Philip Hammond, the Tory chancellor, likes to present himself as a safe pair of hands. He’s nicknamed “spreadsheet Phil”. Boring maybe, but reliable. But he’s been responsible for two of the biggest media pratfalls of the present government, which is saying something.
The first was when he referred to the European Union as the enemy. Then on Sunday he told Andrew Marr, “There are no unemployed people” in Britain.
Both these seem Freudian slips, which reveal more than the speaker intended. Hammond showed first that even pro-Remain Tories like him have an antagonistic attitude to Brussels.
And all true followers of the neoliberal economic doctrines of Milton Friedman & Co believe that unemployment is voluntary. Some workers simply choose not to accept a job at the wage that is on offer.
Hammond’s blunder came when he was doing a round of the studios to sell the budget he unveils on Wednesday.
As it happens, unemployment is comparatively low by the standards of the neoliberal era—1.42 million, or 4.3 percent of the workforce. Of course these figures don’t capture the people who are either underemployed or so discouraged that they have stopped looking for work.
Neoliberal economists argue that unemployment may be close to what Friedman called its “natural rate”, which is dictated by wages and productivity. They worry that if it falls lower, this will lead to workers demanding higher wages and thereby pushing up the rate of inflation.
So the Bank of England has started to raise interest rates to prevent unemployment falling too much.
Unfortunately there is very little sign of wages rising, despite the squeeze on living standards caused by higher prices. The shock of the Brexit vote made the pound fall against other currencies, which pushed up import prices.
Pressure on real pay, along with the erosion of the welfare state since 2010, was a major factor in Labour’s advance in June’s general election.
The Financial Times newspaper listed the resulting demands on Hammond from panicky Tory backbenchers “to lift the public sector pay cap, abandon the freeze on working age benefits, increase spending on the NHS, freeze fuel duty, fix the broken housing market and deliver on the Conservatives’ manifesto promise to raise income tax thresholds”.
Hammond’s problem is that he’s also inherited his predecessor George Osborne’s commitment to continue cutting government spending and borrowing. He’s pushed back Osborne’s targets, but he still intends to reduce borrowing to 2 percent of national income by 2021-22.
But if the economy continues to grow sluggishly it will be impossible, without a fundamental shift, for the Tories both to meet this target and match the kind of spending promises Labour made in its election manifesto.
One particular problem is the stagnation in the growth of productivity since the 2008 financial crash. Rising productivity—which means workers produce more in an hour of labour—is one of the main drivers of capitalist economic growth. But there has been a general productivity slowdown in advanced capitalist economies since 2008.
Productivity growth is said to have fallen sharply in finance. This kind of claim has to be examined critically. Banking workers are not what Adam Smith and Karl Marx called productive labourers. In other words, they don’t create profits but enable their bosses to appropriate some of the profits created elsewhere, in production.
So low productivity growth in finance means that bank profits have fallen, as other statistics confirm. But this is a big deal for British capitalism, because the City of London is so central to it. Productivity growth has also dropped in manufacturing, which remains a strategic sector.
This reflects the fact that capitalists generally have been holding back investments that would introduce new technologies and raise productivity because they aren’t confident about getting big enough profits.
So Hammond is in a bind. He’s trying to increase his room for manoeuvre by fiddling around with the figures—thus housing associations have just been taken out of the public borrowing figures. But this won’t give him the space to counter the Tories’ unpopularity and Labour’s advance.