Labour Shadow Chancellor John McDonnell is apparently going around repeating the mantra ‘Investment, investment, investment’ as the solution to the woes of British capitalism. Labour activist Michael Burke wrote justifying this in Ken Livingstone’s online Socialist Economic Bulletin on 25 February.
He started off well enough:
‘… contrary to George Osborne (and those on the left who are confused and echo him) it is not possible for consumption, or wages to lead economy recovery.’
This is very true. What drives capitalism is not satisfying consumption, not even paying consumption, but investing capital with a view to profit. Only an increase in such investment can lead capitalism out of a slump. Burke is criticising here a wide section of the left, including the TUC which a year ago last October organised a march on the theme of ‘Britain Needs A Pay Rise’ arguing that ‘getting money into people’s pockets is essential to securing a strong economy.’
Burke’s argument is that the current problem of British capitalism (for that is his concern) is a fall and stagnation in productivity. This, as output per hour worked, is measured by an index of total national output divided by an index of total hours worked.
Normally it goes slowly up as output increases faster than hours worked due to workers producing more in the same period of time. But it can also go down. An obvious reason for this would be if output increases less than hours worked.
There are other reasons why productivity might fall, to do with the way it is calculated, which Burke mentions, such as ‘the changing composition of output, with the decline of relatively high productivity sectors and the increase of low productivity ones.’ He rejects these as an explanation of the current ‘productivity problem’ of British capitalism, arguing that it is due to output not having risen fast enough. Others attribute it to hours worked not falling enough as employers were not ruthless enough in sacking workers during the slump, preferring to hang on to them while waiting for the recovery.
Output has been rising recently but, Burke argues, not fast enough to increase productivity because productive capacity (i.e., the capacity to produce output) has fallen. He understands capitalism enough to realise why this happens:
‘ … all capitalist economies are determined by the realisation of profit … Profit is the raison d’être. As a result, if profits are declining, or by scrapping unprofitable plant or machinery profits will increase, it is quite usual for productive capacity to be scrapped.’
He notes that this has been happening:
‘In the UK productive capacity is being scrapped. This is not because there is no unsatisfied demand in the UK economy. On the contrary, there is both a scarcity of necessities, such as housing and healthcare and other areas, as well as a large trade deficit. The productive capacity is being scrapped because its owners cannot make profits, or do not anticipate sufficient profits in a situation of growing competition and sluggish growth in consumption …’
Again, true enough. But he thinks this can be remedied by the state investing to increase productive capacity leading to an increase in output, so getting productivity to go on rising again.
That’s the theory but (quite apart from where the state is going to get the money to invest) there’s a flaw. If private capitalist firms are not investing because they ‘do not anticipate sufficient profits in a situation of growing competition’, the state investing in their place won’t change this. The investment would still be unprofitable and so be no more sustainable than the increase in consumption he criticises others on the left for advocating. It is only profitable investment that can lead the capitalist economy out of a slump, and profits are not something that the state can conjure up.
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