Prime Minister Liz Truss Arrives in Downing Street| Prime Minister’s Office | Open Government License 3| cropped from original | license linked at bottom of article Prime Minister Liz Truss Arrives in Downing Street| Prime Minister’s Office | Open Government License 3| cropped from original | license linked at bottom of article

Dominic Alexander looks at the contrast between Tory talk of growth and the reality of a failing economy

All the signs are that we are headed for a global recession, with Britain already having experienced a second successive quarter of economic contraction (the technical definition of a recession being two consecutive three-month periods of negative growth). Undoubtedly, for most people, it is inflation in general and energy prices in particular that are the most obvious and pressing aspect of the crisis.

As was clear some time ago, the government was going to have to intervene in the gas and electricity markets, and Truss finally announced a plan to cap prices just over the current levels. That is already an average of £2100, taking into account the previously announced £400 rebate, while the average is higher for those on pre-payment meters. These prices will still mean over 6.7 million households suffering from fuel poverty, and impossible choices between food and heating.

From a ruling-class point of view, the policy might do just enough to avert an unmanageable social catastrophe resulting from the predicted further rises in bills, but the knock-on economic damage will be severe nonetheless. As very many people struggle to manage, economic demand will fall, and that will further depress an economy already in recession. The Keynesian argument that boosting general demand is the way to end a recession might not be entirely correct, but further falls in the spending power of the bulk of the population will certainly deepen the crisis.

Moreover, at a cost of £150 billion, the real beneficiaries of the price cap are the energy companies, whose profits are effectively being subsidised by this. The government may be intending to negotiate down prices through agreements with individual companies, but it seems to be deliberately taking a weak bargaining position. It will be no surprise when, later on, the government will insist that the policy will have to be paid for by further cuts in public services. After all, Truss has been quoted as saying that: ‘We should be growing on average at 2.5 [%]. And happiness is a faster-growing private sector than public sector. That’s what we need to achieve.’

Contrasting solutions to recession

The ostensible argument is that a surge in growth will take care of the cost of protecting corporate profits. The idea is in fact parallel to the Keynesian argument that government spending during a downturn, thereby accruing debt, is not a problem if that spending encourages demand, and thus boosts the economy. A growing economy means a rise in tax receipts and thus the government will recoup what it had spent earlier, and the circle is neatly squared. Truss’ plan is by no means, however, a Keynesian one, since it is purely focused on protecting profits rather than mass consumer demand. Instead of increasing the quantity of demand, her ‘supply-side’ solution seeks to increase the quantity of capital available for investment.

Yet, simultaneously with Truss’s profit-boosting agenda, the Bank of England is pursuing a policy of raising interest rates to bring down inflation. This raises the cost of debt, such as mortgages, and will inevitably further depress demand in the wider economy, and raise the cost of the investment needed in the economy too. Truss has, however, promised to leave the Bank alone; doing otherwise would frighten the very forces of capital she seeks to flatter. In practice, the two policies work against each other.

Much is being made of Truss and Kwarteng’s clash with ‘Treasury orthodoxy’, which is said to insist on fiscal restraint in government and ‘balancing the books’, in other words, on austerity. It seems likely that in the long term, this will be resolved in favour of orthodoxy, since capital in general will want to see ‘balanced books’ eventually. If the burden of repairing public finances isn’t to fall on capital, this will mean more austerity for public services, already at or beyond breaking point. Even the very right-wing Chancellor Sunak seemed to recognise this was no longer an option, and hence he was talking down the possibility of tax cuts. It remains to be seen how far Truss will be able to push the ‘supply-side’ argument in refusing to raise corporation tax, for example.

Truss’s strategy is that ‘freeing’ capital will boost growth, and therefore her government will be able to leap over these contradictions. Her refusal, at least so far, to consider some form of windfall tax on the energy companies seems politically unnecessary. It would now be a u-turn, but she’s done that already over energy policy; the Tories made use of such a tax just in May, and stealing Labour’s existing policy demand would leave Starmer in a difficult position. Her stance is best explained if it is meant as a signal to international capital that her government will go to any lengths necessary to protect their interests. The plan is a free-market dystopia where all regulations and protections will be swept away.

Begging capital will fail

A range of other announcements fit into this pattern, from the promised tax cuts bringing most benefit to the wealthy, down to the hints that Truss wants to remove various restrictions and regulations on the sale and marketing of unhealthy food products. For energy, a particularly important piece of policy is the removal of the ban on fracking for shale gas deposits. This is a piece of deregulation mania that will do nothing to help in the energy crisis. The government’s own response in May 2022 to a question about fracking admitted that: ‘It would take years of exploration and development before commercial quantities of shale gas could be produced … There is unlikely to be sufficient quantities of gas available to address the high prices affecting all of Western Europe, and would certainly have no effect on prices in the near term.’

Fracking is badly polluting, even apart from its greenhouse-gas emissions, and would contribute only very small amounts to Britain’s energy needs. Moreover, it would take years to bring to the market, while renewables can be brought into production far more quickly. Encouraging fracking is a ludicrous solution to the crisis, and will likely be very unpopular politically. So why go for it? The answer lies in the signal it sends out to capital, once again, that Britain is to be a low-regulation, free-market haven, so please come and invest here.

This won’t work. The assumption is that if you reduce the costs of investment, capital will respond and economic activity will pick up, pulling the country out of recession. However, capitalist investment depends on its profitability, and that is more complex than merely being a function of the quantity of capital that is available. If quantity was the only issue, then the policy of ‘quantitative easing’ that governments have been pursuing, as a response to the financial crisis of 2007-8, would have succeeded in prompting investment. It didn’t; the policy effectively increased the money supply, but financial institutions simply hoarded the windfall, and the impact was limited to the creation of bubbles in the housing and stock markets. It did not help to drag Western economies out of the long-term slump.

Britain’s capitalist impasse

The recessionary forces in play right now are global in nature, and more deeply rooted in a general profitability crisis than any of Truss’s notions for deregulation and increasing capital supply can overcome. Britain has in effect been pursuing a low-wage, low regulation economy since Thatcher achieved a major defeat of trade unionism in the 1980s. The winners from that social struggle have largely been the financial institutions of the City of London, while manufacturing has been in relentless decline. The economy has been more and more focused on the ability of finance to siphon off a large share of the surplus value produced elsewhere in the world. This has been to the detriment of the lives of most people in this country, never mind elsewhere.

Britain as an economy has become highly dependent upon the vagaries of international currents. This was less the case during the depression of the 1930s, where a large manufacturing base, with a captive market in the Empire, meant that Britain suffered less (although badly enough) from the global depression than economies like those of the US and Germany. Now, however, further free-market, ‘supply-side’ frenzy will only accelerate the trends which for decades have been leading us towards the current crisis.

There are no good options for the ruling class in Britain, which is why there are several febrile divisions between different factions: the pro and anti-Brexit camps, the Truss versus Sunak factions in the Tory party, and the spat between ‘Treasury orthodoxy’ and Truss’s new brooms. What they will all agree upon is a programme of repression, particularly targeting the trade unions, since workers have been showing a renewed willingness to fight back. Against a threat of militant labour, the ranks of the ruling class will find common ground quickly enough.

This is not a rerun of the 1980s, however. The policies of Thatcherism have decidedly run their course. They only succeeded in the first place because Britain was able to ride on a global wave of the relative success of neoliberalism in overcoming the crisis of the 1970s. That success was quite relative, nonetheless, with rates of profit recovering nowhere near to the levels of the 1960s. A capitalism that works for fewer and fewer people will be losing support, and here the labour movement has the potential to win wide layers of the population to a different approach to economics altogether.

The starting point can be to call for the nationalisation of the entire energy sector, so that it can be geared towards social and ecological need, rather than the requirements of profit. Austerity for public services needs to be ended, and resources directed towards the social good. With this, again, large numbers will agree. Organising around such demands can bring us closer to a movement capable of demanding an end to the economics of profitability.

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Dominic Alexander

Dominic Alexander is a member of Counterfire, for which he is the book review editor. He is a longstanding activist in north London. He is a historian whose work includes the book Saints and Animals in the Middle Ages (2008), a social history of medieval wonder tales, and articles on London’s first revolutionary, William Longbeard, and the revolt of 1196, in Viator 48:3 (2017), and Science and Society 84:3 (July 2020). He is also the author of the Counterfire books, The Limits of Keynesianism (2018) and Trotsky in the Bronze Age (2020).

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