By MICHAEL ROBERTS*
From the 1980s onwards, Britain increasingly became what we might call a “rentier economy”.
UK citizens voted in a general election on July 4, 2024. The Conservative Party, after 14 years in government, was heavily defeated. The opposition Labor Party won 412 seats, a comfortable majority. This is a record landslide, as the Conservatives won just 121 seats.
But before the election, 75% of Britons showed that they have a negative view of politics in Britain. This result is a consequence of the disastrous decline of the British economy and the living standards of the majority of Britons, coupled with the decimation of public services and well-being. British capitalism is broken and economic policy doesn't seem to have the strength to lift it now.
The UK economy is the ninth largest economy in the world in terms of output at purchasing power-adjusted prices and the sixth largest when output is calculated at current exchange rates. But British imperialism has been in steady decline since the end of the First World War; since then, it has given way to North American imperialism as a hegemonic power.
After World War II, the United Kingdom increasingly became a subservient “junior partner” to America. The relative decline of the UK economy is revealed by the long-term decline in productivity growth compared to other imperialist economies, particularly in the 2st century.
Average labor productivity growth rates (long periods).
Data from the Long-Term Productivity Data base v2.4 (Bergesud et al. 2016)
In his recent book, Vassal State – How America runs Britain, Angus Hanton shows the dominant role that American business and finance plays in the ownership and control of large sections of what remains of British industries. This denationalization and domination by US imperialism was accepted and even encouraged by successive British governments, from Thatcher of the Conservative Party to Blair of the Labor Party.
Angus Hanton shows that in 1981, towards the end of Thatcher's second year in office, just 3,6% of UK shares were owned by overseas residents. And that, in 2020, this number became higher than 56%. Of all the assets held by US companies in Europe, more than half of them are in the UK. American companies have more employees in the UK than they have in Germany, France, Italy, Portugal and Sweden combined. The largest US companies sell more than $700 billion worth of goods and services to the UK, which is equivalent to more than a quarter of the UK's total GDP.
Almost 1,5 million UK workers are officially dependent on large US employers. If we count indirect employees such as Uber drivers and Amazon agency workers, at least 2 million UK workers report to bosses based in the US (6-7% of the UK workforce). In 2020, there were 1.256 American multinationals in the UK.
From the 1980s onwards, Britain increasingly became what we might call a “rentier economy”. Most of its manufacturing base has closed, such that it relies mainly on the City of London's financial sector and accompanying commercial services. As is known, it provides a channel for the redistribution of capital from Middle Eastern oil sheikhs, Russian oligarchs, Indian businessmen, as well as American oligarchs.
Over this period, British capitalism declined relative to its peers among the G7 economies and other large European states. But particularly after the Great Recession, and following the decision to leave the European Union and the COVID pandemics, the British economy entered a downward spiral that it has so far failed to stop. Real GDP growth is still more than 20% below the pre-2008 trend – although this decline applies to all G7 economies, albeit at a lower rate.
The UK economy was the hardest hit of the main G7 economies in 2020 by the Covid pandemic. Real GDP fell 9,9%. The then finance minister and now prime minister, Rishi Sunak, admitted it was the worst contraction in national income in 300 years! O "think-tank" economic, Resolution Foundation, assesses that the UK economy may not be in “a technical recession, but even so, it is now experiencing the weakest growth in 65 years, in a comparison that does not take into account recessive periods”.
What is also forgotten is that population growth is at its fastest rate in a century (three-quarters driven by immigration of 6 million people since 2010). If population growth is excluded, the UK has seen almost no economic growth. GDP per capita is only slightly above the 2007 level and real consumer purchasing power is even lower than in 2007.
In fact, productivity growth (i.e., output per worker per hour) has been disastrous. Productivity growth has slowed to less than 1% per year. Before the economic crisis of 2008-09, Britain's output per hour worked was growing steadily at an annual rate of 2,2% per year. In the decade since 2007, that rate has fallen to 0,2%. If the previous trend had continued, the UK's national income would be 20% higher than it is today.
Furthermore, it is estimated that the reduction in trade between the United Kingdom and the European Union, which occurred after the Brexit, as established in the Trade and Cooperation Agreement that came into force on January 1, 2021, will harm the increase in productivity in the long term. If the Brexit Had it not happened, this index – it is estimated – would have grown 4% more than it will grow now.
In effect, UK productivity stagnated for a decade. So now productivity levels are up to a third below those in the US, Germany and France: “the average French worker achieves at lunchtime on Thursday what the average British worker achieves just at closing time on Friday ”. In fact, excluding London, the UK's average productivity level is below that of the poorest US state, Mississippi.
The productivity gap between the best and worst performing companies is materially greater in the UK than in France, Germany or the US. This productivity gap has also widened much more since the crisis – around 2-3 times more – in the UK than elsewhere. This long, long tail of “stationary” companies explains why the UK has a one-third productivity gap relative to international competitors and a one-fifth productivity gap relative to the past.
Why is productivity growth so low, especially among the major multinationals based in Britain? The answer is clear: reduced growth in business investment. This has been on a steady downward trend since the end of the Great Recession.
The UK's total investment relative to GDP has been lower than most comparable capitalist economies and has been declining over the last 30 years. The UK's investment performance is worse than any other G7 country. Compared to Japan, the US, Germany, France, Italy and Canada, the UK ranked last for business investment in 2022, a position it has now held for three consecutive years and for 24 of the last 30 years.
Companies are not choosing to invest in the UK. This country now ranks just a modest 28th in business investment among 31 OECD countries. Countries such as Slovenia, Latvia and Hungary attract higher levels of private sector investment than the UK as a percentage of GDP.
The rentier nature of British capital is revealed by a report made by IPPR: “Corporate investment has fallen below the rate of depreciation – meaning our capital stock is falling – and investment in research and development (R&D) is lower than at our main competitors. Among the causes are a banking system that is not sufficiently focused on lending for business growth and the increasing short-termism of our financial and corporate sector. Under pressure from stock markets increasingly focused on short-term returns, companies are distributing an increasing proportion of their earnings to their shareholders rather than investing them in the future.”
Nothing confirms the decline of British capitalism and its failure to invest and increase productivity more than the profitability of British capital. It is a story of long-term decline since the 1950s. The decline was partially reversed for a time under the neoliberal policies of the Thatcher regime (at the expense of labor's share of national income), but the decline has resumed with a vengeance in the XNUMXst century.
As a result of weak national income growth and resulting austerity measures to contain wages, the UK is just one of six countries in the 30-nation OECD bloc where earnings after inflation are still below 2007 levels and the The UK is the worst of the seven major G7 economies.
In 2022, real wages in the US and OECD increased by 17% and 10%, respectively, than in 2007, according to OECD data. In Britain, it hasn't changed. UK living standards have underperformed most rich countries since the Conservatives came into government in 2010, according to research by the UK's Institute for Fiscal Studies.
The Conservatives' callous austerity policies after the 2009 Great Recession, cutting public services and freezing wages, destroyed the social safety net. Basic benefit rates are now lower relative to wages than at any time since the start of the Beveridge agreement, which established the welfare state in the 1940s. Basic unemployment protection in the UK is also is the lowest in the OECD.
“The inflationary spiral after COVID was the worst in the G7. It may have slowed now, but the increase in private rents is sharp and continuous: almost 9% per year. Energy bills may now be falling, but from such a ridiculous peak that they are still about 60% higher than three years ago. Food, in turn, increased by around 30% in the same period. The result is that a higher percentage of British people live below the poverty line than in Poland!”
And these are averages. Britain is now the second most economically unequal of the largest developed countries, after the USA: 50 years ago it was one of the most equal. The UK has very high income inequality compared to other developed countries; in fact, it has the 9th most unequal income of 38 OECD countries. Compared to other developed countries, the United Kingdom has a worse income distribution compared to other developed countries. The Gini coefficient is 0,351. The UK has one of the highest levels of income inequality in Europe, although it is still less unequal than the United States.
The UK's wealth inequality is much steeper than income inequality, with the top fifth receiving 36% of the country's income and 63% of the country's wealth, while the bottom fifth has just 8% of the income and just 0,5 .XNUMX% of wealth, according to the Office for National Statistics.
50% lower
The UK has the largest regional pay disparities across Europe. In fact, people in the North East of England have an average standard of living that is less than half that of the average Londoner. Wealth is also unevenly distributed across Britain. The South East is the richest of all regions, with a total average household wealth of £503,4, more than double the wealth of households in the North of England.
As for poverty and health, it could hardly be worse in a country considered rich. Welfare cuts caused 190.000 excess deaths from 2010 to 2019. According to the Office for National Statistics, life expectancy at birth for 2020/22 is “back at the same level as 2010 to 2012 for women”. and “slightly below” that benchmark for men – a full decade, in other words, of zero or negative progress.
(at birth)
“England’s most deprived areas,” government demographers report, recorded “a significant decline” in life expectancy in the second half of the 2010s. Looking ahead to 2040 (and comparing with a 2019 baseline), analysts at University of Liverpool and the Health Foundation predict an increase of around 700.000 in the number of Britons of working age living with a serious long-term illness. Now, this is strongly explained by a further increase in the already high rates of chronic pain, diabetes, anxiety or depression, in the poorest communities.
Child poverty rates have soared. In 2022/23, the number of children living in poverty increased by 100.000, from 4,2 million in 2021/22 to 4,3 million children. This represents 30% of children in the UK. The child poverty rate in the North East of England increased by 9 percentage points in the seven years between 2015 and 2022. Substantial increases can also be seen in the Midlands and North West.
Tower Hamlets had the highest concentration of child poverty in the UK in 2021/22, with almost half of children living below the poverty line after accounting for housing costs. Child poverty rates are also high in other major cities such as Birmingham and Manchester.
The emergence of 'food banks' has been a feature of the last ten years. The official count of people whose families used these banks in the last 12 months is 3 million.
And households with “very low food security” now number 3,7 million, a total that has increased by two-thirds in the last year alone. It should be noted that the total population of Great Britain reaches 64,5 million people.
One of the greatest achievements of the labor movement was the establishment of a free National Health Service (SNS). After 70 years, this great public service is now in tatters; hungry for funds, personnel and services increasingly reduced to private sector profits. SNS funding faces the biggest cut in real terms since the 1970s, warns the Institute of Fiscal Studies.
The system privatized 60% of cataract operations to private clinics. These received £700 million for cataract operations from 2018-19 to 2022-23 and 30-40% of the money disappears into profits. And a new analysis of “We Own It” reveals that £6,7 billion, or £10 million a week, has left the NHS budget in the form of profits on every private contract awarded, over the last decade. The analysis of “We Own It” shows that of the total profits of £6,7 billion leaving the NHS, £5,2 billion, or 78%, was in service contracts.
Britons now have access to fewer hospital beds and dentists relative to population than in most other major economies, according to OECD data. And the waiting list for operations is at a record high.
Then there is housing. In the 30 years from 1989, 3 million fewer homes were built than in the previous 30 years, despite a sharp increase in demand. This mismatch between supply and demand has contributed to a serious accessibility crisis. In 1997, the ratio of average house price to average income in England and Wales was 3,6 and in London it was 4,0. In 2023, the average house in London cost 12 times the average salary and even in the least affordable region, the North East of England, the ratio was 5,0.
This increase means that only younger people whose parents – even grandparents – were homeowners can now be reasonably optimistic about being able to afford housing. But UK housing costs relative to income are higher than in the past and compared to other countries. Rents rose 13% in the two years to May 2024 – the fastest pace in three decades and three times the rate in France and Germany.
In England, looking now at another dimension of the housing issue, the number of people living on the street has increased by 60% in the last two years. Furthermore, the number of families trapped in temporary accommodation (a pretty horrible thing) has doubled since 2010.
As for education, it is also in trouble. A solid education system supports the services sector: almost 60% of Britons aged 25 to 34 are educated at least at tertiary level – university or postgraduate – according to OECD data. This is the sixth largest among advanced economies. Pupils in Britain perform better in reading, maths and science than their peers in France, Germany or Italy. They also have access to 90 of the world's top 1.500 universities, according to the World University Rankings annual, more than France and Germany combined.
However, the pressure is now on for cuts to school funding and UK universities have fallen in international rankings, while many face bankruptcy and closure as overseas students dwindle. As for students, note that Great Britain stopped offering free higher education in the 1960s; Now, these courses now charge huge annual fees, which are financed by loans that end up squandering family wealth.
Then there are the prisons. So many people are arrested in the UK that prisons are running out of space, say prison directors in England and Wales. “The entire criminal justice system is on the brink of failure.” Instead of putting young people in jail, it would be better to find another solution. But two-thirds of council-funded youth centers in England have closed since 2010. That's because local councils have suffered cuts of 20% in real terms since 2010, leaving a gap of more than £6 billion over the next two years.
Finally, there are public services. Heavily privatized under Thatcher, they became a disaster for users and a profit bonanza for shareholders. In Europe, only in the UK has water been privatized and the private equity owners of these water companies have milked the public for billions whilst destroying water quality and the environment. In March it was revealed that raw sewage was dumped into waterways for 3,6 million hours in 2023 by England's privatized water companies, more than double the number in 2022.
A survey of Rivers Trust found that sewage spilled for 1.372 hours in the Guildford constituency last year, and recent water tests by local activists found E coli in the river last month at nearly 10 times the safe rate under government standards. Families in several parts of the country fell ill and were told not to drink tap water.
Are there redeeming features in this broken Britain? Yael Selfin, chief economist at consultancy KPMG UK, said Britain has some “lasting advantages” such as the English language and Greenwich Mean Time, which means the working day in London overlaps with financial markets across the world. the world. So, wow!, the British are a reference in world time and, in addition, they speak English!
O Financial Time presented another merit: Great Britain has a prime minister of Asian origin: “This is not the only country in the West that would elevate a non-white head of government. But this is the only one where this would provoke so little discussion…. A silent miracle is still a miracle.” The richest man in the UK parliament is, therefore, a British miracle!
In an interview on Sunday with Laura Kuenssberg, with the BBC, Prime Minister Sunak defended his party's record in government over the past 14 years. “This is a better place to live than it was in 2010.” When told that Britons had become poorer and sicker, and that public services had deteriorated since 2010, he said: “I just don’t accept that.” He may not accept it, but this is still the reality.
Paul Dales, research firm economist Capital economics, found the solution: “More investments in housing, infrastructure, education and health would help transform some of the weaknesses into strengths.” Well, in the end, this economic policy recommendation brought me down!
*Michael Roberts is an economist. Author, among other books, of The great recession: a marxist view (Lulu Press) [https://amzn.to/3ZUjFFj]
Translation: Eleutério FS Prado.
Originally published in The next recession blog.
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