TORY POSTERS have started to boast about the state of the British economy, something which would have seemed impossible a year ago. The Guardian editorial of October 10 backs up Tory claims in stating that "Mr Clarke has hardly put a foot wrong in macroeconomic management" since 1992. The truth is a bit different.
Andy Kilmister COMMENTATORS have begun to argue that if Labour wins the next election it will be despite the government's economic success. rather than because of their failure. What is behind all this! Are these simply pre-election slogans, or do they point to something more substantial?
Since 1979 the Tories have tried to do two things with the economy: to Subscribe to raise profits by attacking the working class through high unemployment and an offensive against trade unions, and to enable those profits to be realised by ensuring growth and a stable economic environment. Their central problem has been that, because of the nature of British capitalism, it has been very difficult to achieve these two obiectives to. gether.
The Lawson boom of the 1980s brought some growth, but inflation rose periment with the ERM reduced inflation, but only at the cost of recession.
Clarke is being feted by the media and by the employers because it appears that he has broken this vicious circle. By devaluing the pound and cutting interest rates the Tories have raised growth rates, yet inflation remains low. However, under the surface the old problems remain.
A central issue is the continued weakness of investment In 1995 investment was still I! per cent below the peak level of 1989. Manufacturing investment fell back even further in the first half of this year.
In the early stages of "recovery" weakness in investment was made up for by high export levels. The global linkages of British capital, especially in the USA and Far East, and devaluation, provided advantages in competition with the rest of Europe. But these advantages were temporary. British exports are now just rising in step with world trade growth. In 1995 Britain depended on a record surplus on investment income abroad of €9.6 billion, to avoid an even larger balance of payments deficit That is good news for increasingly mobile multinational firms, growth at home.
With exports slowing and investment weak it is increasingly becoming accepted that any growth will come from consumer spending.
The Financial Times talks of a "twospeed" economy with consumer goods production speeding ahead of manufacturing. But the employers' offensive creates inbuilt limits to this process. With real wages hardly rising any big increase in consumer spending will have to come either from increased debt or from tax cuts.
Debt levels are beginning to rise. But while headline interest rates are low. real interest rates (which take into account inflation) are still at historically high levels. In addition a growing number of elderly people are living off past sayings. Their spending is cut if interest rates fall.
On the other hand the Tories are desperate to cut taxes and fuel a pre-election boom.
The problem here is that, despite cuts in public expenditure, the government budget deficit continues to rise stubbornly because of the massive rise in tax evasion by companies. This was shown dramatically earlier this summer were £6 billion lower than expected.
In the short run then the Tories are in a difficult situation. The National Institute of Economic and Social Research predicts higher growth in the future but comments ruefully that "despite this generalised optimism, there is as yet little evidence that growth is picking up substantially".
In fact the long run outlook is even worse. Poor investment is now affecting productivity growth and manufacturing productivity failed to grow in 1995.
It is true, as Tory ministers never fail to remind us, that growth is lower and unemployment higher elsewhere in Europe at present. But that is not a reflection of British economic success but of the crisis of capitalism in the European Union and the effects of the Maastricht Treaty process.
Perhaps the Tories will engineer a mini-boom just before the election. But the chances of any growth strong enough to affect the result remain much less. And any such boom will simply postpone the re-emergence of the underlying problems of British capitalism, which the Tories are no nearer to solving now than at any point since 1979.