much history for the old punters who still remain in the party and read the “weekly’ Worker?

  2. Simon Says:

    In regards to point 5, why will wages increase if overall profitability is still relatively low in the economy? Does rising capital accumulation mean increased profitability? How is profitability related to productivity? Obviously I’m confused

    • michael roberts Says:

      As employment picks up, the wage bill will rise. Rising capital accumulation will also cause a rise in the ratio of capital to labour (Marx’s law). Rising capital accumulation should also lead to rising productivity of labour (the flipside of Marx’s law). But if that productivity growth is relatively poor and the wage share in new value also rises, then profitability will start to fall. Although total corporate profits are at record highs in the US, corporate profitability is still lower than it was in 1997 or in 2006 and in the US it probably did not rise much if at all last year (we dont have the data yet). If profitability starts falling from hereon, corporations may try to expand capacity for a while in order to compensate with higher total profits. Eventually, that wont work and they will start to retrench on investment. In my view we are still a year or two away from that.

  3. Robert Phillipoff Says:

    Your “Unpicking Piketty” is the best review of Piketty that I have seen so far.

    I am curious to get your response to the following defense of Piketty that I have come across from a blogger: “Marx did not include housing as capital. Piketty does.  I do not know the answer to this, but Piketty’s argument is more persuasive than Roberts. Is housing capital productive? Well, it has certainly been packaged as financial assets and used as leverage by many to finance wide ranging commercial and productive operations.”

    Thank you.

    • michael roberts Says:

      Robert,
      Housing is obviously useful and necessary – a use value as Marx would call it. But it does not generate value or surplus value so it is not productive in the capitalist sense., i.e. generates profit from the exploitation of labour, UNLESS it is a letting agency or a real estate operation. But here the profit is generated from rents or capital gains (or the fees from sales) and that value is a redistribution from the sectors of the economy that generate value and surplus value.

      If financial instruments involve the packaging up of mortgages and real estate assets into a form of securitised debt as we saw in the financial credit boom between 2002-7, then these assets are really claims on potential rents, interest or capital gains from real estate.

      Piketty adds in both residential housing (as well as commercial offices etc) PLUS financial assets including mortgage-backed assets, the second being double-counting. Residential housing is purchased from profits accumulated, money borrowed and wages; it is the product of revenue not capital. So he converts capital (value producing) into what is really wealth. But wealth has existed in all modes of production: slave societies, feudalism etc. Wealth is accumulated revenue.

      The distinctive feature of capitalism is not wealth, but accumulated value and surplus value through the exploitation of labour power. Piketty dismisses and ignores this distinction. Piketty gets a measure of personal wealth by his method – fine. But he does not measure capital correctly. Does this matter? Well, it depends on whether you think that the rising inequality of wealth is the central contradiction of capitalism or it is the continual and recurrent limits to the profitability of capital creating regular slumps in use values needed by people.

  4. rrew Says:

    Why will the “UK economy will look the worse; and Europe better.”?

    • michael roberts Says:

      At the moment, the Eurozone economy is growing more slowly and has higher unemployment than the UK. It could well be that this relative position will reverse as the next slump will probably hit the UK economy harder as its current ‘boom’ is lopsided and dependent on low interest rates and fictitious capital and profits. The growth and unemployment gaps between the UK and Eurozone will narrow.

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