In my last post,
(https://thenextrecession.wordpress.com/2013/09/07/autumn-pick-up/), I pointed out that US employment growth was still pretty weak and was concentrated in low-paid sectors and part-time work or casual (so-called zero hours) contracts., while long-term unemployment remained at record highs. This week, the UK unemployment figures for August were released and were heralded by the Conservative-led coalition government as yet another sign that the UK economy was now starting to establish a significant and sustained recovery. UK unemployment is now below 2.5 million and the headline unemployment rate fell to 7.7%, for the first time below the level at which the coalition took office in 2010. Employment is at record levels, although this is mainly due to an increasing workforce (immigration being a big factor here).
But beneath these headline figures, the story is not so rosy (see Russell Lynch, Evening Standard, 12 September). If you add part-time workers who want full-time jobs plus those in temporary positions who want permanent work to the officially unemployed, the UK, as well as the number of economically inactive people who say they want work but are not seeking it (if they were, they would be classed as unemployed), then the UK has an under-employment rate of 21%, slightly higher than the 20.8% seen when the coalition government took office and well above the 15.8% seen at the start of the recession in 2008. The number of part-time workers unable to find full-time work is up nearly 400,000 in the past three years. The number of temporary workers looking for permanent roles is up 100,000. And, as in the US, there are huge numbers of long-term unemployed. There are 891,000 out of work for 12 months or more between May and July, 36.1% of total unemployed, close to its highest level since 1997. And youth unemployment has risen by more than 30,000 to 960,000 while long-term youth employment is up by a third to 277,000.
As a result of this underemployment, average real wages (after inflation) in the UK have taken the biggest plunge since the 1920s, according to the Bank of England.
So the statements of Osborne that the economy has moved “out of intensive care” and is “turning the corner” are really so much poppycock. Take the latest data on UK industrial output. It was completely flat in July, while as exports to non-EU countries (the key area for export growth) fell by over 16%, the largest monthly decline since January 2009. Nevertheless, Osborne now claims that the government’s apparent sticking to fiscal austerity and government spending cuts despite opposition from Keynesians and others has proved to be right. “In my view the last few months have decisively ended this controversy. Those in favour of a Plan B have lost the argument,” he said.“The pace of fiscal consolidation has not changed, government spending cuts have continued as planned and yet growth has accelerated and many of the leading economic indicators show activity rising faster than at any time since the 1990s.”
Osborne refers to ‘economic indicators’ of business opinion, like PMIs (see my last post), but not to actual activity, He can hardly crow that a pick-up in real GDP of just 0.6% last quarter constitutes a boom and a vindication of austerity. Indeed, as Michael Burke points out in an excellent post (http://socialisteconomicbulletin.blogspot.co.uk/2013/09/did-austerity-lead-to-recovery-no-it.html), the UK economy has expanded by just 1.8% in the three years of the government’s austerity programme, less than one-quarter of previous trend growth. I would add, that even if we take out the fall in North Sea oil and gas production, the average annual growth rate in the UK over the past four years has been just 1.3%. That compares with the credit and property-fuelled annual growth of 3.3% in the decade before the financial crash and a longer-term trend growth rate of around 2.5%. The overall UK economy is still 3.3% below its 2008 peak, some five years on.
Ironically, as Burke exposes, real GDP growth to date is entirely a function of increased government spending! Total government current spending barely changed from the time the coalition took office to the end of 2011. However, from the 4th quarter of 2011 to the 2nd quarter of 2013, government current spending rose by an annualised £15.1bn. while the rise in aggregate GDP over the same period was just £14.8bn. So the rise in government spending accounted for the entire expansion over the same period (as investment and net exports contracted).
As I (and Michael Burke) have argued before
(https://thenextrecession.wordpress.com/2013/07/27/uk-returns-to-growth-but-what-about-investment/), the slump of 2008-9 was driven by a collapse in capitalist investment and until there are signs that this is rising sufficiently to contribute to GDP growth, capitalism in the US and the UK cannot really be considered to moving back to growth rates seen before the Great Recession. And that is not happening. Even worse, as Burke points out, what the UK government (like the Obama administration) has slashed is public sector investment, which just compounds the collapse in capitalist sector.
In my view, investment is driven by profits, and in particular, the profitability of new investment in UK industry and services, as opposed to buying up financial assets or investing abroad. And here lies a conundrum: if profits are up so much (at least in the US), why is investment not rising as well? It is a question that I have dealt with before in this blog. I shall return to it in the next post.