internationally outside Europe. This has led some orthodox economists to predict that the days of booms and slumps, in both the UK and USA, are over and that capitalism can now look forward indefinitely to steady expansion. Blair and Brown know that is not the case. The conditions which have underpinned growth in recent years are changing rapidly. With spare productive capacity now largely used up and unemployment somewhat lower further growth may well lead to inflation. At the same time the Asian crisis is likely to reduce world economic activity, and British firms are among the more vulnerable here as big investors in the region. The government's strategy is centred around trying to prolong the upswing and avoid a crash, while limiting inflation.
Brown's budget is important to this process. The key element of the budget, the Working Families Tax Credit, is a highly reactionary instrument, which is effectively a massive subsidy to low paying employers.
It extends and reinforces the principle of "Family Credit" -that bosses need not pay decent wages because the state will foot the bill. In this way the hope is that the size of the potential labour force will expand reducing wage pressure, and that unemployment will continue to fall even though investment is low and most jobs being created are low skilled and low paid.
Not content with simply accepting that British employers pay low wages, Brown is also actively encouraging them to do so by removing the employers' contribution to National Insurance for the low paid.
This is financed by increased contributions for those paying higher wages, which they will surely attempt to pass on to workers.
Low-paid jobs
These measures are not simply accidental. They are based on a strategy which sees continuing growth as dependent on creating large numbers of poorly paid. jobs, and forcing the unemployed into them. This provides profits in production, while the state subsidy creates enough demand for these profits to be realised.
This is not an original strategy, it is the basis for much of the growth over the last decade in the USA. American unemployment is relatively low but real wages have fallen and inequality is at record levels.
Tust as in the United States a low minimum wage is an essential part of this approach. Big capitalists baulk at seeing unlimited state acceptance of very low wages which are predominantly in smaller companies. The minimum wage provides a 'ceiling' to the amount of tax credits which the state pays out.
But the strategy is based on the minimum wage being low, as in the USA, and we can expect to see this as a major area of conflict over the next year.
Brown's generosity to business does not stop with the labour market. Corporation tax, already the lowest in Western Europe, is to be cut even further.
Modest rises in spending on areas like health and child benefit are only a fraction of the amount the government is paying back in record debt repay. ments and appears to be saving for future tax cuts.
How successful is this strategy likely to be? It is here that Marxist theories of crisis can help in understanding the constraints facing the British economy. Two competing explanations of crises in the Marxist tradition are "underconsumptionism" and the "profit-squeeze" approach. Both of these have elements which can be applied to Britain today.
Underconsumptionism sees the root of crises as being in a lack of demand caused by the constant pressure to keep wages low under capitalism. The profit-squeeze approach, on the other hand, sees crises as resulting from higher wages and input prices which eat into profits when the economy booms and the level of class struggle rises. In reality neither of these approaches captures all aspects of capitalist crises. Rather they are each appropriate to different phases of the business cycle. The underconsumptionist approach relates to the difficulties capitalism faces in restarting growth after a slump, while the profit-squeeze approach deals with the difficulties which occur at the break-up of a boom.
Headed for crisis
Brown's strategy can be seen as an attempt to avoid both of these potential causes of crisis; to provide demand while keeping costs low and profits high. But in doing so he appears to be leading the British economy towards a third kind of variant of crisis from the Marxist tradition. "Disproportionality" theories see the roots of crises as lying in an imbalance between the production of consumption and investment goods (in Marx's terminologý Department 1 and Department 2 of production).
Continued stable growth depends, as Marx shows in volmore, worsening the disproportion. Higher interest rates are also relatively ineffective in limiting consumer demand, since there are a large number of consumers who are savers rather than borrowers, especially elderly people. Their incomes rise if interest rates go up. Not only do interest rates lower investment, they also push up the value of the pound. This again worsens the disproportion as manufacturing industry is hit, while services, which are still traded less across borders, continue to grow.
This effect is especially serious because there are strong pressures apart from interest rates which are pushing the pound up at present.
Chief among these is European Monetary Union. The pound has become a favoured currency for international speculators who do not yet trust the Euro and prefer to hold their money in a currency which doesn't plan to join the single currency in the first Over the last five years the experience of the Swiss economy has made it clear what effect this can have, as currency traders have pushed the franc high and the country into long-term recesFundamentals Capitalism remains a crisis-ridden system, and British capitalism has not solved its fundamental problems. The growth of the last six years has lasted longer than most expected.
But it will not last forever and may now be beginning to reach its limits. Brown and Blair are hoping that by reshaping the labour market they can push those limits further and further into the future.
But the measures they are taking to do this are creating imbalances and pressures which are likely to make any crisis that does occur even more damaging. When this does happen, the ideas of Marx will be invaluable in helping us to understand the conflicts facing British capitalism.
xiste :hap: mmm sse "plu