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The policy that dare not speak its name

The Commons debate on the budget has just finished, but one essential component in the UK economic strategy wasn’t mentioned by anyone including, mea culpa, me. The UK economy is still smaller than it was in 2008. Investment per head of the population, net of depreciation, has dropped to zero. Our manufacturing capacity is so run down, now accounting for barely 10% of our national income, that we cannot pay our way in the world: we have had a foreign payments deficit every year since 1983.

Unemployment is still 2.4 millions, but that disguises the fact that probably twice as many men and women would be able and willing to work if reasonably paid jobs were available. Both the country and the government are drifting further and further into debt. This way points only to steady national decline. The current upturn won’t escape this. It is too heavily based on enormous stoking of the money supply and hence of asset price inflation leading relentlessly to an unmanageable balance of payments gap, rising interest rates and growth grinding to a halt again.

None of this is necessary or inevitable, just as austerity is also not necessary or inevitable. The £ campaign, which has just been launched, believes the central problem with UK economic strategy over the last several decades is that the exchange rate (currently some $1.65 to the £) is pitched significantly too high to achieve a sustainable manufacturing recovery and sustainable growth in the medium term. It believes, on very good evidence, that if these objectives are to be achieved, the sterling exchange rate should be reduced to around $1.10-1.20 to the £. The carefully quantified results show a dramatic improvement in Britain’s economic performance.

The growth rate could be stepped up to as much as 5% a year on a sustainable basis. The foreign payment balance would cease to be a constraint on the UK economy because the UK would (for the first time in over 30 years) be able to increase exports and reduce imports sufficiently to allow Britain to pay its way in the world. Unemployment would fall towards 3%. Gross investment would rise from its present very low level of 13.5% of GDP per year to about 23%, which is the world average.

Manufacturing output would rise over the 5 years to 2020 by up to 50%, and would then continue to climb from its present 10.7% of GDP to around 15% as the economy continues to expand. Consumer incomes and expenditure would rise every year in real terms without resort to borrowing. Inflation would rise slightly, but not to more than 3-4% a year.

In essence a far more competitive exchange rate would make manufacturing, exporting and import substitution much more profitable than they are now, which would then allow the huge increase in output to bring 1-2 million people off the dole queues and back into work, thus rebalancing the economy which is so badly needed.

6 Comments

  1. David Ellis says:

    Sorry Michael but destroying the value of wages by devaluing the £ so that British capitalists can compete with Chinese and Indian slave labourers is not an option for me. It is job creation through immiseration. In fact I doubt whether British capitalism will ever be competitive again short of concentration camps and workhouses and even that is only a short term solution as others have found out. Back to the drawing board.

    I suggest we stand for full-employment by sharing the available productive work with each paid the minimum of a trade union living wage as the platform for a new society. The centuries of accumulated capital needs to be taken into custody before it has been completely liquidated to bail out the bankers’ billionaire and corporate creditors.

  2. David Ellis says:

    Competitive devaluation really is the quickest route to the bottom. I think I know why it dare not speak its name.

  3. swatantra says:

    I fear that D Ellis is right. Now that Mexico India Brazil and the other one will rise in industrial power, thats where manufacturing and exports will be centred. We can virtually write off manufacturing in Britain for the next 20 years and concentrate on making our money in other areas. When the MIBs find that their growing midde class want more, and their working class and societal problems creep in then perhaps the picture will change. But if you model forcasts for the next 20 years, the standard of living in Britain will fall, and theres very little we can do about it, apart from more fairer redistribution and predistribution of wealth here.

  4. David Ellis says:

    The unravelling of US-sponsored globalisation is proving to be a most unedifying spectacle indeed. We should not enourage or adapt to it by for instance supporting rival imperialisms against both it and the revolutions its retreat is engendering or its efforts to break up domestic labour movements and impose slavery. Our slogan has always been Workers of All Countries Unite. Rather than impoverishing the UK working class and turning it into some third world sweat shop we should support the struggle of workers in the BRICS to bring their wages up to humanly decent levels and seek to plan the world economy rationally and in accordance with a democratically worked out and sustainable plan. To disintegrating globalisation we juxtapose world proletarian revolution. We do not become the backers of gangster capitalist kleptocratic proto-fascist regimes like that of the imperialist Putin. This is the road to inter-imperialist war not peace through power balancing. It is the ideology of the hopeless and the treacherous and this the 100th anniversary of the First World War between the cut-throat thieves.

    In the meantime workers in the UK must take power or see themselves reduces to penury, slavery and condemned to perish in a regime of global barbarism.

  5. Robert says:

    Labour have signed up to the Tories Austerity plans, Miliband will try to find a cap to fit, the bloke is looking for caps to fit everything or a band wagon.

    The next election I suspect the public will look think nothing worthy of voting for and the Clegg will be the hero, sadly of course labour have stated they will not ask Clegg to go into a coalition if your believe that one I do not.

  6. Charlie says:

    As potentially helpful as this could be, it also smacks of neo-liberal indirectness. Regardless of what we do with the pound, manufacturing will only come back if we decide as a collective manufacturing needs to come back. The same is true of every other facet of the economy. Capitalism is functioning exactly the way its meant to, concentrating profit and wealth. Changing the value of the pound won’t change much as long as the system remains.

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