Sunday, July 26, 2009

The only way is down

Forget about green shoots, and don't be taken in by chipper 'investors'. The UK is tanking. In the year to June, UK GDP declined by 5.6%, a fall almost identical to that in the first years of the Depression. Unemployment made a record rise in the first quarter of this year, despite the fact that public sector employment rose. Corporate profits continue to tumble (only boosted a little by hypertrophic profits from 'continental shelf' companies). Unlike in the US where massive, centralised intervention and public spending higher than its peak in the 1930s may well have mitigated the crisis (and state spending has had to soar because consumer spending is not recovering), the UK is still in freefall.

So, why is it that the Tories are planning for 'deep' spending cuts in the event of their winning the next election? David Blanchflower, the sole 'dove' on the Monetary Policy Committee, pointed out a while ago that the experts who have called for such cuts also tended to be those who missed the recession in the first place, and are still basing their expectations on outlandishly optimistic assessments. Cutting public spending now or in the near future is a certain way to prolong and deepen the recession when major public investment is the indicated remedy. Even in the enormously unlikely circumstances of a rapid recovery, the regional impact of public spending cuts would be dire - Wales, Scotland and Northern Ireland in particular have tended to rely on a healthy public sector for growth in the past, and would lose ground massively.

On the one hand, it is all too easy to believe that the Tories don't give a damn about high unemployment and long-term stagnation provided it weakens the bargaining power of labour and restores profitability in the long term. But one also gets the sense that both New Labour and the Tories, and possibly those sectors of the ruling class that they represent, are still in deep denial about the scale of this crisis, its durability, and what it means for the neoliberal settlement of the last thirty years or so. They really are trying to restore the situation that prevailed prior to the 'credit crunch', based on debt-fuelled consumption, low corporation taxes, a 'flexible' labour market and so on. But people, quite sensibly, don't want to borrow money to spend at this time, so there isn't going to be a consumption-led recovery based on debt. The figures bear this out - despite a jump in new mortages, the main trend is for people to avoid using credit cards and save whatever money they have. Long-term high unemployment, expected to continue in most advanced economies, could only entrench this trend, unless the state decided to support consumption directly, bolster the bargaining position of labour and engage in job creation programmes that would bolster the state sector of the economy. But this would involve precisely the kind of programmatic re-ordering of public priorities that none of the mainstream parties are currently capable of.