Which major economy has performed the worst since 2007?

Who gets the prize?  It’s Italy, the ninth largest economy in the world.  Italy’s real GDP in Q3 2103 was some 9% below where it was at the end of 2007.  And the next worst is the UK, now 1.3% down (Q4 2013).  But which country’s workers have suffered the most in lost incomes and jobs since 2007?  The prize goes to the UK, the 6th largest, with a combined loss of over 7%.

The UK’s Office for National Statistics (ONS) has just published data on the impact of the Great Recession on the major capitalist economies and the degree of recovery in their economies since the end of the GR in 2009.  It is very revealing about which major economy was hit the most and which has made the best or worst recovery, along with prospects for sustainable growth to the end of this decade.


What the comparative data show is that real GDP in the UK underwent the joint-second largest contraction of the G7 economies during the 2008-09 economic downturn.  Following the global financial shock, GDP in the UK fell by 7.2% between Q1 2008 and Q2 2009; this was the joint-second largest peak-to-trough fall  among G7 economies.  This is bigger than the fall in GDP in the G7 economies on average and bigger than in the European Union.

Peak to trough

I think this confirms my forecast back in 2005 that if world capitalism went into a slump that the UK would suffer more than most because it was, more than any other, a rentier economy, i.e. its prosperity depended on its importance as a global financial centre where it could extract rent, interest and dividends out of the surplus value created by other economies.  In the global financial crash, such economies were likely to take a bigger hit that those with a more productive base.

The drop in real GDP was even greater in Japan, which is not a rentier economy like the UK.  But this was because Japan, of all the G7 top capitalist economies, is dependent on world trade, which took an almighty plunge in 2009.  That other major trading economy, Germany, also dropped sharply, but by not as much as the UK.  And the US, with a relatively small trade component in its GDP and not quite so dependent on its financial services sector, fell less, even though the world financial crash began there.

In the recovery period, the UK’s growth in the period following the recession has been slower than in other major economies.  Average growth in the UK has also been slightly lower than that of the OECD total.  Only Italy has been worse. Indeed, Italy has just stagnated at the level it reached in the trough of the GR.  It is clearly the weakest of the top ten capitalist economies in the world.  For more on Italy, see my post, https://thenextrecession.wordpress.com/2012/12/10/an-italian-job-and-a-greek-tragedy/.

Peak to now

In most G7 economies – apart from Italy and France – the employment rate was around 70% of the workforce prior to the 2008-09 economic downturn.  The UK’s employment rate was one of the highest among G7 economies, standing at 71.8% in Q4 2007.  It then fell to 69.4% by Q4 2011, but has since increased to 70.6% in Q2 2013.  This pattern of a fall in the employment rate by Q4 2009, followed by a gradual increase, is common to Canada, France, Japan and the US among the G7.

The largest employment rate percentage point fall in the G7 between Q4 2007 and Q4 2009 was experienced by the US (5 points), followed by Canada (2.4 points) and the UK (2.2 points).  Germany actually experienced a rise in its employment rate between 2007 and 2009, and its rate of 73.3% in Q2 2013 was the highest in the G7.  The US in contrast has suffered a fall of more than 4 points over the period since 2007. Employment rates have increased since 2009 in all G7 economies apart from Italy. Of the five G7 economies with employment rates of around 70% pre-downturn, the US is the only one whose rate remains below 70%.

Most striking is what has happened to average real wages since the beginning of the crisis at end-2007.  In the UK, real wages have fallen by a cumulative 6.1% – the biggest fall in the G7.  At the same time, real wage growth was mainly positive for Canada (4%), France (2.8%) and Germany (3.1%).

If we combine the change in employment with the change in real wages, it reveals just where the pain for working people has been felt.


On this measure, British workers have suffered the most in the last five years, with a cumulative fall of 7.3% points, mainly from a decline in wages, but also from a fall in employment.  This contrasts with the US, where the cumulative fall of 4.5% has been almost totally due to a fall in employment and hardly any change in real wages.  It seems, as has been documented before, that American capitalists have tried to reduce costs in the GR by sacking employees, while the British companies have kept their workforce on but stopped any wage increases.  Also, the rate of inflation in the UK has been much higher than elsewhere.  Workers have got some nominal wage rises, but price increases have more than eaten into that.  In the case of Germany, both employment and real wages have risen since 2007 – for the reasons for that, see my post, https://thenextrecession.wordpress.com/2013/09/22/german-capitalism-a-success-story/

The UK’s Institute of Fiscal Studies has provided yet more confirmation of the hit to average incomes in the UK.   The Institute for Fiscal Studies (IFS) calculates that a mid-range household’s income between 2013 and 2014 was 6% below its pre-crisis peak. This was felt equally across high and low income groups when the cost of living was taken into account. But those on low incomes could feel the squeeze more in the coming years. This was the result of future cuts to benefits and tax credits, the IFS said.

Rising food and energy prices, which formed a bigger proportion of the spending of poorer households, had risen faster than the average cost of living measured by inflation.  The IFS said that inflation between 2008 and 2013 was 20%, while energy prices rose by 60% and food prices were up by 30% over the same period. “Looking forward, there is little reason to expect a strong recovery in living standards over the next few years….Given this, it seems highly unlikely that living standards will recover their pre-crisis levels by 2015 to 2016.”

Chart comparing earnings and inflation

The capitalist mode of production is for profit.  Getting profitability back up in a major slump requires cutting costs (laying off labour, reducing wages and stopping new investment).  American capitalists have resorted to straight reductions in the labour force rather than the backdoor trick of reducing real wages, as in the UK.  Either way, working people pay for correcting the failure of capitalist production. The ‘British solution’, however, will also delay the recovery and the push its capitalist sector into a lower medium-term growth rate.  That’s because the growth in productivity (output per employee) will stop if the labour force is not sacked and there is no new investment in technology to raise output per person

The ONS data reveal that the UK has displayed a sharp break from its pre-crisis trend, with a significant fall in productivity during 2008 and 2009, and little subsequent recovery.  UK productivity increased on average by 2.2% annually between 2000 and 2007, but fell at an annual average rate of 0.6% from 2008 onwards.  This does not bode well for future long-term growth and employment in the UK.


In contrast, the US has largely maintained its strong productivity growth performance throughout the financial crisis and its aftermath – as a result of laying off workers and making the remainder work harder.  In the US, productivity grew by 1.9% between 2007 and 2009, whereas it fell by between 2.0% and 5.3% in the remaining G7 countries, and by 5.0% in the UK.  Apart from Italy, the UK has experienced the weakest recovery in productivity between 2009 and 2012.

7 thoughts on “Which major economy has performed the worst since 2007?

  1. I think it’s in volume 1 of Capital that Marx says that, in every crisis, there comes a point where the capitalists must attempt to drive the wages below the laborers cost of reproducing their labor-power– hence the growth of the working poor in the US (and other advanced countries), temporary jobs, “mini-jobs” etc.

    1. yup. but just like automation, it’s a double-edged sword, and a short term one. the only solution they have for the crisis is by destruction of productive forces(aka war) and the creation of new technologies(aka new innovation and introduction of new technologies).

  2. The destruction of capital (productive forces) is not always, and not even usually by war. They are usually destroyed by devaluation (not monetary).
    Matters have now reached the point that in order to restore capitalism to “health” what is needed is bankruptcy (not necessarily in the legal sense) of at least one major economy – perhaps one of the G7 and/or at least one immense company
    It should be remembered that capitalist growth restarted BEFORE WWII, not as a result of physical destruction, but as a result of state capitalist rearmament

    1. “It should be remembered that capitalist growth restarted BEFORE WWII, not as a result of physical destruction, but as a result of state capitalist rearmament”
      so you agree with me that the war(world war II) paved the way out of the depression. the capitalist can also lower wages(or devalue, it has the same effect), but that’s a short term solution(until the fascist come…). the other thing they can do is to expend to different markets(again, by violent means), but globalization has already reached all corners of the globe, so we are left with war. the capitalists want to channel the rage into nationalist rage.

      1. “so you agree with me that the war(world war II) paved the way out of the depression. the capitalist can also lower wages(or devalue, it has the same effect), but that’s a short term solution(until the fascist come…). the other thing they can do is to expend to different markets(again, by violent means), but globalization has already reached all corners of the globe, so we are left with war. the capitalists want to channel the rage into nationalist rag”

        The point is that it wasn’t the physical destruction in WWII that kickstarted the economy, but the intervention by states to create an arms economy.
        You also make the mistake of assuming that recessions/depressions are the result of a lack of markets, but that’s not the cause at all.
        There are several ways out out economic crisis for capitalists – lowering wages is, as you said, one, but another is increasing the rate of exploitation.
        The most important one is the destruction of value (not physical destruction) but massive bankruptcies, on a scale we have never seen.
        Certainly nationalism comes to the fore in an economic crisis, but it is a mistake to think that is the only response of the ruling class – at the moment, for example, it is clear that the most important capitalists are actually in favour of a continued and intensifed INTERNATIONALISED economy

  3. Can anyone point to, in the 20th or 21st centuries, a “massive destruction of value” or massive bankruptcies that don’t, sooner or later involve actual physical destruction?

    One point about capital, and Marx’s critique, is kind of that the physical existence of the object, and its social relation as a value are, in capitalism, inseparable, for better and for worse, in sickness and in health.

    We can talk about distress sales, and the benefit that has to particular capitals and particular capitalists, but systemically, capital doesn’t obliterate value without obliterating the physical “carrier” of that value.

    When farmers dump milk into the gutters, are they “destroying value” or destroying the physical usefulness of the milk? Both, right? Well, farmers are capitalists. Capital does not do to one, value, without doing to its reflected opposite– use value.

    It cannot create value without use value; it cannot destroy value without destroying the use value.

    When GM closed its Tarrytown, NY plant, whatt happened to the hardware inside that plant? What GM wanted to strip it stripped. The rest– was scrapped, literally. As were the buildings, literally, demolished and sold for scrap.

    And the land? You guessed it. Condominiums. I’ve seen the future and you need a picture ID to get through the gate.

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