Britain deep down

The Q4 2012 GDP data for the UK are out and the British economy shrank by 0.3% in the last three months of 2012.  The economy had grown by 0.9% in the previous quarter, supposedly boosted by the London 2012 Olympic Games.  For the whole of 2012, real GDP was flat.  In Q4’2012, UK manufacturing fell by 1.5% in the fourth quarter and within the manufacturing sector, mining and quarrying output fell by 10.2%, the biggest decline since records began in 1997, driven by disruption to North Sea oil and gas fields.  If oil and gas extraction were excluded from the overall gross domestic product (GDP) calculations, the economy still shrank by 0.1%

This is just the first estimate of how the economy performed in the fourth quarter and is subject to at least two further revisions as further data is collected.  Yet the headline media talk is already about a ‘triple-dip recession’, meaning that if the UK economy shrinks in the current first quarter of this year, there will have been three times since crisis began that the UK economy has contracted in two successive quarters.

This is statistical gobbledygook, of course.  What is much more significant is that the economy is stagnating and, dare I say it, in a depression.  Mainstream economists don’t like to use that nasty word, but some are beginning to do so as the UK economy is still considerably smaller than it was when the crisis started in 2008.   As the graph below shows, the UK economy is still nearly 4% below its peak in early 2008 (black line) – five years ago, whereas in previous recessions including the terrible 1920s (maroon line), the previous peak had been passed by now.

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Still the word depression must be avoided.  “I’ve been trying to use a different word,” says Randall Kroszener, professor of economics at University of Chicago,  “I came up with the term ‘sideways slide’, which characterises where lots of economies are – not boom and bust, just sliding along, surviving.”    But whatever you call it, the UK is performing poorly, with real wages falling, retail sales stagnating (long-standing high street stores like Jessops and HMV going bust as the corporate sector ‘restructures’)  and the budget deficit and government debt rising.  This latter feature is where the Conservative-led coalition has its main objective: getting public finances under control,with the deficit and debt down.  But this ‘austerity’ target, already extended out to 2018,  is now in tatters.

The government has tried to make something out of two things in justifying sticking to its austerity Plan A, despite gentle calls from semi-Keynesian IMF chief economist, Olivier Blanchard, to ease up on planned spending cuts for a while.  The first is that things are improving in the labour market.

It’s true that the official unemployment rate has fallen again to 7.7%, below levels in most of Europe.  But as I argued in previous posts (https://thenextrecession.wordpress.com/2012/10/25/uk-and-us-gdp-and-anglo-saxon-angst/ and https://thenextrecession.wordpress.com/2012/12/05/osbornes-mess/), when you drill down on the employment data, things are not so great.  It looks good when the figures show that half a million jobs appear to have been created in the last year despite next to no GDP growth and the overall level of employment is now above its pre-crisis peak.   But if you look further, you find that over the last five years, the absolute number of people in full-time employment has fallen by 341,000 and the number of unemployed people is up by 854,000.  Things look better only because the number of people in part-time employment increased by 660,000.

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And in the last year, of those extra 552,000 jobs, 43,2 % were part-time and much of the rest (as we shall see) were in low-paid occupations.

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In the last year, it is the public sector that has lost jobs (with many more to go over the next few years).  Employment in the public sector fell by 324,000 while employment in the private sector rose by 823,000, although these figures are distorted by reclassifying some educational bodies from the public sector to the private sector.

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That these new jobs in the private sector are generally poorly paid is partly revealed by the (non) rise in the economy’s wage bill.  Average total pay (including bonuses) for employees in Great Britain was £472 per week and without bonuses £444 per week.  So the average worker gets £23,000 a year before tax and the average means there are more workers earning less than that than are earning more – most of them part-time, or women or in very low-paid jobs.  And wages are rising on average at just 1.4% a year while the official inflation rate is 2.7%.  So real incomes continue to fall for the average wage earner.

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And prospects of getting a job or better paid one remain zilch, even though the government is trying to force those on disabled or long-term sick benefits ‘back into work’ by employing a rapacious and rigid private agency to reclassify their right to benefits.  There are now officially 2.49 million people unemployed in the UK, but more than half of them have been out of work for more than six months and 20% have not had a job for over two years.
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And as for youth unemployment, as in the rest of Europe, the situation is really bad.  There are 3.72 million 16 to 24 year olds in employment.  But there are 957,000 unemployed,or over 20%.

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The government tries to make something of the rise in the employment rate compared to available jobs.

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But this improvement really reflects the increase in the retirement age for the state pension for women, resulting in fewer women retiring between the ages of 60 and 65 – so again, not good news.

The other argument adopted by the government to justify its Plan A austerity policy is that things are even worse in Europe.  However, it’s not a great argument to say that if your economy is stagnant and is forecast to grow at 1% this year at best, to explain that away by saying the likes of Spain, Italy, Greece ect are contracting more and Germany may not grow as fast as the UK this year.

But the Euro crisis and the depression in many parts of Europe has gone to the heads of many sections of the British ruling class.  PM David Cameron’s plan to call a referendum on Britain’s membership of the EU in 2017 is mainly to pander to the nationalist prejudices of his party rank and file and cover his backside from losing votes to the nationalist UKIP party.  But it also reflects a growing belief that UK capitalism does not ‘need’ Europe any longer for a market.  Indeed, Europe is more of hindrance and the UK should look to ’emerging markets’, the old ‘Empire’ and the US for markets  now.  This, of course, is a crazy illusion.  But more on that in another post.

There is no escape from the reality that the UK economy is in a depression.  It has not been able to restore its annual output to pre-crisis levels and has little prospect of doing so this year.  Indeed, its performance since the trough of the Great Recession in 2009 has been the worst average growth since the second world war.  The official statistics have just been revised and the UK economy grew by 3.03% a year in the 1950s, peaking at 3.18% in the 1960s before slowing to 2.07% in the 1970s, accelerating back to 3.09% in the 1980s, before expanding by 2.77% in the 1990s and then dropping to a miserable 1.77% in the 2000s, the worst of the post-war decades.   So far, in this decade, the average stands at just 0.8%.

2 Responses to “Britain deep down”

  1. GrahamB Says:

    The fact that UK GDP is still over 3% lower than pre-crisis levels cannot ignore the shift to austerity and fiscal contraction policies with the election of the Coalition government in 2010. Clearer here, comparing the UK to the US:

    http://www.econbrowser.com/archives/2013/01/the_wages_of_au.html

    (This is not to presuppose that it would be significantly different if Labour had won in 2010 and policy is set to change in the US).

    Sometimes the obvious is just that and it’s not invalid because its Keynesians such as Krugman making it.

    I’m not convinced that rising public debt is a burden on private sector profitability – they always say that, fearing higher corporate and wealth tax and interest rates. They have no reason to worry about taxation when it’s being cut and interest rates couldn’t be lower.

    The Keynesians today are generally arguing for crisis management measures that are temporary – like the misnamed ‘return to Keynes’ with state ownership of the banks. A return to mass state ownership of the economy is not on the agenda and would obviously put the fear of God into capitalists.

  2. Matt Says:

    IOW, the UK is finished as a significant capitalist producer on the world market.

    However looking to its old imperial haunts makes sense from a “rentier” investment perspective, even as this second childhood is all America’s crazy old Auntie in the attic can do.

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