In the Great Recession of 2008-9, Britain did not suffer the deepest slump of the top seven capitalist economies in the world. In the UK, real national output fell 6% from its peak in Q108 to its low in Q309. Output fell more in the big manufacturing and exporting economies of Germany and Japan. But the contraction of output was less in the US and France thna in the UK. However, the length of the slump has been much longer in the UK than anywhere else – a contraction in six consecutive quarters compared to ‘just’ four in Japan, Europe and the US.
see the graphics here
In my book, The Great Recession (see http://www.lulu.com/product/paperback/the-great-recession/6079458), I predicted that the UK would be the biggest sufferer in the recession precisely because it relied so heavily on the financial, property and professional sectors for its expansion. Indeed, the UK could be described as a ‘rentier’ economy, one that does not, on the whole, make things or provide services, but rather lives off the rent, interest and dividends it accrues from those economies that do make things or provide services. As a result, when global finance capital imploded in 2008, British capitalism suffered more than most, even more than the leading economy of finance capital, the US.
Of course, it is an exaggeration to describe British capitalism as a rentier economy. The UK is still a leader in some producer sectors like pharmaceuticals, aerospace or energy or service sectors like culture and media. But it is also not an exaggeration to say that the UK, in the form of the City of London, has increasingly become like a great Switzerland, a financial warehouse for the deposits of the ill-gotten gains of Russian oligarchs, Middle Eastern sheikhs and global hedge funds.
The City of London itself is like a large aircraft carrier sitting on the Thames, which provides work for thousands (including thousands of non-Brits) and who avoid as much as possible going into the ‘heart of darkness’ that they see as the rest of the British Isles. They want to be as ‘offshore’ as possible. As a result, the vast majority of British workers do not benefit from the grotesque profits and incomes racked up on the aircraft carrier by the banks and investment houses and the ‘smart people’ who run them.
Ironically, this explains one of the odd features of the Great Recession in Britain. The UK economy may have contracted more than some and that contraction may have lasted longer than any other, taking the pound down more than other currencies. But unemployment has not so far risen nearly as much as would be expected in such a deep recession. Indeed, from peak to trough, employment has fallen over 5% in the US while it has dropped ‘only’ 3% in the UK. The unemployment rate has jumped 127% in the US and is still rising, while it rose ‘only’ 57% in the UK and, according to the latest figures, has stopped rising.
And it is becoming clear why. The British labour force (outside the ‘rentier’ sector) has been so decimated and ‘cleansed’ by the collapse of manufacturing in previous recessions and lack of investment by the big multinationals who prefer to invest abroad, that employing a British worker is really quite cheap compared to an American, a German or French, or even a Japanese or Korean. British workers are the ‘coolies’ of advanced capitalism. They work the longest hours in Europe, have the shortest holidays and in the G7, the lowest wages.
Take employee compensation as share of the national income. Back in the 1960s and 1970s, this was higher in the UK than in the US. But the decimation of British industry during the 1980s and 1990s enabled employers to drive down employee compensation sharply. Now US employee compensation as a share of GDP is higher in the US than the UK.
See the graphic here.
So when the big multinationals needed to cut their workforces in the Great Recession, they had a much greater incentive to ‘downsize’ in continental Europe or North America than in the UK. Also, the UK pound slumped sharply in the Great Recession, especially compared to the euro. That made British workers even cheaper to keep on.
But don’t think this is good news. UK unemployment may not have risen as much as expected, but it still has risen by 57% since its low at the end of 2007. And worse, wage incomes have fallen back. Hourly average earnings are now growing at 1.4% a year just at a time when inflation has popped up to 3% a year. So the real incomes of most British people in work are taking a sharp hit.
Moreover, cheap labour may be beneficial to British capitalists, but they cannot escape from the huge overhang of dead capital that they still have. The Confederation of British Industry reported that the percentage of companies that were working ‘below capacity’ had reached 76% in mid-2009, a figure only surpassed in the 1980s recession, when British capitalism was not so ‘lean and mean’.
Working below capacity is hugely damaging to profits. So it will ensure a very slow recovery in 2010. Down the road, another recession will be necessary to get rid of this ‘excess’ capital.