Is the crisis over? (2011)

From the July 2011 issue of the Socialist Standard

“Once a crisis is in full swing, then the argument starts about who is to blame for it. The businessmen blame the abrupt credit refusals by the banks, the speculative mania of the stockbrokers; the stockbrokers blame the industrialists; the industrialists blame the shortage of money, etc. And when business finally picks up again, then the stock exchange and the newspapers note the first signs of improvement with relief, until, at last, hope, peace, and security stop over for a short stay once more. Modern society notes the approach of crisis with horror; it bows its head trembling under the blows coming down as thick as hail; it waits for the end of the ordeal, then lifts its head once more—at first timidly and skeptically; only much later is society almost reassured again.”

These words could have been written yesterday, but are in fact the (slightly edited and paraphrased) words of Rosa Luxemburg, written a century ago, shortly after the crisis of 1907 (What Is Economics by Rosa Luxemburg. See ‘Is The Economic Crisis Over?’ here). The question is, what stage are we at in the crisis that arrived 100 years later? Is society beginning to ‘lift its head once more’ and look toward a future of hope, peace and security? Or should we bow our heads and expect more blows?

Regular readers will have noticed that, in the pages of this journal, we are still talking about crisis as if we’re in the midst of one (and we will be discussing the issue again at our annual summer school in July). Followers of the official story might be confused by this. According to the mainstream account, the crisis, which began with a financial blow-up in America in 2007 and threatened a cataclysm as serious as the Great Depression of the 1930s, was over by the middle of 2010 thanks to the government policy of providing ‘stimulus’ (printed money). As if to consign the experience to the historical memory once and for all before moving on to business as usual, the crisis has even been given a name. It was the ‘Great Recession’. And now, it’s over.

The good news

But is it? The official story says yes. But then, the authors of that story, mainstream economists and representatives of the capitalist class, hardly ever expect crises and are shocked by them when they appear out of the blue. This is despite the fact that there have been major downturns in every decade since the 1820s, and regular financial panics since the 17th century. Given this failure to notice still less predict what is obvious to anyone with the briefest acquaintance with history, we can be forgiven for treating their pronouncements with extreme caution.

Still, the question is a tricky one. Commentators still can’t decide when the Great Depression of the 1930s ended, for example. Was the upturn of 1933 the conclusion of the crisis, and the recession in 1937-8 a separate event, as some argue? Or was the 1933-7 recovery merely an artifact of government spending (‘stimulus’), with the depression ending proper with the start of war production in 1939? Or should even the war production period be seen as a kind of government stimulus, with true, capitalist-based recovery delayed till 1946? To consider this problem is to see that, to some extent, history may be repeating itself.

At the present time, followers of the mainstream press will find confident pronouncements of recovery and positive (or, at least, not too badly negative) news from various economic indicators sitting side by side with accounts of deepening state debt crises, stockmarket slides, soaring inflation, falling wages and standards of living, and battles to impose austerity on the working class (including vast swathes of those who tend to think of themselves as ‘middle class’).

America, for example, the world’s biggest and most important economy, is officially out of recession. Yet manufacturing surveys show that global growth is stuttering and stagnating once again. US growth slowed to an annualised 1.8 percent in the first quarter of the year, down from 3.1 percent in the previous quarter. The housing market is already in ‘double dip’ territory, inflation is on the rise (it could already be as high as 7.4 percent, according to a new index from professors at the Massachusetts Institute of Technology) and wages remain stagnant – average hourly earnings of production and non-supervisory employees, who make up 80 percent of non-government workers, are lower than they were in the depths of the recession, adjusted for inflation, according to Robert Reich, a professor of public policy at the University of California at Berkeley (Robertreich.org). Relative wages have, anyway, been stagnant or falling since the 1970s.

Initial confidence in the rising number of new jobs was squashed by the start of June when it was reported that the rise in the number of jobs was far lower than predicted: just 54,000 jobs were added to the total in May against an expected 165,000, according to the Financial Times, and the unemployment rate ticked up to 9.1 per cent. State debt continues to rise to historically unprecedented levels, which has prompted the credit-ratings agencies Standard & Poors and Moody’s to threaten to downgrade it. At the same time as we hear the crisis blamed on banks’ reluctance to loan businesses money, businesses themselves are hoarding cash – almost $1 trillion of it, according to a report in the Wall Street Journal published at the end of last year. This cash pile is the highest for half a century and “shows the deep caution many companies feel about investing in expansion while the economic recovery remains painfully slow and high unemployment and battered household finances continue to limit consumers’ ability to spend”.

The story is much the same around the world. Certain economies in Asia, particularly China, provide the most obvious apparent exceptions, but the health of these are still, for now at least, partly reliant on the health of the US and other Western economies. Commentators are currently watching China’s booming real-estate sector with particular concern – it is another debt-fuelled ‘success’ story, and a key driver of demand for commodities from other economies. But it is inevitably heading for a big crash, according to Nouriel Roubini, a bourgeois economics professor at New York University whose star rose when he correctly predicted the current crisis.   

Of more immediate concern the eurozone – most particularly Greece, Portugal, Spain and Italy – also remains in deep trouble. For now, all eyes are on Greece. Despite already having agreed a €10bn bail-out package last year, it is now obvious that that was not enough, and the EU, European Central Bank and IMF are having to bail out the bail-out, as The Economist put it. By 2012, Greece was supposed to be well on the road to recovery, but in reality, as austerity reforms stalled and the economy shrank (by 4 percent last year), state debt continued to soar. It’s now near 160 percent of GDP. The consequences of default are currently deemed too dangerous, so other options are being considered, such as lending Greece yet more money, and extending the repayment dates on the debt. But some commentators, including Lex in the Financial Times, think that default is, sooner or later, ‘inevitable’. The European debt crisis, says economics analysts Capital Economics, “may be entering a new and more dangerous phase”. Meanwhile, as in the US, the biggest companies in Europe, not including the major banks, are sitting on £445bn in cash, according to a Bloomberg report at the end of last year.

Britain has been spared some of the worst of the troubles afflicting Europe because it is still in control of its own currency and can therefore engineer some fiscal wriggle-room with low interest rates and money-printing and so on. It has also recently elected a government committed to radical reforms that will impoverish sections of the working class but also, capitalists are hoping, reduce the deficit and restore profitability. But the picture is far from rosy for the capitalists. The British economy grew by only 0.5 percent in the first quarter of this year following a contraction of the same amount in the last quarter of 2010. Household disposable incomes are predicted to fall by 2 percent in real terms this year, and the TUC trade union body has warned that wages – already stagnant over the past 30 years while the economy doubled in size – are likely to trail behind inflation for years to come, putting low and middle-income earners into a “livelihood crisis”. Growth has fallen off in the services sector, house prices continue to slide, retail sales are down, and the Bank of England has been forced to cut its growth forecasts and up its inflation outlook. And with interest rate rises mooted and surely inevitable sooner or later, things can only get worse in the near term. At the same time, as in Europe and America, British companies sit on vast cash hoards as the prospects of profitable investment remain small and risky.

The bad news

There are really two questions here. The first is, is the crisis over in the narrow, technical sense, i.e, is the economy officially out of recession according to conventional definitions and measures? Here the answer is yes, though the shakiness of the recovery is signalled even in the mainstream press by the constant reference to the fear of a ‘double dip’, the return of recession, especially if or when stimulus measures end and austerity measures kick in (dampening effective demand), or both. Luxemburg’s ‘first signs of improvement’ are certainly there, but it’s still way too early to say that society is ‘reassured again’.

The second is whether the crisis is over in a broader sense, and here the answer is, almost certainly not. Take a historical and Marxist view, and it seems clear that we are merely at the start of a major global restructuring.

Apart from a socialist transformation of society, the only solution to the problems of a depression is the depression itself. If capitalism is to return to profitability, unprofitable concerns must be closed, workers laid off, wages suppressed, and capital devalued. This restores profitability and lays the basis for a new round of capitalist prosperity. The trouble is, despite a number of serious recessions and wobbles, capitalism has not had a proper and necessary clearing of the decks since the 1930s.

As the Marxist economist Paul Mattick points out, that depression, and the war that followed it, laid the basis for the ‘Golden Age’ of 1950 to 1973, an ‘economic miracle’ built on the destruction of the war and the corpses of 50 to 60 million people. This period of capitalist prosperity ran into serious trouble in the 1970s, and the result was the stagnation and inflation (‘stagflation’) of that period, a reliance on unprecedented levels of state involvement in the economy, an excess of printed money and soaring debt. The idea was that this debt would be paid back in the good times as depression was averted and capitalist prosperity returned. The reality was that the debt and spending had to continue to rise to subsidise capitalist industry and buy social peace.

Despite the rhetoric and ideological determination, and some major attacks on working class living standards through the 1980s, it has proved impossible to roll back the state and cut spending and debt while keeping capitalism buoyant. The working class seemed to be boosted for a while with the credit card explosion and rising house prices. That prosperity, too, was obviously unsustainable for capitalism, and it ended in 2007.

But could the full force of a depression be delayed with a combination of yet more debt and spending? Governments around the world are betting that it can. But they are also hedging their bets by preparing and implementing austerity measures as it must be obvious, even to them, that the historically unprecedented expansion of state spending and debt cannot go on for ever if capitalism is to survive. Keynes himself famously ignored this problem. “In the long run, we’re all dead,” he said. Over the next decade, we’ll discover what happens in the ‘long run’.

The probability is that previously taken-for-granted entitlements (to education, jobs, retirement, health care, an income during periods of illness, joblessness or disability, and so on) and standards of living will end. There will be continuing struggles both within the capitalist class and between the capitalist and working classes over who is to bear the brunt of the losses. The hegemony of the United States may be challenged in the not too distant future, with potentially catastrophic consequences: bear in mind that it took a world war to completely end the last truly major depression. And the depression, if not rescued by a major war, could be deeply exacerbated by the falling off of cheap and easy oil and energy supplies and the possibility of ecological catastrophe.

Yes, in the long run we’re all dead. But in the short run things are not looking too great either. At an underlying level, this economic crisis is not over. And neither is the increasingly desperate urgency and need for the socialist alternative.

Stuart Watkins

Roosevelt's "New Deal" (1934)

From the June 1934 issue of the Socialist Standard

The whole world has been watching with interest the progress and results of President Roosevelt’s “New Deal,” more correctly described as American capitalism’s strenuous effort to rescue itself from the morass of depression.

After three years of deepening crisis, falling prices and wages, increasing bankruptcies, and unemployment that reached the unheard of total of from 15 to 17 millions, the country was seething with political unrest. The Hoover regime, which had attempted to conjure the depression away by wish-magic and optimism, but had otherwise done practically nothing to alleviate the economic dislocation, was overwhelmed in the democratic landslide of the 1932 elections. Roosevelt and his party swept the country with their attacks on the “criminal inactivity” of the Republicans, and with lavish promises of a New Deal that would bring back “ Prosperity.”

In general, although there is much intertwining of interests in the propertied class the Republican Party stands for big business and the financial interests. The Democrats are the party of the smaller business men and the mass of the farmers. The most voluble, agitated and organised of all those adversely affected by the depression were precisely these latter groups. Millions of small property owners were hopelessly in debt, their savings gone or tied up in closed banks. The farmers’ earnings and standard of life had been declining for years before the crisis which but intensified their problems. Amongst the workers cut after cut in wages, plus mass unemployment and the constant threat of it, had generated a great volume of discontent. This was, however, largely unorganised and inarticulate, notwithstanding sporadic outbursts. All these elements looked to Roosevelt as to a messiah. Emotional tension at the time of the elections was intense and enthusiasm for the victorious “hero” almost universal, even amongst many of the rank and file Republicans.

Immediately after its inauguration in March, 1933, the new Government was granted extraordinary emergency powers by the overwhelmingly Democratic Congress. Then came the passing, almost without criticism, of a series of drastic laws drawn up by Roosevelt and his group of economic advisers which set up a whole battery of new administrative bodies for a concerted attack upon the problems of ”recovery” and “relief.” Of these bodies the Agricultural Adjustment Administration and the National Industrial Recovery Administration (the N.R.A.) are the most important. As we are chiefly concerned with the interests of the industrial workers, it is the N.R.A., and particularly its labour provisions, that we shall mainly consider.

The N.R.A. came into existence in June, 1933. First it established a General or “Blanket” Code of Fair Competition, which all employers were asked to sign and adhere to. A national propaganda campaign, using all means of ballyhoo, mobilised the vast pro-Roosevelt sentiment behind the scheme. By August 1st over 700,000 employers had signed and received the badge of the Blue Eagle. Compulsion was threatened if persuasion failed—a piece of bluff characteristic of many aspects of the New Deal.

The Blanket Code established a maximum working week of from thirty-five to forty hours, minimum wages varying from twelve dollars to fifteen dollars per week, and made certain classes of child labour illegal. Section 7a of the code guaranteed workers the right of collective bargaining through representatives of their own choosing. The N.R.A. further called upon each industry to draw up a code adapted to its own special needs, each code to be in harmony with the Blanket Code and approved in its details by the N.R.A. The following condensed account of the Steel Industries Code is given as a sample:—

  “The Steel Code . . . provided for a trial period of ninety days. At the end of this period the steel companies declared it workable . . . It provided for a forty-hour week of labour averaged over three months, with a maximum for each employee of not more than forty-eight hours in a 6-day week. The right of collective bargaining was conceded. Representatives of the N.R.A. were empowered to inspect the records of the Iron and Steel Institute to obtain full 'information concerning production, shipment, sales and unfilled orders, hours of labour, rates of pay and other conditions of employment,’ in order to stabilise production.” (The World Almanac, 1934.)

To date, over 400 codes have been put into force and it is estimated that about 20 millions of workers or 90 per cent. of those eligible come within their regulations.

A primary feature of the whole “recovery” programme has been the efforts to artificially stimulate a general rise in prices by credit and currency schemes, and by limiting price-cutting and controlling production through the codes. Because the crisis was accompanied by falling prices it has been assumed by almost all capitalists that if only prices could be pushed up “prosperity” would be here again. Yet it is evident that unless rising prices result from a growing demand for goods, the effect must be to curtail sales. This fact is recognised by the recovery administration. Roosevelt and his economist advisers have, for perhaps the first time in the history of capitalist politics, insisted on the need for greater purchasing power amongst the masses if "prosperity" is to be regained and maintained. This attitude is partly, no doubt, a political manoeuvre to attract working class support. It is certainly emphatic enough, and none of the New Dealers have more clearly expressed it than H. A. Wallace, the present Secretary of Agriculture. In his pamphlet, "America Must Choose" reprinted in part in the New York Times, February 25th, 1934, he says:—

   "There can be little doubt that the trouble traces, in whole or in part, to a maldistribution of income. That doctrine is implicit in our New Deal, which seems to me to rest on irresistible logic. We are trying to build up consumption per capita at home as a substitute for new consumers abroad. Our new method involves a planned redistribution of the national income, in contrast with the unplanned redistribution that takes place regularly, usually unhappily, in every major economic crisis the civilised world over. ...
  "Our New Deal seeks to promote consumption more soundly. It directs purchasing power to those in need by wage advances and alleviations of debt. It lessens the need to force exports. It looks toward balancing production with consumption at home."

In considering this aspect of the New Deal it is important to note that the schemes of the administration to raise wages have been timid in the extreme. Compare them with the bold experiments in banking control, crop reduction and business control through the codes. The fixing of minimum wage-rates affects only the lower-paid strata of workers, directly at all events. How higher-paid workers may be affected is well shown by A. Epstein, a writer on reform questions, in ah article, "Is it a New Deal?" (Current History, March, 1934): —

   "Under the new dispensation, many less efficient workers were completely cast out of industry. On the other hand, many of those who were formerly considered cheap and inefficient were discovered to be able to do almost as good work as that formerly done by employees who received more than the minimum wage in the codes.
  "Since the codes did not abolish the employer's right to hire and fire, he was able either to dismiss entirely his most expensive help or to rehire them later at wages more nearly approaching the minimum. The endless possibilities in such reductions were quite unexplored. Even now there is no way of estimating whether or not the meagre accruals in purchasing power of the lowest-paid wage-earners exceed the reductions in the wages of higher-paid employees. There is no conclusive evidence whatsoever that the N.R.A. . . . with its unwieldy mechanisms for enforcement, has actually resulted in increasing labour's total purchasing power. The contrary is more likely to be true."?

Unorganised white-collar workers are especially liable to be affected in the above manner. L. W. Zimmer, in charge of the employment bureau of New York University, reported last October that "The $20 to $22 job is now about a $15 job, because employers tend to keep their wages around the N.R.A. minimum." He added that the number found jobs was not appreciably above that of the same period of the preceding year. (N.Y. Telegram, October 11th, 1934.)

Despite the fact that one of the avowed objects of the N.R.A. is the abolition of "sweating," the minimum wage rates are only about one-half of the figure, $26.77, which in 1932 was declared by the Department of Labour to be a bare subsistence wage for a family of five. It is well known, moreover, that great numbers are receiving less than the minimum. Fear of unemployment and victimisation effectively prevents complaints to the local N.R.A. Similar evasions in hours of labour are widespread.

The actual increase in individual earnings where there has been a growing demand for workers owing to increasing business has been very small. The American Federation of Labour in its annual review of industry for 1933 reports average weekly wage rates in 16 industries as being $20.53 in November, 1932, $20.56 in November, 1933, and $20.83 at the end of January, 1934. Retail food prices, according to Bureau of Labour Statistics, had risen 20 per cent. between April, 1933, and February, 1934, whilst clothing and furnishings had risen 27 per cent. It is thus evident that the average worker’s standard of living and purchasing power was actually declining during the first seven months of the N.R.A.

The attempt to absorb any large proportion of the unemployed by the reduction of hours to 35-40 weekly is futile so long as business continues at a low ebb. So great had been the spread of short time prior to the New Deal, that the average hours worked in June, 1933, were: crude petroleum industry, 42.6 hours; iron and steel, 37.9 hours; soft coal, 28.5. (Monthly Labour Review, August, 1933.) The average over all manufacturing industries for the first five months of 1933 is estimated at 34.7 hours.

It is, moreover, almost certain that with industrial recovery, machinery and speeding up will enable output at the code hours to equal or even surpass that reached with the longer hours of the pre-depression period. It is extremely significant that the makers of machinery are experiencing what is perhaps the sharpest pick-up shown in any industry. The New York Times (September 24th, 1933) reported that makers of machine tools did 400 per cent. more business in August than in the preceding March. This report further says: “The largest call for new equipment comes from textile mills, which are seeking high-speed machinery to replace the obsolete looms they find too expensive to operate under present high production costs. Producers of men’s and women’s garments are also investing freely in machinery capable of producing more goods in the limited working time allowed under the recovery codes. . . . Manufacturers of machinery attribute the present demand for labour-saving machinery to the desire of producers to keep up previous production schedules while remaining within the limits of the working hour provisions of the recovery programme.” Could anything show more clearly the tangle of contradictions in which the N.R.A. is involved, how its provisions are nullified even when obeyed to the letter, by the inescapable trends of capitalist “enterprise” ? It may be added that so great have been the advances in machinery and other means of production during the years of depression that students of the question agree in believing that with industry restored to its high 1929 level of output, 4,000,000 workers would remain unemployed. Only a further expansion of total production would reduce that figure.

Especially significant is the recent decision to close all of the 900 silk mills for one week on account of large unsold stocks. The textile code authorities have given this order, and violators are threatened with legal penalties. Hundreds of thousands of workers will be laid off.

During the first four months of the Roosevelt administration there was a swift improvement in business. This is generally attributed, in part at least, to the endeavour of manufacturers to lay up stocks before the rise in the costs of production which were expected to result from the Roosevelt policies. The New York Times index of business activity registered its lowest point, of 47.9, in March, 1933. (100 is the estimated “ normal,” but this, to-day, is arbitrary, and a return to it would still be under slump conditions.) The index rose rapidly, and momentarily touched 99 in mid-July, one month after N.R.A. was born. Then began a slow decline, reaching 72.5 in early November. Since then there has been a slow, wavering advance to 87.5 on May 5th. As there has been an improvement in business over most of the capitalist world in the past few months, it is doubtful, to say the least, to what extent the N.R.A. has been instrumental in assisting recovery in America.

There has been a moderate reduction in unemployment. The A.F. of L. report for May, 1934, states that unemployment was reduced from its peak of 13.6 millions in March, 1933, to 10.1 millions in October, but that between October, 1933, and March, 1934, 780-thousand had lost their jobs again. Statistics on unemployment in the U.S. are, however, notoriously incomplete and unreliable. The A.F. of L. figures do not take into account agricultural and certain other classes of workers. The estimate of the Alexandra Hamilton Institute, which does take these into account, places the high point of unemployment at 17 millions. The A.F. of L. estimates that the total wages paid per week increased by 23.7 per cent, between March, 1933, and March, 1934.

Let us now look at the way in which the trend to recovery is affecting the capitalists. In the aforementioned A.F. of L. report it is stated that "the first fifty-one companies to report for the first quarter of 1934 showed total profits of $18,740,000, compared with $6,332,000 in 1933. Dividends, the Federation said, were $15,000,000 higher in March. 1934, than in March, 1933.” (New York Times, May 6th, 1934.) This tendency is precisely what one would expect. It is inevitable that, with the upward trend of production, the increase in returns on capital will be more rapid than the increase in income to the workers. Just as the slump in production was due to conditions which forced down the rate of profit, so the expansion of production can only result from conditions which cause the rate of profit to rise. Profit is the sole motive to production under capitalism, N.R.A. or no N.R.A.

It is evident, therefore, that the principle upon which the labour policy of the New Deal is in theory based, that a greater proportion of the national purchasing power must go to the workers, is not materialising, and it is not likely to.

Next month we will consider the N.R.A. and Trade Unionism.

R. W. Housley

Workers’ Socialist Party (U.S.A.)

50 Years Ago: The depression is over (1987)

The 50 Years Ago column from the April 1987 issue of the Socialist Standard

The depression is over and prosperity is here once again. This is the good news discovered by politicians, bankers and captains of industry and passed on to the workers in speeches and articles up and down the country. The Chancellor of the Exchequer. Mr Neville Chamberlain, in a speech at Birmingham on January 29th said that the Midlands are "enjoying a greater prosperity than had ever been known in the history of living people". (The Times. January 30th. 1937.) Mr Colin Campbell. Chairman of the National Provincial Bank. Ltd., in his survey of the country's affairs at the annual meeting of his bank, sees "prosperity firmly based on well-distributed purchasing power". (Economist, January 30th. 1937.) Indeed, the bankers and economists are becoming alarmed at the comparative shortage of skilled labour and consequent ability of the workers to secure wage increases. The question occupying their minds is when the next slump is due to break and whether by any means they or the governments can prevent it.

It need hardly be said that the prosperity which so impresses the spokesmen of the propertied class is the prosperity of that class, hence their view that higher wages due to scarcity of labour is an "evil".

[From an article "This Prosperity", Socialist Standard, April 1937.]

Recovery — Fact or Fiction? (1994)

Cartoon by George Meddemmen.

From the April 1994 issue of the Socialist Standard

In an article in the Socialist Standard last May we described how politicians and media commentators had developed a whole new terminology when describing what in fact was a developing recession.

From Norman Lamont's announcement that "recovery had begun" in June 1991 terms such as "growth recession”, "slowdown in growth", "soft landing" have all been used in the press to describe what we know was the commencement of a major economic slowdown. As conditions worsened we were told that it was going to be "a shallow depression of short duration" in an economy that needed "kick starting".

Recovery under way?

This year, almost in chorus, the press are telling us that recovery is under way here and abroad with one or two qualifications. According to a CBI survey published in the Daily Telegraph (11 January) it is "fragile and patchy". The survey also concludes that "no U.K. region has totally eliminated recession".

The consensus view expressed in the popular press is that the United States is leading the world out of recession, and that a strong recovery is underway in Britain and the emerging economies of south-east Asia.

It is not that long ago that Germany was to be the source of a booming recovery following unification. Prior to this Japan was the "wonder economy" of the Far East. Both these countries are now in deepening recession.

In Germany unemployment is now 9.6 percent of the working population. Volkswagen announced it would bring in a four-day week following losses of £612 million and an 11.4 percent slump in sales in the first nine months of 1993 (Daily Telegraph, 26 November). The level of unemployment of just over four million has prompted comparisons with the Weimar Republic when unemployment touched five million in 1933 and Hitler took power. The prospect of an export-led recovery has not materialized. "According to the Economic Ministry, orders received by Germany Industry fell by 0.8 percent after declining by 0.6 percent in October" (Daily Telegraph, 6 January).

Rising unemployment

With rising unemployment the pressures on the public sector debt has increased. Describing this in an article entitled "Up. up and away", the Financial Times says that

  total overall public sector debt will sail through another Maastricht convergence criteria, topping DM 2000 billion or more than 60 percent of GDP. The last straw has been the addition of East German debts of DM 275 bn to the total.

Private household debt has reached record levels with industrial bankruptcies close behind. "The recession has driven one in two households into debt with 1.5 million families out of a total of 35 million estimated to owe an average of £16,000" (Daily Telegraph, 7 October).

Europe too

France like Germany, has all the features of a deepening depression. Unemployment is 12 percent. Car sales are falling. It too has increasing problems with its welfare budget, resulting in the unemployed having cuts in their dole payments whilst a group of nurses staged a 500 days’ protest outside the Ministry of Social Affairs as a protest at understaffing and poor pay (Financial Times, 24 November).

In Britain, in spite of the optimistic announcement of recovery by politicians and others, the economy is still in a contained depression. This means it has been contained to some extent by public, personal and corporate borrowing as well as relatively low-interest rales. But these factors can only have a transient effect.

Of course it wouldn’t be Spring without the usual optimistic cuckoo noises from the building societies.

The Halifax Building Society has published its Monthly Index of house prices and announced an increase of 2.2 percent in February. If the implication is that this is likely to continue then house prices would rise by 27 percent for the whole year. This is difficult to reconcile with the fact that between one and one and-a-half million owners are living in houses that are worth less than they owe to the banks and building societies. With this amount of debt outstanding and the tax increases in the budget plus the lowering of interest rate relief on mortgages, recovery in this market is unlikely.

Retail sales are often quoted as evidence of recovery. The optimistic forecasts for retail sales have failed to match expectations. The Xmas sales improvements forecast last year have turned out to be a damp squib.

Price war

Overall sales fell by 0.2 percent over the sector. Supermarkets such as Tesco, Sainsbury. ASDA and Safeway are now engaged in a price-cutting war. This sector has often been described as counter cyclical in periods of recession. Sainsbury have even been considered recession-proof and cited as evidence of recovery based on their results. When, however, it announced reductions in the price of 300 basic food items, the fear that this would escalate price-cutting by their rivals led to a fall in the share prices of food retailers including their own (Daily Telegraph, 4 November). The company has subsequently announced forthcoming staff cutbacks.

The United States is now said to be in a recovery of sufficient strength to lead the world out of recession. Whilst it is undeniable that there has been an increase in housing starts as well as an increase in manufacturing and purchase of machinery and equipment, much of this equipment has been cost-cutting which will be lead to idle capacity elsewhere.

The increase in housing starts have been to a large extent due to very low interest and mortgage rates. Non-residential construction has remained flat. Whilst there has been a rise in published GDP statistics there has not been a corresponding rise in living standards commensurate with a sustained recovery. Much of the optimistic projections failed to consider the huge personal debt that still exists in America.

In an article in the Financial Times (4 January) entitled "Locomotive runs out of Puff", Robert Giordano forecasts a slowdown in US economic growth:

  Households will be unable to sustain their consumption binge because it cannot be financed. Outlays have been rising at a 4 percent annual clip since early 1993 while real disposable income growth averaged only 2.5 percent.

Commenting on America’s problems he writes

  foreign trade prospects look bleak despite completion of the Uruguay Round. A deteriorating trade balance has restrained growth and should do so in coming months. 

He also points out that US GDP adjusted for inflation has yet to equal the level achieved in 1988. As in Britain, the deficit has been cushioned by a huge Federal Deficit and by deposit insurance to prevent a financial crisis as in the 1930s. But this cannot continue indefinitely. The outstanding debts have still to be eliminated. The recession in Europe and the trade disputes with Japan does not bode well for US exports.

Economic opinion formers in the rest of the world have been waiting three years for the US to act as the world’s locomotive for growth. It seems that they will have to wait longer yet.

Italy is still plagued with massive public spending problems and political scandals. Unemployment is 11.5 percent. Public spending is equal to 114 percent of GDP at a time of low growth and rising interest rates (Financial Times, 28 February).

Spain, like Italy has political scandals. The banking system was recently shaken by the collapse of the Banesto Bank which had to be bailed out by the Central Bank of Spain after depositors rushed to withdraw their savings. Spain has the highest rate of unemployment in the European Union at 23.1 percent.

Japan, formerly the miracle economy of the 70s and 80s and until recently the largest economy in the world, is moving into deeper recession. The Normura Research Institute has forecast that the economy will shrink by 0.4 percent this year and blamed the expected shrinkage on a continuing fall in corporate earnings and capital spending in coming months (Financial Times 10 December). Three attempts by the government to stimulate the economy along Keynesian lines have not produced a recovery.

Nippon Steel has built a $240 million new steel plant in Nagoya which has yet to open. Steel output in Japan has fallen by 40 percent. As the Wall Street Journal reported in January one of the largest property companies in Japan AZBUV has total debts amounting to twice the value of its assets. According to the Economist (19 February') it will take Japanese banks ten years to clear their debts provided conditions do not worsen further.

Japan is expected to have the highest percentage of people over 65 among the industrial nations by the end of the century. As elsewhere many consumer prices are falling. Unemployment is 2.9 percent but the security of job tenure is becoming impossible to maintain. With production and exports declining Japan is an accident waiting to happen. There can be little doubt that with deflationary recession sweeping Japan there will be repercussions on the rest of the world economy.

Here in Britain the Chancellor of the Exchequer is advised by the Seven Wise Men. They are economists who suggest ways of "managing" the economy. This usually consists of recommendations on interest rates, taxation and the monetary aggregates such as the money supply. However, the Seven do not always agree on the remedial measures to be adopted. One of the most optimistic is Professor Patrick Minford of Liverpool University. He considers that recovery is underway and is being held back by failure to reduce interest rates and lower taxation. Opposing this view is Professor Congdon of Lombard Research who vigorously advocates higher taxes and interest rates to control public spending. The Seven rarely reach a unanimous conclusion. They think that by tinkering around with the monetary aggregates depressions can be smoothed out. Of course they cannot achieve this. If they could it would be possible to prevent these economic upheavals from arising.

Inherent dislocations

They fail to realize that the major dislocations in the capitalist economy are inherent to the capitalist system. The bulk of what passes for economic opinion tends to look at the world economy as if the conditions that have applied since 1945 are the only ones applicable. With the ascendancy of Keynesian economics in the post-war period with massive public spending and money supply growth and with the inevitable consequent inflation, it has been assumed that the Great Depression of the 1930s is something from an economic dark age and which won’t be allowed to happen again.

In interpreting economic events orthodox capitalist economists tend to take short-term trends and project them in linear fashion into the future in the way in which the Halifax Housing Index was used earlier. An increase in production over a three-month period is projected forward as a positive trend. They fail to realize that capitalism is fundamentally chaotic in its movements. The fact of the matter is that we seen to be in an era of falling prices, rising unemployment and financial instability on a global scale. In short, the current economic environment has much more in common with the conditions of the 1930s.

Looking at the economic indicators in the Economist (26 February) of the 15 industrial countries listed 13 have shown year-on-year increases in unemployment. Industrial production has exceeded four percent in only four.

Taken on a global view there is no convincing evidence of an upturn anywhere of sufficient strength to lead to world recovery. The probability that we are entering into another 1930s scenario cannot be dismissed out of hand. The fact that millions of people may consider it too terrible an event to contemplate does not mean it cannot happen. Five years ago many people believed that the housing crash with people thrown out of their houses was something the government would not let happen. Sadly they know otherwise now to the extent of 250,000 repossessions in five years.

The propaganda of strengthening recovery this year is being put out by the same official sources that promised this last year as well as every year back to 1991. They were wrong then so why should their promises of recovery be taken seriously now?

Terry Lawlor

"Bottoming Out"? (1981)

From the August 1981 issue of the Socialist Standard

Is the current slump coming to an end, “bottoming out” as Francis Pym puts it? It is in his opinion, as well as that of the Governor of the Bank of England and Leon Brittan, Chief Secretary to the Treasury.

They could be right because sooner or later the slump will come to an end. As Marx pointed out “permanent crises do not exist”. His study of the workings of capitalism led him to the conclusion that “the life of industry” is “a series of periods of moderate activity, prosperity, over-production, crisis and stagnation” and to speak of “repeated self-perpetuating cycles, whose successive phases embrace years, and always culminate in a general crisis, which is the end of one cycle and the starting-point of another”.

The course of production under capitalism is cyclic: boom-slump-boom-slump-boom-slump. In the long-run the trend is upward but this is by no means a steady, continuous growth; it is a growth by fits and starts so that the graph of production is one of peaks and troughs with, generally (but not always), the last peak higher than the preceding one.

But we don’t have to go back to Marx for this. With the complete discrediting of Keynes in recent years, a little less misunderstanding of how capitalism works has crept back into the universities and even into government circles. Leon Brittan, for instance, told a meeting of the Teeside and District Chamber of Commerce and Industry on 24 April:

  My first answer to the question “How will the recovery come about?” is “naturally, just as day follows night”. The regularity of the business cycle in this and, I suspect, every economy may not be fully explicable, but its existence is undeniable. The Central Statistical Office have analysed it lucidly in their work on the “cyclical indicators”. They tell us that the normal cycle lasts a little over four years; that it begins with an expansionary phase of some 20 months, and ends with a slightly longer period of some 30 months of much slacker activity. Though the timing is not precise to the last month, the rhythm is well established. And, more important, though the extent of the expansion and slow-down differs, there has been no trade cycle since the first world war in which output has not grown significantly in the expansionary phase. So phases of growth are truly a central feature of the natural rhythms of our economy. One would need the most compelling evidence imaginable before believing that we had suddenly departed from that pattern of behaviour.

It is equally true of course that phases of slump are “a central feature of the natural rhythms of our economy”, but Brittan at least recognises that there is a business cycle and that it is “normal” under capitalism. And he is right that a recovery must follow a recession, as night follows day, even if he could be wrong about the timing. For while it is true that sooner or later the present slump will come to an end. there is no way of telling whether this will happen sooner or later. Brittan, as a politician, naturally hopes that it will be sooner. In the case of the Governor of the Bank of England (where Keynesian illusions are still fairly well entrenched), it is probably more an attempt to influence the psychology of businessmen by giving them the impression that things are getting better in the hope that this will get them to begin reinvesting. In other words, trying to talk them out of the crisis in accordance with one of the crack-pot ideas thought up by economists.

Doing Nothing

One of the implications of the view that capitalist production goes through a series of “repeated, self-perpetuating cycles” is that government intervention can do little to influence this—except, as Marx pointed out, to provoke a crisis prematurely, but certainly not to bring about a recovery before it would normally occur anyway. Doing nothing is in fact just as effective, or rather ineffective, as applying the whole range of Keynesian gimmicks. The plain fact is that governments do not control the workings of capitalism and that capitalism will continue to go through the boom-slump-boom-slump cycle in its own time regardless of what they do.

The present Tory government seems to have accepted this fact of capitalist economic life. At any rate it is at the moment behaving as if it had, since, despite the howls from the die-hard Keynesians in the Labour Party and the TUC, it is in effect just sitting back waiting—hoping and praying too, no doubt—for the recession to bottom out naturally.

The reason a slump is sooner or later followed by a boom is that slump conditions themselves create the condition for a recovery: a restoration of profitability. It may seem paradoxical that, as at the moment, there should be increased company profits and rising share prices alongside industrial stagnation and massive unemployment, but this is what happens towards the end of a slump. At the beginning of the slump, just after the crisis, profits are hit but as the slump continues it creates the conditions for a restoration of profit levels.

First of all by leading to a “devaluation” of capital. In other words, to a fall in the value of the total capital on which the rate of profit is calculated, permitting, with the same amount of profit, an increase in the rate of profit. This devaluation of capital does not necessarily mean that it is physically destroyed (though this is an extreme form which occurs in all slumps, including the present one) but that the replacement value of the physical components of capital (machines, factories, stocks) falls. For instance, when a company goes bankrupt its assets are eventually sold, but well below the price at which they were bought. The company which buys these assets now has the same physical assets but, as they have a lesser value, will be able to register a higher rate of profit than the previous owner even if the amount of profit remains the same.

A similar process occurs within firms which don't actually go bankrupt. They are forced to write off part of the value of their assets, so restoring the rate of profit. This process—bankruptcies, closures, take-overs, mergers—has been going on for the last few years and, if the speculations on the Stock Exchange are anything to go by, the stage may have been reached where profit levels have been sufficiently restored for the recovery phase of the economic cycle to begin. Or it may just turn out to be a bump along the bottom.

A second reason why profit levels are sooner or later restored in a slump is that wages fall. The value added in the course of production is divided into profits and wages, so that a fall in wages automatically increases the share of profits. Wages—real wages that is, or what they can buy in relation to the prices of consumer goods—fall in a slump because all the closures and bankruptcies result in an increase in unemployment. An increased number of sellers of labour-power turns the labour market more in favour of employers. As always happens when supply exceeds demand prices tend to fall. The labour market is no exception: with increased unemployment wages, which are the price of the mental and physical energies a worker sells to an employer, tend to fall.

Actually, in this age of chronic inflation, the amount of pounds in the wage packet does not decrease (except through short-time working and less overtime but we are talking about basic wage rates here). What happens is that wages increase less than the prices of other goods. When, in a period of double-figure inflation, trade unions settle for single-figure wage increases—as they are at the moment being obliged by economic circumstances to do—this is, in terms of purchasing power, a wage decrease just as much as the decreases in money wages wages which trade unions were obliged to negotiate in the slump of the 1930s. Then there was no inflation so it was clear straightaway what was going on. The same thing has been happening in the current slump, but because of inflation it is not so obvious. But the economic effect of these wage decreases has been the same: to help restore the rate of profit, a fact which has not escaped the attention of Leon Brittan. He gave as one of the factors making for a recovery:

  The latest wage round is seeing much lower wage settlements and therefore substantial reductions in the growth of pay bills: and we are witnessing dramatic improvements in productivity. These changes should correct part of the loss of competitiveness in many industries, and strengthen profitability.

So when will the slump come to an end? This year, next year, sometime, never? Knowing how anarchical capitalism is we are not going to engage in crystal ball-gazing or sooth-saying like the professional economists and lay down an exact date for the recovery. The recovery stage of the capitalist economic cycle will be reached sooner or later, that is certain, but whether it will come in time for the run-up to the next General Flection in 1983 or 1984, as Madame Thatcher told the Scottish Tories at the end of May that it would, is a different matter altogether. Later could be as late as the end of the 1980s. Capitalism has seen prolonged slumps before.

Adam Buick

Voice From The Back: The Decline Of Religion (2014)

The  Voice From The Back column from the July 2014 issue of the Socialist Standard

The Decline Of Religion

The fall of religious influence is so great that a grass-roots movement in 2009, the Future for Religious Heritage took shape in 2011 as a network of groups from more than 30 countries, dedicated to finding ways to keep churches, synagogues and other religious buildings open, if not for services, then for other uses. ‘Perhaps nowhere is the plight of churches more stark than in the Netherlands, where about 1,000 Catholic churches – about two-thirds of the country – are due to be shut down by 2025, a reorganization forced by a steady drop in attendance, baptisms and weddings. Those were the figures given by Cardinal Willem Eijk, archbishop of Utrecht, in a report delivered to Pope Francis last December’ (New York Times, 2 June). Religion has always been a barrier to socialism so no tears here on learning churches are closing.

National Health Disserve

We have all seen TV hospital dramas where we have applauded the wonderful treatment available to the patients, but this hardly squares up to the reality. For instance, patients who had to spend a night on trolleys at a Glasgow hospital have received letters of apology. ‘Several people at the Victoria Infirmary were left on trolleys on Monday night. ……. A total of 17 planned operations were cancelled and 50 patients were found care home placements to free up beds. The BBC has been told the Victoria Infirmary even ran out of blankets and pillows, after admissions increased by 24%’ (BBC News, 4 June). Of all the shortcomings of capitalism the treatment of sick workers must be one of the worst.

Morals, Money And Swiss Bank Accounts

One of the appeals to many workers of the Roman Catholic Church is that body’s apparent disgust at the financial dishonesty of many aspects of capitalism, but behind this apparent disgust is another story. Pope Francis’s battle to clean up the Vatican’s scandal-mired bank, the Institute of Religious Works (IoR), has entered a new stage, with his removal of the entire board of the Holy City’s financial watchdog. ‘Among the recent scandals, Monsignor Nunzio Scarano, a former senior Vatican accountant who had close ties to the IoR, is currently on trial accused of plotting to smuggle millions of dollars into Italy from Switzerland in order to help rich friends lower their tax bills. Investigators believe he used his two IoR accounts as overseas slush funds’ (Independent, 5 June).

Powerless And Pathetic

Fresh evidence that the government will fail to hit its child goals has emerged in a report showing 3.5 million are expected to be in absolute poverty in Britain in 2020 almost five times as many as the target. ‘The Social Mobility and Child Poverty Commission said the absolute child poverty goal was “simply unattainable” and that this was on course to be the first decade since records began in 1961 not to see a fall in absolute child poverty’ (Guardian, 9 June). Governments like to portray themselves as masters of capitalism, in fact they are but the so-called organisers of a profit motive system that cannot be organised.

Old Nick In The Middle East

Many theories have been put forward to explain the conflicts that have affected the Middle East but his holiness has come up with a different one. The Pope blamed the Devil for the conflict in the Middle East as he hosted the Israeli and Palestinian presidents for a unprecedented “prayer for peace” in the Vatican garden. ‘In remarks prepared for the ceremony Pope Francis said: “More than once we have been on the verge of peace, but the evil one has succeeded in blocking it. It is my hope that this meeting will mark the beginning of a new journey’ (Times, 9 June). All this time socialists have been blaming capitalism for modern wars while his holiness has come up with a much simpler answer.

A Strange Sort Of Recovery

Politicians and the national media proclaim it in banner headlines. Britain is on the road to an economic recovery. The Office for National Statistics said that employment figures had surged by 345,000, the largest quarterly rise since records began in 1971 and drove unemployment down to a five-year low. There is one aspect of this surge in employment figures that politicians are a little less likely to boast about though. ‘However, pay fell below inflation. Average annual wage growth dropped to 0.7 per cent in the three months to April, less than half the 1.8 per cent rate at which prices are rising’ (Times, 12 June). It is an economic recovery for the owning class. More workers to exploit, less unemployment money to fork out – but for the working class it is a drop in real wages.

Recovery—phantom of the economy (1992)

From the May 1992 issue of the Socialist Standard

During the recent general election much time and argument in the media revolved around the current economic recession. The Conservative Party claimed that recovery was under way as a result of government economic policy. The Labour Party claimed that the Tory government had caused the slump due to high interest rates. Kinnock failed to explain, however, why the economic downturn is developing throughout the whole of the industrialised world.

Much of the government-inspired rhetoric put over by the orthodox economists claimed that a consumer-led recovery was imminent. Norman Lamont actually claimed that the recovery had begun last June. The Bank of England in its Quarterly Bulletin claimed last November that “a modest recovery may now have begun" (Daily Telegraph, 15 November). A fall in inflation has been given as a sign that recovery is on the way despite the fact that inflation fell to almost insignificant levels during the slump of the 1930s and that downward pressures on prices are a feature of all recessions.

For many months the public have been subjected to a whole new terminology with the object of convincing them that the recovery is under way. We are now bombarded with terms such as "kick-starting" the economy. The commencement of the present economic downturn was denied and described as a "slowdown in growth". When the facts emerged to indicate otherwise the term "soft landing" replaced the term "recession". As the economy continued to deteriorate, as instanced by increasing numbers of personal and business bankruptcies and housing repossessions, it was conceded that there was a recession but it was argued that it would be a "shallow" one of short duration. Every time the economic indicators fail to indicate recovery the likely date for it is extended by six months.

A consumer-led recovery is a myth. There has never yet been one in economic history. Consumer upturns come last in the economic recovery cycle. The indicators of recovery that one would expect to see are: a rise in commodity metal prices such as copper, lead and aluminium; an increase in machine tool production; an expansion of the construction industry (factories, plant, etc). In the money market long-term interest rates on borrowed money would become higher than short-term rates—at present the reverse is the case, indicating a lack of confidence amongst capitalist investors in the longer-term economic prospects.

Cartoon by Peter Rigg.

A fall in the number of net bankruptcies would be another indication that the slump is ending, but this statistic was removed from the Central Statistical Offices indicators under Mrs Thatcher and replaced by CBI economic forecasts; in other words, the employers’ view of the economy. An increase in job vacancies accompanied by a fall in unemployment are also signs of an economic upturn. Increase in housing starts usually occur some months ahead of a recovery.

It hardly needs emphasising that none of these indicators are at present positive. Unemployment is approaching 3 million. Business and personal bankruptcies have reached record levels according to Dunn & Bradstreet. and around 1200 businesses have failed each week during the first quarter of this year. Despite the budget car sales have failed to increase. Housing repossessions increased to over 70,000 last year compared to 44,000 in 1990 and 12,000 in the mid-80s.

Slumps are inherent in the capitalist mode of production based on the ownership of the means of production by a minority and where the motive for production is profit. The present economic crisis is occurring against a background of a fall in world trade throughout the advanced industrial economies. It is the longest crisis since the Great Depression of the 1930s. In terms of the housing market crisis, in the UK it is even worse than then. People have been conditioned to believe that rising prices are a permanent way of life, forgetting that this has only gone on since 1939 and that prices can come down.

At the same time we are witnessing a massive world-wide credit crunch commensurate with the colossal banking debt overhanging the world economy. This debt has been estimated at over $25 trillion weakening the banks in a way that has also not been seen since the 1930s.

Against this background the arguments of the politicians are irrelevant. It is significant that this potential banking crisis was not touched on in the election debate; neither was the cause of economic crises. Not understanding how capitalism works the politicians are reduced to frantically seeking signs of a visible recovery in place of the phantom one they insist is here but which defies identification.

Terry Lawlor

Editorial: In the Recovery Position? (2014)

Editorial from the June 2014 issue of the Socialist Standard

The newspapers that have been full of talk about the economic crisis since 2008 have all of a sudden decided that an economic recovery is under way. Government statistics show that after falling sharply, GDP in the UK is just about back to where it was before the slump began. Average wage increases have now almost caught up with inflation, after lagging prices for years.  And on an almost daily basis newspapers like the Express and Mail trumpet the recent rises in house prices, rather like a child excitedly waving about a toy they’ve found in the lucky dip.

We’ve been here before of course. This is how all economic recoveries happen. The big fish that dominate things eat the little fish and get even bigger and stronger as a result. Their growing confidence is such they may even try to gobble up other big fish too – we can see this by the recent attempt from US pharmaceutical giant Pfizer to buy AstraZeneca. Both profits and wages start to rise again and so demand for goods and services starts to pick up. And the politicians that had been so obviously impotent to tackle all the pressing issues during the slump claim that it is their unique foresight and mastery of the economy that has brought about the feel-good factor.

In truth, it is very rare for slumps to be caused by politicians and even rarer for them to have any real, discernible impact on a recovery. Ever since its development in the eighteenth and nineteenth centuries the market economy has always suffered periodic crises and slumps, whether under Tory, Liberal, Labour or Coalition governments. Slumps are part of the market’s internal renewal and survival mechanism, right across the world. Far from governments running the market economy, it is – for all intents and purposes – the ups and downs of the economy that fundamentally influences what governments can really do.

George Osborne hasn’t yet been quite as foolish as Gordon Brown was when he claimed Labour had ‘abolished boom and bust’. But he is still foolish enough not to realise that the economic recovery – such as it currently is – will yet again lay the foundations for profit-hungry over-investment during boom times, and an over-expansion of key industries and services in relation to paying demand for them. And linked with this, of course, more unsustainable financial bubbles too as the ‘innovators’, ‘entrepreneurs’ and speculators move in. These classic market forces will all serve to trigger the next slump – and no doubt the rise of yet another gang of political tricksters claiming, against all the evidence of history, that they can fix it.

Cooking the Books: Is Recovery Under Way? (2013)

The Cooking the Books column from the December 2013 issue of the Socialist Standard

If you go by the official statistics the answer will be ‘yes’ since the quarterly figures for GDP (Gross Domestic Product) have shown a slight increase for a number of successive quarters now.

GDP, however, is made up of various elements – government spending, business spending and consumer spending – but it is only business spending that drives the economy, the other two being dependent on it and following the path it takes. So an increase in GDP due to one of the other two elements might not necessarily signify a recovery. So the relevant question is: is business investment increasing?

The government is anxious to play up the figures both to encourage business confidence, i.e. whistling in the dark, and to attribute them to its policies. ‘I have been vindicated on economy, Osborne claims’ was a headline in the (London) Times (9 September) reporting his claim that critics who had advocated a different policy ‘cannot explain why the UK recovery has strengthened rapidly over the last six months.’

We have not been advocates of a different policy (it’s not the job of socialists to advise governments on how to run capitalism) but we can offer another explanation: that is something that has happened independently of government policy and was always eventually going to happen anyway.

Vince Cable, the Business Secretary, has been rather more cautious. According to the (London) Times (11 September), he has spoken of the danger of ‘complacency, generated by a few quarters of economic data’ and said that ‘the beginnings of a recovery will not become meaningful until there is a strong and sustained business investment, which remains well down on pre-crash levels.’ Indeed it is. According to other figures from the Office for National Statistics:

‘From 1997 to 2008 GFCF was between 16 and 17 per cent of GDP. From 2009 onwards, this has fallen to between 14 and 15 per cent.’

GFCF is Gross Fixed Capital Formation which includes capital investment by the government as well as by businesses. Cable is right to point out that this will have to increase before there can be any talk of a recovery beginning.

Socialists accept that sooner or later there will be a recovery of business investment. As Marx pointed out, ‘permanent crises do not exist’ (Theories of Surplus Value, chapter XVII). Any more in fact that there can be a permanent boom. Capitalist production is a never-ending cycle of booms and slumps.

A slump eventually creates the conditions for a recovery of business investment (just as a boom eventually creates the condition for a slump). Stocks are cleared. Some businesses go under and their assets pass cheaply to their rivals (devaluation of capital). Real wages fall under the pressure of increased unemployment. Interest rates go down due to the supply of money-capital exceeding the demand for it.

With the possible exception of there still being room, even a need, for more business failures, these conditions have been met so the scene has been set for a recovery. But there is no telling how long it will take or whether it will be sustained. The slump won’t be over till GDP and business investment reach pre-slump levels and there’s a long way to go before that happens.