There have been two main pieces of economic news in Britain in the last fortnight; the budget and the rising value of the pound. Commentators have tended to treat these separately, but in reality they are closely linked and both arise from the particular position of British capitalism at present. Marxism can help to explain this linkage and point to likely future developments for the UK There are two central economic problems for the British employers. Firstly, there is the problem of extracting profits through the process of production, both by keeping wages as low as possible and by increasing the intensity of work. Secondly, there is the problem of realising those profits by selling goods and services in the market. This requires a stable economic environment and is thrown into danger by booms, slumps and crises.
The continuing weakness of British capitalism has been its inability to solve both these problems simultaneously. The strategies adopted to try and raise the level of exploitation in production, particularly wage cuts, have not allowed for stable economic growth. When growth has occurred it has been through inflationary booms which have threatened to undercut the conditions for profitability in production.
High profits
The last six years have, however, seen the British economy temporarily appearing to provide high profits and continuing growth. This has been based on the weakness of the labour movement both in struggles over wages and new management techniques, the devaluation in 1992, and relatively fast growth Anti-Euro protest. Brown boasted that the British economy now meets the Maastricht criteria: but the advent of the single European currency is already pushing up the value of the pound and undermining his balancing act. E that enough investment goods are produced to make the consumer goods which are in demand and enough consumer goods are produced to feed, clothe and provide for the workers in both sectors.
What is happening in Britain today is a growing imbalance between these sectors, such that some orthodox commentators have begun to speak of a 'dual economy'. Consumer expenditure is growing fast, but Brown's low wage economy provides no stimulus to investment.
Even if labour costs are held down, the shortage of productive capacity is likely to feed through into higher inflation before too long.
Interest rates
The government's response to this has been to rely on higher interest rates and the Bank of England to keep prices under control. But by raising interest rates investment is cut back even