UK economy: can it last?

It has been all good news for the UK economy over the last few months, with unemployment falling, inflation subsiding and industrial output growth accelerating (see my post, http://thenextrecession.wordpress.com/2014/06/10/uk-industry-some-predictions-for-2015-onwards-and-a-piketty-review/). Of course, it’s not been good news for the average British household, as real incomes continue to fall, with new jobs concentrated in lower wage sectors and part-time or temporary contracts (often ‘zero hours’) –see my post, http://thenextrecession.wordpress.com/2014/06/11/real-incomes-in-the-uk-still-falling-global-growth-slows/.

But capitalist investors have liked the look of the recovery: house prices have boomed (but mainly in ‘international’ London) and the British pound has strengthened against the euro and the dollar.  But a strong pound and an economy recovering ‘unproductively’ is not a recipe for sustained economic growth in the productive sectors of industry. If the prices of British exports rise because of a strong pound, British manufacturing will be priced out of world markets. And they have not been doing well anyway.

This could explain why Britain’s relatively small manufacturing sector seemed to slow down in May (latest data) after its recent spurt. Manufacturing output is still well below 2008 pre-crash level.

The underlying ‘health’ of British capitalism, at least in its productive sectors, remains frail. The latest quarterly figures (Q1 2014) for the profitability of non-financial companies, just released, although rising from lows in 2013, show that profitability is still well below pre-Great Recession levels.

Indeed, the peak in the 2000s for profitability was in 2007, at 14.2%. But even after the huge credit boom, profitability was below the 1997 peak of 14.5%. The decline from 1997 to a low in the depth of the Great Recession 2009 was 10.9%, down 21%. It’s now just 11.9%, or up 10% from that level. But it is still 18% below 1997.

If we use the long term data provided by the UK’s statistics office, we find that UK non-financial corporate profitability fell sharply in the 1960s to a low in 1975 (the 1970s profitability crisis, then recovered after the worldwide 1974-5 recession, before really taking off in the ‘neoliberal’ Thatcher era. As in the US (and elsewhere), UK profitability peaked in 1997 and has struggled since. Currently profitability is no higher than in the early 1990s and the direction is down, or flat at best.

The story fits more or less the story of profitability and crisis that the data in other countries reveal.

I had a look at the even longer term data for the UK provided by Esteban Maito in his paper, Maito, Esteban – The historical transience of capital. The downward tren in the rate of profit since XIX century.  Maito’s data show that there has been a secular decline in the profitability of British capital since the 1850s (the apex of British imperial superiority).

But Marx’s law of the tendency of the rate of profit to fall does not operate in a straight line. The post-1945 period has been one of inexorable decline. The neoliberal period saw a relative recovery or stabilisation, which has been over since the end of the 1990s, leaving profitability still near its historic low. And the recovery in profitability since the mid-1970s was nothing like that achieved by the Great Depression and a world war. That’s the sort of thing that British capitalism needs to get the trend in profitability to reverse: Depression and war.

I am talking on this subject at the UK SWP’s Marxism Festival in central London this Friday at 3.45pm: http://marxismfestival.org.uk/