Like winter, the economic slump is reluctant to let Britain escape its grip. All attempts to talk up the “recovery” seem doomed to failure.
The pound is one barometer of Britain’s economic weakness. It has fallen by 28 percent against other currencies since the start of the global crisis in August 2007.
In the abstract, sterling’s devaluation should work to the advantage of British firms, since it makes its exports cheaper than those of its rivals elsewhere. But exports fell sharply in January, producing a trade deficit of £3.8 billion, the highest since August 2008.
This is a symptom of a more general problem faced by global capitalism. All the leading capitalist economies hope to export their way out of the slump. This helps to explain the running tensions between the Obama administration, which has let the dollar slide against other currencies, and China’s rulers, who reacted to the crisis by pegging the renminbi to the dollar.
In February China’s exports were 45.7 percent higher than they were 12 months earlier – not quite such a stellar performance once you remember world trade collapsed in the winter of 2008-9. But if everyone’s trying to boost exports, where are the markets for these exports going to come from?
The latest fall in sterling came when the financial markets woke up to the fact that the Tories may not win the general election and so big business may not get all the cuts in public spending it is baying for.
Last week both the Confederation of British Industry and the Institute of Directors (IoD) demanded that chancellor Alistair Darling cuts faster and deeper in his forthcoming budget.
Miles Templeman of the IoD said, “The argument that early cuts would jeopardise the recovery is mistaken. We believe lower spending is likely to trigger a whole series of positive developments that will assist growth.”
The IoD traditionally represents the Thatcherite wing of the ruling class. One of their heroine’s greatest acts was the March 1981 budget, which cut spending and raised taxes at the height of a recession.
According to Thatcherite folklore, this marked the start of economic recovery. In fact, the economy only began growing again at the end of 1982, while unemployment continued rising till spring 1984.
In any case, a distinctive feature of the present crisis is the huge burden of debt that ordinary households built up during the credit bubble of the mid-2000s. This, along with rising unemployment and the downward pressure on wages, is holding down a revival in consumer spending.
The depressed state of the housing market is one symptom of this situation. The Council of Mortgage Lenders reported on Friday last week that the average interest rate on mortgages fell in January to its lowest level since records began in the early 1990s. Even so, the number of housing loans was half the number for December.
The situation is worse in the US, where house prices continue to fall in the main urban areas and people are abandoning their homes rather than keep up the payments on a house worth less than when they bought it.
With consumers so squeezed, cutting public spending is the height of folly. The British economy, like the world economy, is still being propped up by massive state interventions.
A general awareness of the fragility of the “recovery” helps to explain why David Cameron and George Osborne have gone quiet about their earlier promises of “savage” cuts if the Tories win the election.
But expect a further bout of media and market frenzy if Darling is perceived not to have cut hard enough in the budget.
The Marxist geographer David Harvey defined neoliberalism as “the restoration of class power”. This is what the cuts are all about.
The class whose giant extravagant party at everyone else’s expense precipitated the slump wants to make sure that it stays on top.