Socialist Worker

Bit player's hollow boast

by Alex Callinicos
Issue No. 1682

TONY BLAIR was off swanking at the World Economic Forum at Davos in Switzerland last week. He lectured European business and political leaders that they needed to copy the flexible, free - market model offered by British and US capitalism. 'Does Europe continue with the old social model, that has an attitude to social legislation rooted in the 60s and 70s, or does it recognise that the new economy demands a redirection of European economic policy for the future?' Blair asked.

I'm surprised that no one laughed out loud at the man's effrontery. The US economy undoubtedly enjoyed a real revival in the 1990s, but British capitalism is now a bit player on the world stage. Three recent developments illustrate this. The first was the merger of Glaxo Wellcome and SmithKline Beecham to form the world's largest drugs group.

The brutal contraction of manufacturing industry in Britain during the Thatcher years left most surviving British firms too small to play a major world role. Pharmaceuticals are a major exception. But the merged Glaxo SmithKline immediately announced that it would move its headquarters to the US. 'A world class competitor cannot operate all of its functions from a market that represents only 6 percent of its existence,' explained the new firm's French chief executive, Jean - Pierre Garnier.

Another apparent exception to British capitalism's decline has been the City of London. The only trouble is that most City firms are now owned by US and continental banks. The day after the Glaxo SmithKline merger the huge American financial conglomerate Citigroup bought the investment banking business of Schroder. The Financial Times commented, 'The cash deal almost brings to an end the UK's independent investment banking industry.' Once upon a time merchant banks like Schroder, Warburg, Barings, Kleinwort Benson and Morgan Grenfell were the glories of the City. Indeed, they played a broader role as key institutions of the British ruling class. Now they have all been absorbed into foreign investment banks. The City may be thriving, but as an extension of larger and more powerful capitalisms elsewhere.

An apologist for Blair could argue that these takeovers reflect the British economy's success in attracting foreign investment. The Tories before him used to boast about the inflow of direct investment. One major instance of this process has been the entry of Japanese companies to set up subsidiaries here. But in the past few weeks they have become increasingly and openly restive about Britain's failure to join the euro. A major reason why Japanese multinationals came to Britain was that they wanted access to the European market. Not only did Britain stay out of European economic and monetary union, but the high exchange rate of the pound against the euro makes British exports expensive in their largest market.

Recently the bosses of firms like Toyota and Sony have been saying that unless Britain joins the euro soon they will start siting new investments elsewhere in Europe. Blair could claim that the strength of the pound is a reflection of Britain's economic success. It's true that Germany and France have been in the economic doldrums for much of the past decade.

But the fundamental reason for the pound's strength is that the close links between the City and Wall Street mean Britain has been caught up in the bubble economy produced by the US stock market boom. When the bubble bursts and the dollar starts falling on the foreign exchanges so too, in all likelihood, will sterling. The underlying patterns of productivity are even less favourable to Britain. A recent study by the National Institute of Economic and Social Research showed that in 1996 German and French workers produced more output per hour than their British and American counterparts.

The US nevertheless still produces much more per head than its European rivals. But this is because American working hours are far longer than those in continental Europe. The US economy's competitive revival has been built on American workers toiling for much longer hours either than their counterparts in most advanced economies or than they themselves did in the recent past.

That is the reality of flexible labour markets-sweated work. Britain, meanwhile, gets the worst of both worlds. Working hours are longer here than they are on the continent, but output per head still lags behind that in Germany and France. So much for Tony Blair's miraculous 'new economy'.

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Alex Callinicos
Sat 5 Feb 2000, 00:00 GMT
Issue No. 1682
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