Boom Without Bust: John Major dreams again (1994)

From the November 1994 issue of the Socialist Standard

The present phase of the trade cycle in Britain is one of partial recovery and according to the Prime Minister this will stretch into long-term prosperity with recessions consigned to history. Under the headline “Major forecasts boom without bust”, he was reported as saying “Britain is at an historic turning point. This is a broadly based recovery set to last. The overall direction is clear. Britain is on course for long term economic recovery” (Independent, 20 September). Yes, we might say, we’ve heard it all before.

Major’s remarks are not made more convincing by his idea that a prime cause of recessions is inflation. Hence his stated determination to keep it down. “We are going to take no risks whatever with inflation,” he said. But most of the 19th century and early 20th century' were marked by regular boom and bust with no inflation at all. It appears that Major is trying to talk up confidence whilst having little understanding of the causes of boom and slump.

Marx not Major

It is doubtful if Major would ever bother to consider Marxian theory, which is a pity because if he did he would learn a lot. This knowledge wouldn't help him in his job but he would at least be better informed. In fact, present economic trends are entirely predicted by Marxian theory which states that "capitalist production moves through certain periodical cycles. It moves through a state of quiescence, growing animation, prosperity, over-trade, crisis and stagnation". It appears that at present we are in a phase of “growing animation” and, contrary to what Major thinks, this will eventually lead to further crisis and stagnation.

Marx also described the circumstances which generally cause one phase of the cycle to move to the next. For example, during a boom, industry and manufacture work flat out with each enterprise trying to capture as big a share as possible of the markets for its products. Inevitably, in search of further profits, this scramble leads some industries to produce too much for their markets and this leads to unsold stock; output is reduced and workers are sacked. Then, if the cut-backs are deep enough this spreads to other industries and this may cause a downward spiral of decline in which millions of workers become unemployed.

But just as a boom creates the conditions for crisis and recession so does the reverse eventually happen. The conditions of recession bring back the opportunities for renewed profit-making and growth. Many businesses go bankrupt and their stocks and equipment are bought up cheaply. This reduces competition. Those that survive are re-structured with fewer workers working harder for the same or less wages. Prices come down, or rise less quickly, productivity increases, interest rates are lowered and all these factors combine to improve the prospect of profit-making.

After a period of growth in the late 1980s the crisis struck in 1990 and, after two years of decline, the Central Statistical Office dates the trough, or the last low point of the cycle, as April 1992. All this took place under a Tory government so what happened then to their alleged powers to sustain growth? Since 1992 a range of factors which also have got nothing to do with so-called government management have come into play and tended to reverse the downward trend.

Profitability restored

The amount spent on wages and salaries to produce each unit of manufacturing output was 5.3 percent lower in May 1993 compared with May 1992. This was the biggest one year fall since records began in 1970. Output per employee in manufacturing was 5.5 percent higher in June 1994 compared with June 1993 whilst workers average nominal earnings were only 3.75 percent higher over the same period.

Interest rates fell. During 1992/3 base rates fell from 15 percent to 10 percent, then after returning briefly to 15 percent fell down to 6 percent after Britain left the ERM.

Output increased. National output rose by 1.1 percent during the second quarter of 1994 and in May 1994 industrial production was almost back to the pre-recession output of June 1990.

Profits increased in some sections, not least in banking. For instance the Hong Kong and Shanghai Bank, owner of the Midland, paid out less than expected for bad debts during the half-year to June 1994 and increased its profits by almost 25 percent to £1.5 billion. ICI gained half-year pre-tax profits up to June 1994 of £234 million, an increase of 40 percent. Hanson, the industrial conglomerate reported a 26 percent rise in pre-tax profits to £965 million over the same period.

With the unemployment figures discredited because of political manipulation, it is difficult to get an accurate picture but, to date with employed workers producing more and working substantial overtime, industrial growth has not resulted in a proportionate fall in the unemployed. Officially, the present figure is about 2.5 million.

According to governments, when the economy is in recession it is caused by factors which are beyond their control, but then when growth is resumed they claim the credit. They are right only in the first instance. The alternate phases of boom and bust are normal features of the capitalist system which operate both ways in varying degrees according to the circumstances of any given time. The only prospect for workers is that it goes on and on grinding through its cycle of exploitation.

Behind the particular features of boom and bust already mentioned there is a general cause which is the nature of capitalist production itself. In previous societies, what mainly happened was that productive resources were used to their full capacity and what was produced was distributed. Under capitalism goods take the form of commodities for sale on the markets and this means that the distribution of goods is limited to what can be sold and in turn this limits what is produced. The process is chaotic with rival capitalists producing for shifting markets never knowing what the market will buy. For example, in Britain 48 rival car-makers are selling cars and no-one knows what the capacity of that market will be at any given time. They are engaged in a scramble to get the biggest share of whatever is going. It is inevitable that, eventually, too many cars will be produced and it is at this point when things begin to spiral down.

The only way to end the boom-bust cycle is to abolish the capitalist system and replace it with socialism. Instead of the market determining what is produced, the community will decide this as part of caring directly for the needs of all its members. Unemployment, exploitation, profit-making and all, the destructive effects of boom and bust will be impossible. In their place, with production solely for needs, the community will be able to use all its productive resources in line with its policy decisions. This is what socialists mean by democratic control. 

Pieter Lawrence