Roger Rees of our CLP attended the State of the Economy Conference on the 21^st May 2016. This one-day conference was promoted by John McDonnell’s office as part of a series of awareness-raising economic talks, seminars and discussions held throughout the UK, designed to feed in ideas to the creation of a future Labour economic strategy. Here Roger reports back on the conference introductory lecture and two of the day’s workshops – the Challenges of Europe and the Future of Work.

The conference took place prior to the EU Referendum.

The State of the UK Economy

Average UK living standards have been stagnant since 2008. What started as a financial crisis has been turned, by the current Government, into a claimed fiscal crisis, in turn attributed to ‘welfare overspend’.

But this re-labelling serves only to hide long-standing deep structural problems in the UK economy, which arise from an ‘unbalanced’ economy that is over-dependent on the financial services sector.

George Osborne’s so-called ‘March of the Makers’ was supposed to address this but it never happened. As a result, UK manufacturing has continued to stagnate at approx. 10% of national output.

Hence, despite sterling having fallen in value by 30% since 2008 (which made British goods cheaper for customers abroad to buy), this has not led to greatly boosted UK manufacturing output. The result has been a current account deficit at record levels, now 5% of GDP.

This is the highest since World War Two, and predominantly stems from a deficit in trade in manufacturing. The Conservatives often claim (particularly Brexit supporters) that the UK is the world’s fifth largest economy and can stand on its own in the world.

This ranking however, is derived by totaling manufacturing capita by the UK’s population. If manufacturing output per head is taken, the UK falls to 25^th in the world, with Switzerland having the highest global manufacturing output per head of population.

This alternative perspective emphasizes the appallingly low productivity of the UK economy, reflecting its increasingly labour-intensive, rather than capital-intensive, nature – the growth of a hand car wash economy!

 

But why does this matter?

Well, even if you have a predominantly service-based economy, raising manufacturing productivity has a positive knock-on effect into services. For example, IT manufacturing developments feed in to be used to more effectively deliver services.

So the success of so-called ‘knowledge-intensive’ services often depends on Research and Development (R+D) investment in manufacturing productivity. In that sense, what the UK needs is to ‘re-industrialize’.

Four issues consequently should be considered for any future Labour economic strategy, set out broadly as:

(1) Financial reform to promote a longer term investment perspective towards manufacturing, replacing the current quest for profitability within short time spans.

(2) There needs to be investment in high-quality infrastructure with linkages to R + D support, especially for green technologies and advanced materials development.

(3) A better, more comprehensive and generous welfare state, to encourage creativity and entrepreneurship – only ‘secure people dare’!

(4) Greater investment in good quality education and training (e.g. with ‘real’ technical apprenticeships).

 

Britain, Europe and Economic Challenges

Three key challenges face the EU:

• competition
• climate change
• digitalisation

If the UK is to promote a ‘Social Europe’ it has to address the pressure of competition on the labour market, driving down wage levels. An economy based on low wages has a negative effect on overall economic demand.

There is therefore a need for the EU to consciously boost trade unions across Europe and encourage their cross-border co-ordination. Europe can address climate change by providing incentives, particularly in the much-neglected area of energy conservation, instead of the current tendency to focus only on more and more energy generation.

Digitalisation tends to quasi-monopoly or oligopoly, as giant IT providers seek to exclude users from employing competitor systems and platforms. Europe consequently (as it could be argued it has already begun to do with Microsoft) needs to tackle the behaviour of multi-nationals in the digital sector.

 

Future of Work and Technology

Since 2001, one review suggests 8 million jobs globally have been lost to automation. A further study, from Andy Haldane at the Bank of England, suggests 15 million jobs in the UK alone, may be lost to automation in the next decade.

Foxcom (out-sourced Chinese manufacturer for Apple) is already introducing 30 thousand robots annually into their production processes. Machines and digitalisation are moving on from manufacturing into service areas and job losses may multiply as a consequence.

The shift is underway from disconnected processes (organising work by breaking down tasks into repetitive elements, an approach known as Taylorism) to an emphasis on process connectedness (sometimes referred to as ‘digital Taylorism’) using computer-to-computer communication, instead of direct labour, to provide process linkages.

One result may be a steep increase in numbers falling into the suggested Precariat class (zero hours contracts; casual and temp work; no holiday or pension entitlements; etc). Such workers are notoriously difficult to organise and recruit into trade unions. Already only 7% of the USA workforce are members of trade unions.

Again, such developments raise (as earlier) the issue of the effect these trends may have on overall economic demand – who will buy the much increased outputs from automated production?

Not to mention what may be the outcome for the distribution of the economic gains from future technological change. One suggested response is already being explored – the guaranteed universal basic income, in turn perhaps linked to what are labelled the additional ‘robot profits’ generated from automation.

 

 

References and Further Information:

The Labour New Economics site (with videos of many of the series of seminars/talks) can be found at:

http://www.labour.org.uk/blog/entry/the-new-economics

Online recordings of some of the presentations made at the conference are available from the following link:

https://www.youtube.com/watch?v=IMDzBWPJfm4

Ha Joon Chang’s Guardian article:

https://www.theguardian.com/commentisfree/2016/may/18/making-things-matter-britain-forgot-manufacturing-brexit

Articles on the introduction of robot factories, in S. E. Asia and Germany:

https://www.theguardian.com/sustainable-business/2016/jul/16/robot-factories-threaten-jobs-millions-garment-workers-south-east-asia-women

https://www.theguardian.com/world/2016/may/25/adidas-to-sell-robot-made-shoes-from-2017