Living standards crash as recession cuts deep

The living standards of British workers are being progressively destroyed, during the longest slump in the modern age as the capitalist recession takes its toll on the only people who create value in society.

Wages have decreased by a total of 6% in real terms in the last five years, as people have accepted cuts in pay or reduced hours in order to stay in a job at any cost.

On paper, average earnings increased by 1.3% in the first quarter of 2013, but this is skewed by the massive pay and bonuses of the richest. The reality is that workers’ wages are going backwards, whilst inflation is running at 2.7% per annum.

One-third of workers found their wages were frozen between 2010 and 2011, and 70% experienced real wage cuts, according to a new report from the Institute of Fiscal Studies.

It compares the situation today to the Great Depression of the 1930s, and finds that it is worse. The slump, says the IFS, has been "deeper and longer than those of the 1990s, the 1980s and even the 1930s. It has seen household incomes and spending drop more and stay lower longer."

There has been an unprecedented drop in productivity in the UK, with factories producing 10% less than they were in 2007, the year before the crash. The drop in household incomes means that the service and retail sector are poised for further bankruptcies and closures.

And it's the same picture across the world, as the World Bank today cut its forecast for growth in global GDP in 2013 from 3.1% to 3%. This is in effect negative growth because it does not cover even the needs of the increase in global population.

Few new workers are entering the world economy, and this can be seen by the massive levels of youth unemployment everywhere.

The World Bank further predicts that the eurozone economy will shrink by 0.6% this this year. Growth is slowing in China and India.

The TUC today launches a new campaign "Britain needs a pay rise", but it is all empty rhetoric. A Facebook "like" is not going to put a penny in the pocket of workers, unionised or otherwise.

Last year, the TUC conference pledged an all-out fight against the prolonged freeze in public sector imposed by the ConDems. But nothing whatsoever resulted in terms of action, after the Labour leadership endorsed the government’s policy.

More important than the empty words of the suits at the TUC is the political transformation of a whole generation of young people across the globe. They are being excluded from the world economy, not only in Greece, Spain, Portugal and the UK but also in Turkey, Egypt, Syria, Tunisia and beyond.

And the fact that their response to this is to put themselves in the leadership of movements for democracy is a recognition on their part that this economic crisis – we might say this economic exclusion – can only be solved by political means.

It is governments who enforce the law that growth is the only criteria worth pursuing. They are all, universally, in every country mentioned above, fully committed to the perspective that people's capacity to work is a commodity, like any other commodity. If an individual is unable to sell it, or can only achieve a low price for it – that's just the law of the market.

This has always been the case. It is worth reminding ourselves that the transformation of Britain into a low wage economy predates the economic crash. The wages of full-time workers barely grew between 2003 and 2008 and were negative for the lowest earners, who never benefited from the Blair/Brown credit-fuelled boom.

What has changed is that all pretence that the state is concerned for the poorest and can act to alleviate the worst impacts of this market, has been removed.

Therefore it is not austerity per se we should rail against but the rule of the capitalist market and the exploitation of labour for profit, which is destroying our living standards, our economic future and our planet.

Penny Cole

Greek debt crisis: a warning from history

Greece has moved centre stage as the global debt contagion engulfs Europe. But Italy, Portugal and Spain are not far behind, whilst France and even Germany, whose banks have many billions invested in the other countries, are waiting in the wings. No wonder EU leaders are holding a crisis meeting tomorrow.

Greek public sector workers are taking to the streets today in protest against the government’s austerity programme. This is designed to appease the hedge fund managers who are raising the cost of borrowing, and the foreign exchange dealers who have launched an unprecedented assault on the euro.

The Panhellenic Socialist Movement (PASOK) was elected in October and pledged to rescue Greek capitalism after the break-up of the previous right-wing government. But PASOK has struggled to get to grips with the worsening economic and social crisis.

Today’s strike by unions PASOK could once count on against pay and pension cuts is accompanied by a continuing blockade of main roads by farmers, including the border with Bulgaria. They are demanding financial support the government can’t afford to give.

The immediate threats to the country’s political stability arise from the payments due on its mountainous debts, now proving impossible to service as its economy – largely dependent on tourism and shipping – has taken a big hit from the global recession.

But the Greek government is not alone. It just happens to be the weakest of the pack of highly indebted countries which includes Portugal, Italy, Ireland, Spain, France, the UK and the US, not forgetting Dubai.

Greece’s public spending deficit exceeds 13% of the value of annual output of goods and services, Spain’s 11.4% and Portugal’s 9.3%. All these are far in excess of the 3% safe limit determined by rules set by the EU for countries using the euro currency.

These deficits are funded by borrowing – selling bonds to investors, speculators on the private markets whose only interest is “interest” or “yield”, the amount they can charge. As the problems of repayment mount, so does the cost of borrowing. The principle is the same whether we’re talking about global investors or doorstep, pay-day lenders. Fail to make a payment and the interest due is added to the principal - and then the rate rises. Defaulters are treated very severely. Brutally.

Some consider the UK safer from the effects of debt contagion, because it is outside the euro zone. But its deficit is way up there at more than 12%, and the pound is also under pressure from the foreign exchange traders.

Bankers and hedge fund managers now call the shots, demanding public sector wage and benefit cuts, tax rises, pension reductions and the ending of vital services. Respected figures like George Magnus, senior economic advisor to UBS Investment Bank, talk in hushed tones about the need for governments to balance the risks of a breakdown in “social cohesion” arising from the prescribed “structural reforms” needed to attract investors like him.

The system of elected government that Europeans have got used to during the thirty years of corporate-led globalisation cannot survive the scale of the devastation needed to sustain the capitalist system. Greece was ruled by a military Junta between 1967 and 1974; Spain’s fascist dictatorship lasted from 1939 until Franco died in 1975. The Salazar government in Portugal lasted from 1933 until his death in 1970. The Nazis came to power in 1933 as the effects of the Great Depression were felt throughout the world.

That Depression only came to an end when fascism and the Second World War eliminated the surplus productive capacity produced by the speculative growth of the 1920s. Today’s globalised financial, economic and political crisis exceeds by far the conditions of the 1930s. The costs of resolving it within the capitalist framework cannot be countenanced.

We invite you to join the discussion of alternative, revolutionary solutions put forward in our draft Manifesto.

Gerry Gold
Economics editor