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Supply Side and Plan A - the straightest path to human tragedy

The Coalition's economic 'Plan A' ultimately has a strategy of wage repression at its heart. This will undermine the conditions needed for economic revival but, above all, will impose incalculable human costs on the mass of British people 

Aaron Bastani
15 May 2012

Since the global financial crisis of 2008 a number of countries in the OECD have articulated the desire to catalyse economic growth while also simultaneously ‘re-balancing’ their economies. This ambition for ‘balance’ frequently aims to both tackle the problem of trade deficits through greater export orientation and in producing a greater amount of goods compared to services than is the case at present. In a previous article I briefly examined how in the US state-financed investment in Chrysler represented one path to such re-balancing through increased investment in fixed capital and higher levels of automation. This article will instead focus on a different approach that has instead been adopted by the UK government which can perhaps be understood under the rubric of ‘Plan A’. Such an approach instead focuses on the reduction of variable capital - the cost of labour - and views the repression of wages as the most important thing in attracting investment and stimulating increased levels of growth and job creation.

Build Smart or Build Cheap

One potential path in ‘state-led’ forms of re-industrialisation may be, as we see already with the US federal government granting Chrysler  a large state-financed loan, to invest in greater levels of automation and fixed capital in order to (re)gain global competitivness. Such increased automation inevitably means a comparative decrease in variable capital (labour) with the possibility of jobless re-industrialisation thus becoming an analogue to ‘jobless recovery’. While its is unclear how this species of ‘solution’ is sustainable or can work beyond the short term it is clear that while at least being experimented with in the US it remains off the cards in the United Kingdom.

The British government instead seems to rest its hopes on supply-side reforms that purely focus on ‘cutting the costs of business’. Such a stratagem requires a cut in the cost of variable capital and establishing a low-tax regime to attract foreign direct investment, particularly from the sovereign wealth funds of South and East Asia and the Gulf States.

This agenda is observably underway with George Osborne cutting rates of corporation tax from 28% to 25% between 2010-12 and ultimately to 22% for 2015. This is despite the fact that UK companies are already sitting on a cash pile of £752 billion – six times the UK's annual budget deficit and this crisis is, to borrow from Keynesians and under-consumptionists, a crisis of demand and not supply.

On top of creating a very favourable tax regime for foreign direct investment one also sees ever accelerating moves to further repress of the costs of labour - a process initiated in the early 1970s and central within ‘re-structured’ capitalism that now goes into further hypertrophy as profits and job creation within the Post-Fordist settlement either stagnate or collapse. While this process was already the case before the global financial crisis it has surged consequent to 2008 and now desperately needs a solution.

Given the coalition seems unwilling or unable (and here one need only look at the public deficit already) to offer credit to companies to invest in fixed capital (and UK investment in fixed capital and therefore future productive capacity is at all time historical lows) Plan A(+)  should thus be understood as focusing on a concentrated reduction in the cost of variable capital within UK production, whatever the human and social consequences. Once more, we are led to believe, there is no alternative.

Plan A and Wage Repression: How will this be done?

Such a reduction can and is being actively facilitated in a number of ways.

Firstly, there is the freezing of the minimum wage, as already has been done this year for the under-21s - a brief glimpse of the future perhaps. Going forward one may even see the wholesale abolition of the minimum wage as was recently suggested by IEA Director General and Lib Dem ‘Orange Booker’ Mark Littlewood. What is more likely would be it’s withdrawal for those under under 21 as was instead recently suggested by the Adam Smith Institute. Such ‘radicalism’ will not be far from the thinking of Liam Fox, John Cridland and Lord Barclay on the matter - nor indeed George Osborne - and is already embryonic in this year’s freeze.

Secondly, in reality the government has no problem with increasing numbers of people being unemployed with such a phenomenon anabolising a greater reserve pool of labour. The larger the reserve pool of labour the less that capital has to offer it in the form of wages to attract it into work - hence a reduction in the costs of labour overall and a more attractive location for foreign direct investment to invest.

Writing on the phenomenon of the labour reserve army Marx wrote,

‘Big industry constantly requires a reserve army of unemployed workers for times of overproduction. The main purpose of the bourgeois in relation to the worker is, of course, to have the commodity labour as cheaply as possible, which is only possible when the supply of this commodity is as large as possible in relation to the demand for it’.

This is the simple principle of wage elasticity whose theoretical veracity is as readily conceded by Neo-Classical economists as Marxists. Massive and unprecedented cuts to public sector employment is arguably as much about creating a pool of reserve labour and consequently driving down the costs of labour overall, particularly for the private sector investment, as it is about dealing with the deficits through making public sector cuts.

Thirdly, as well as cutting benefits, government will increasingly attempt to make people work for benefits. While ‘workfare’ is at present only for a maximum of six months at a time, it is highly conceivable that the policy will be extended far beyond it’s existing parameters. This would increasingly render the state, through essentially deploying Jobseekers Allowance as a labour subsidy for highly profitable companies, as a de facto employer of last resort.

The various programmes that constitute workfare should be regarded as the fulcrum of the coalition’s ‘industrial policy’ and very much a supply-side catalyst for growth. It is within such a strategy that Jobseekers Allowance becomes a state-subsidy for large companies such as Tesco and members of the Arcadia Group to employ free labour rather than a temporary form of collective labour insurance designed for intermittent periods of unemployment. Nor should the scale of workfare programmes be underestimated -  850,000 people are expected to be referred to the Work Programme by the end of this year. However, due to the “black box” approach the government uses with the private providers it is impossible to know how many are being forced to work without pay.

What is certain is that two million individuals will be put through this highly opaque process before 2015 and if one doubts the potential scale of the labour inputs involved here one need look no further than the single ‘Work Experience’ scheme (one of five workfare programmes) which the government intends to extend to 250,000 workfare placements.

Within just the ‘Work Experience’ programme each placement represents 8 weeks of 30 hours work. With 250,000 places this means an aggregate 60 million hours of unpaid work. This is only one initiative within the workfare programme, which unless it faces mass public resistance, will in all probability be far larger after 2015 whatever party is voted into government.

Finally, an ever larger prison population will become increasingly instrumentalised as a reserve of labour whose low costs of exploitation, as with those on workfare programmes, further depresses the wages of the entire working population. This is already the case in the US where prison labour has been described as ‘outsourcings best kept secret’.

Having previously stated in 2010 that all UK prisoners should be working 40 hours a week Kenneth Clarke similarly announced plans to double the prison workforce from it’s current 8,700 to 19,000 by 2020, increasing revenue generated in the sector to £132 million in the process. One already existant working prison is HMP Featherstone in Wolverhampton where every prisoner is in full time employment and paid £17 a week to produce beds and cabinets for the prison estate. The prison hopes to win more contracts from the private sector going forward and represents something of a model that Clarke would like to see rolled out across the United Kingdom.

Rather than speaking in the usual rhetoric of using such programmes as useful in cutting re-offending rates Clarke even chose in 2010 to deploy the vocabulary of resource allocation referring to the current prison population as a “wasted resource” within the national economy. To compound this released prisoners are increasingly put on workfare programmes the moment they are released from prison with unpaid labour becoming, as with the US, an integral part of the prison-industrial complex. Even if one believes that the incarcerated have a debt to repay to society surely such a debt does not  include diminishing the wages of everyone else?

Conclusion

A key element of the coalition government’s Plan A(+) is to depreciate the costs of labour as much as possible. By doing this, as well as creating a favourable investment climate for primarily foreign capital by reducing corporation tax and facilitating a climate of tax avoidance, the government hopes to eventually revivify growth and job creation. Growth for ‘who’ and ‘what’ kinds of jobs seem to be entirely inconsequent to our political masters.

The search for profit, naturally, requires the costs of production to be as low as possible. This requires either investment in fixed capital and greater levels of automation, such as that seen in the US with the loan to Chrysler or a reduction in the cost of variable capital, i.e. wages. As Paul Mason’s piece sought to highlight, at least the US is experimenting on this issue - even if one believes that such experiments are ultimately insufficient.

Chrysler is an exemplar of what a Keynes 2.0 would hope to achieve in 2012. Consequent to government investment it hopes to compete for global market share with greater levels of technical efficiency (as well as marginally reduced wages).  Contrarily the UK government’s industrial policy, aims almost exclusively at reducing the cost of labour through reducing the costs of the reproduction the working class. This translates to ever-diminishing state benefits (despite frequently stagnant or increased levels of taxation on such groups) as well as reduced pay.

There are numerous problems in pursuing this path. Firstly, such a policy of wage repression means that private households will not be able to deleverage and reduce levels of personal debt - indeed what we are currently seeing is a privatisation of some public debt with austerity cuts. Secondly, these supply side measures will only further depress already reduced levels of domestic consumption. Given many see the current crisis as one of underconsumption such moves might lead to a decade or more of economic stagnation if not contraction.

Worse than all this however is that such measures, even if they do eventually catalyse growth and jobs (for who and for what wages is the main question here) can only lead to a massively reduced quality of life for the overwhelming majority of the population. The human costs are incalculable and such massively increased exploitation represents the final nail in the coffin of any understanding between capital and labour that remained as a consequence of the post-war compromise.

To speak frankly, should Plan A be adhered to for much longer or what is more probable, intensified, then the tragedy of the 77 year old Greek pensioner who committed suicide in Athens, Dimitris Christoulas, will become more common in the UK sooner than we might yet imagine.

This after all is the cost of squeezing the input of ‘variable capital’, human beings, to their absolute limits. From workfare, to the prison workhouse, to benefit cuts and decreasing real wages that will continue into an indeterminable horizon, never has a government explicitly sought to offer so little to the public - debt, misery, anguish - and seemingly little else.

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