How far the present Tory — or a future Labour — government is willing, or able, to spend money is a question which is at the heart of every other issue — from education to the NHS. No government, regardless of which economic guru it paid lip service to, has ever intervened to make the capitalist economy run smoothly. As even a cursory look at its own history reveals, the idea that the Labour Party will succeed where every other party in the history of capitalism has failed is an insult to the intelligence of the working class on whose votes the fate of the Labour Party's bid for power depends.
Once upon a time governments believed that they could intervene in the economy to ensure its smooth operation without economic crises, slumps and unemployment. The seminal 1944 White Paper on Employment, issued under the National government of Churchill and Attlee, affirmed that governments should intervene to maintain adequate levels of employment and growth in the post-war period. It was inspired by the doctrines of John Maynard Keynes, the economist who claimed that capitalism could operate without the existence of slumps given correct government intervention and appropriate state expenditure. The Keynesian doctrine led the labour Party to famously state that “if bad trade and general unemployment threatens, this means that total purchasing power has fallen too low. Therefore we should at once increase expenditure, both on consumption and on development, i.e. on both consumer goods and capital goods. We should give people more money and not less, to spend” (Full Employment and Financial Policy). The view that full employment and economic growth were the overriding considerations of government was repeated in the Radcliffe Report of 1959 and publicly by ministers. Today, in the wake of the return of seemingly permanent mass unemployment and severe economic crises, no major political party in Britain (or elsewhere for that matter) still holds to what was termed the‘‘past-war consensus” on government spending, growth and employment.
It was Jim Callaghan, when Prime Minister in the late 1970s, who told the Labour Party conference that the option of governments spending their way out of an economic crisis ‘‘no longer existed” after years of Keynesian intervention failed to stop the reappearance of slump. This was a view enthusiastically endorsed by Mrs Thatcher and her successor, whose aim has been to reduce government expenditure as a way of assisting the economy, instead of selectively increasing it as a stimulus to trade. The current government aim is to reduce government spending to under 40 percent of GNP, a target which they do not look like achieving in the near future or anything like it. In actual fact, despite protestation to the contrary over the last twenty years or so, government spending has been rising as rapidly as ever.
That this is so is not because of any systematic attempt to boost spending to avert unemployment and economic disaster on Keynesian lines, but is precisely because these factors (unemployment, etc.) have been in operation due to the normal workings of the capitalist economy, and the governments of the world have all but given up trying to do anything about them. No government or major party pledges itself to a swift return to what used to be called "full employment" and none is likely to because they realise, implicitly if not explicitly, that the capitalist trade cycle is beyond their control. Furthermore, government expenditure has been rising fast without any conscious reformist action by governments to avert the problems. All governments now do is attempt to clean up the mess left by innumerable market failures and this alone costs them an increasing amount.
Spend, spend, spend
Economics correspondent David Smith has claimed that “public spending, once lifted, is virtually impossible to lower” (Sunday Times, 24 March) and this seems to be confirmed by recent history of the ongoing costs of the inefficient capitalist system and the failures of the market economy keep building up. During the last Labour government, for instance, real government spending rose by 9.4 percent, which was matched by a 9.4 percent rise during the first Thatcher parliament, excluding proceeds from privatisations which are a one-off bonus. Thatcher’s second term, aided by signs of economic recovery, saw the increase in expenditure slow to 7 percent. Between the 1987 General Election and 1992 the increase slowed further to 5.9 percent, but since then with the return of slump government spending has risen by a colossal 11.3 percent in real terms, the biggest rise since the onset of economic crisis under Ted Heath in the early 1970s. The 1992 Conservative Election Manifesto claimed “Our policy is . . . to reduce the share of national income taken by the public sector”, but this has not happened.
This increase in state expenditure in recent decades has caused a massive burden to be placed on the surplus value extracted by the capitalists from the workers, which ,as we have explained on many previous occasions, is in the last analysis the sole source of state finance, whether through taxation or borrowing. As everyone should by now know, the tax burden has continued to rise under the Conservative and government indebtedness is heavy, the Public Sector Borrowing Requirement being £32 billion at present even though the slump “officially” ended three years ago (this in turn is one of the factors behind the still historically high real rates of interest being charged in the financial system).
The only conceivable way this huge burden of government expenditure is going to be cut back, easing the pressure on surplus value, is for there to be an unusually strong period of economic growth. This what all the parties — especially Labour — are banking on after the next general election. But is it a realistic prospect?
Road to nowhere
It seems that even many of the capitalists and their representatives doubt this. A recent report from the Directorate-General of Economic and Social Affairs of the European Commission is a good example. It suggests that even on an optimistic basis, a growth rate of 3.3 percent annually across the European Union is needed if there is to be “a serious contribution” to reducing unemployment and reliance on state benefits, the biggest factor in state expenditure rises. But over the past five years the growth rate has been only 1.6 percent. The average annual growth rate since 1973 has actually been little more than 2 percent, rising in booms and falling in slumps, with a general downward trend since the previous period.
The plans of the European Union for “an optimal growth path” were last met at times during the period 1950-73 after which there was a break in growth and labour productivity, rises in real interest rates and soaring unemployment as the crisis began to bite. And yet the report accounts for this by suggesting that “in secular terms the 1950-60 period was an exceptionally favourable period of reconstruction and catching up in Europe and was thus not likely to last forever . . . " That the EU growth and employment plans were last met during, and in the aftermath of, an “exceptional period” characterised by post-war reconstruction really says all there needs to be said on the matter.
The European Union still intends, however, to implement measures at the bloc level to attract employment and stimulate growth. These include reforms in the hours of working (notoriously difficult to implement and likely to be successfully resisted for their own good reasons by the capitalist class), minor changes in tax laws relating to the labour supply, and what the Commission calls “the widening of wage-cost distribution”, encouraging workers to take lower-paid jobs, if necessary subsidising them do so. This latter proposal would, as the report admits, “have a high budget cost” and could not be guaranteed to solve the problem. Interestingly, the report also adds that any measures taken should also act “to safeguard the existing human capital of the unemployed in order to prevent social exclusion and to maintain social cohesion”.
Afraid of the consequences should they not, it is quite clear that the EU, its member states and capitalist political parties are incapable of restoring the levels of growth characterised by the post-war reconstruction. The situation in Britain is typical. Labour and the Conservatives are vacuous political entities now even by reformist standards. In the face of mass unemployment, burgeoning debt, rising taxation, expenditure and burdens on profit, they have nowhere to run. They have no solutions other than to pray that the miracle of economic growth may somehow descend from the heavens to save them. All the indications, even from their own economists, is that it is a pious hope indeed barring capitalism’s own particular solution, the barbarism of world war and “reconstruction”.
Dave Perrin
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