THE LABOUR leadership may be satis. fied with the Tories' massive political defeat on May 1. But the underlying economic problems of British capitalism, which in large measure led to that defeat, remain as acute as ever. Labour in office is no more likely to resolve them than the Tories.
The issues confronting Blair, and Brown cover both immediate problems and long run questions. In the short term inflation finally appears to be beginning to rise quite sharply. largely as a result of the mini-boom engineered by the Tories for clectoral purposes.
The financial markets know this and are expecting interest rates to rise quickly. This has meant that speculative money has poured into the British currency markets this year driving the value of the pound up. Interestingly, exactly the same is happening to the dollar.
Caught elther way
This means that the government is caught either way - if they raise rates they risk killing off what is still a weak and patchy recovery, if they don't British exports will be harmed by the high value of the pound.
Looking a bit further into the future the central issue is the public sector deficit and the Maastricht spending criteria. Kenneth Clarke has claimed that Britain will meet these targets casily.
Tory figures show the deficit at about the target level of 3 per cent of GDP this year, and falling to around 1.4 per cent next year. But this is highly misicading. The Tory plans are based on highly optimistic assumptions about growth, about tax receipts (especially cutting lown on corporate tax avoidance) and on sayage public expenditure cuts in the next few To take just one example, while NHS spending has been rising at the (still inadequate) rate of 3 per cent in the last two years Clarke's budget projects annual rises of only 0.5 per cent a year in the next two annual rounds.
Economists are generally agreed that to have a budget deficit of around £25 billion four years after the low point of a recession indi. cates serious long-run problems. At the corresponding point of the business cycle in the late A 68-page pamphlet giving a comprehensive review of the impact of the Tory years on the trade union movement and a perspective for the left in the 1990s.
£2 including post and packing From Socialist Outlook, Po Box 1109, London N4 2UU Kenneth Clarke assures us that the economy is a "good runner": do you bellere him? 1980s the Tories actually managed to run a budget surpias.
The National Institute of Economic and Social Research has called for cutting E15 to E20 billion off the deficit. This would either mean a much more determined assault on low com. pany taxation (not just cutting down on avoid. ance but raising taxes) and on the tax privileges of the rich than Blair is prepared to contemplate.
wine It is much more likely that Blair will sanction deep cuts in public expenditure and welfare benefits. Recent reports that Labour will limit rises in social security benefit as part of the programme to force claimants back to work are just the start of this process. So is the change of policy on approving further privatiSingle currency If the single currency goes ahead at the end of this year, there will be tremendous pressure from British capitalists on Blair for such cuts, in order to enable Britain to join the currency n the second wave in three years time.
However, the problems of public borrowing and exchange rates simply reflect the deeper structural problems in the economy. union laws have meant that workers have been unable to resist new management techniques effectively and productivity increases combined with devaluation have allowed companies to compete in global markets and at home.
Higher wages
This strategy has three potential problems for the bosses. One is that workers will demand higher wages in return for the intensification of work. While real wages have grown in manufacturing this has not been a major problem for employers because of the current weakness of the labour movement.
The second problem is that the increases in productivity are very much one-off increases, based not on investment, which remains very weak, but on changing working practices. It Is much harder to impose continuing defeats on the workforce year after year. As Europcan industry is restructured British companies may once more be unable to compete.
The third problem is the most serious. As productivity increases jobs are lost and demand falls. While profits can be generated by management changes than can't be realised as goods remain unsold.
Services
The solution to this has been to expand employment outside manufacturing, especially in services, both public and private. Here productivity growth has been significantly slower. This rise in employment has been based largely on low wages and insecure and casual employment.
It has allowed for a measure of economic growth. But this growth is also very insecure and fragile since wages and consumer confidence are so low. The employers are faced with a twin problem of low demand and a govern. ment deficit since low wages mean low tax receipts.
This means that a central priority for British capitalism is to raise the rate of productivity in services and distribution. In theory this would allow higher profits in these sectors, and some wage rises which would feed through into higher demand for the output of other sec. COTS It is no coincidence then that the last two years have seen important and unresolved struggles over just this issue; in the post office, rail and tube network, higher and further education and elsewhere. Such struggles are likely to continue and intensify.
Job losses
In other, more weakly organised areas of the service sector, like banking and financial sery. ices, productivity increases are being forced through now, at the cost of huge job losses.
But this is a very high risk strategy for British capital, both because of the conflicts it will cause with the working class and also because if successful it might mean further big rises in Consequently, it goes together with a determined attack on the rights of the unemployed, through measures like the Job Seckers Allowance.
Even if these are successful though, such a rise in unemployment might very casily prove self-defeating by undercutting the objective of raising demand and allowing the realisation of profits.
The New Labour government has some immediate breathing space. Resistance to the strategies of capital is still relatively weak after eighteen years of attacks, betrayals and defeats.
Rur the contradictions of British capitalism will force that government to renew the Tory altacks belore long, and incy are bound to en counter resistance. The nature and success of that resistance will determine the outcome of the next phase of the long story of the British capitalist crisis.