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Industrial decline & the TUC
The haemorrhaging of manufacturing jobs continues. In April, Peugeot announced the closure of its Ryton (Coventry) plant with the loss of 2,300 jobs. Now, General Motors is threatening 1,000 job cuts at its Ellesmere Port (Merseyside) Vauxhall plant. Over the last 30 years the British manufacturing sector has lost around five million jobs. What is the answer? MICHAEL FISHER examines a recent response from the Trades Union Congress (TUC).
IT HAS BEEN just over a year since MG Rover at Longbridge closed. Six thousand jobs were lost at the plant, and a further 20,000 from firms in the supply chain. Today one-third of the former Rover workforce remains unemployed. Of those who have managed to find work, they are on average £3,523 a year worse off than before.1
The closure of MG Rover is only one further indication of the relative decline of manufacturing industry in Britain that began before World War One and accelerated after World War Two. According to the OECD, annual growth in manufacturing output in the UK averaged 1.1% between 1964 and 1999. This compares to an annual average of 4.5% in Japan and 3.7% in the USA. Over the same period, total manufacturing output in the UK increased by 47%. This compares to an increase of 242% in the USA, 163% in Italy and 117% in Germany.2
The consequences of this relative decline for many workers have been devastating. Since 1979, the numbers employed in manufacturing industry have fallen by 50%: from seven million to just under 3.4 million. Over a million of these jobs have been lost while Gordon Brown, the supposedly ‘pro-industry’ and ‘union friendly’ future leader of the Labour Party, has been Chancellor. In every month since the closure of MG Rover in March 2005, the number of jobs in manufacturing has continued to fall.3 In April this year, the crisis of employment in manufacturing deepened with the announcement by Peugeot that it intends to close its car plant near Coventry.
A key question confronting the working class and the labour movement is what should be done, not only to stop further job losses, but to reverse the industrial decline that has contributed to massive increases in poverty, crime and drug abuse in those communities abandoned by capitalist industry.
One answer has been offered by the TUC. It has recently published two new policy documents: An Industrial Policy for the United Kingdom; and Investment Chains: Addressing Corporate and Investor Short-Termism. In these documents the TUC sets out what it sees as the problems confronting industry in Britain, and recommends policies to deal with them. They are useful and important documents because they highlight precisely what the approach of the labour movement to these issues should not be.
The TUC argues that governments should become more involved in promoting industrial development. However, it is quick to reassure Labour ministers and the Confederation of British Industry (CBI) this does not mean challenging the so-called ‘free market’. Its Industrial Policy document states: "The market is valuable in creating competition, delivering efficiency and keeping prices low. No return to state power or large-scale nationalisation is sought... We support the principle of open competition". (p33)
The document is silent on the fact that increased competition has been largely responsible for the haemorrhage of jobs from industry since the mid-1960s. More to the point, having uncritically accepted the allegedly ‘valuable’ role that the free market plays, it becomes impossible to then argue for policies that would stand any chance of halting the damage that the market is responsible for.
It is not surprising therefore that the concrete policy proposals contained in the document, even if they were implemented, would have very little impact. The TUC’s key policy recommendation is that government should offer selective and periodic financial support to large firms that are ‘strategically important’ to the British economy when they confront temporary difficulties. And, in return for this money and the full cooperation of the trade union movement, does the TUC demand that these firms guarantee no job losses, recognise trade unions, involve workers in real decision making, or commit to using their future profits to fund productive investment rather than making their owners even richer? No. Money should be given to large capitalist firms, with the active support of the labour movement, without any strategic advantage being secured for the labour movement in return.
Even if, for a moment, we accept the argument that companies should receive occasional assistance from the state with almost no strings attached, why limit this to ‘strategically important’ firms? While the closure of large plants such as MG Rover receives much political and media attention, the vast bulk of the job losses in manufacturing since the mid-1960s have resulted from the closure of firms that employ a few hundred or a few thousand workers. Today, some of these firms are heavily dependent on the business of the big high-profile corporations. But many are not. What does the TUC propose the government should do to help workers in these firms? Beyond encouraging employers to invest more in workforce training and development, very little.
A short-term view
IN INVESTMENT CHAINS, the TUC attempts to grapple with a key cause of Britain’s relative industrial decline: short-termism. The argument here is that shareholders in publicly-owned companies place a high premium on short-term profitability at the expense of long-term strategic investment in new products, production technologies and workforce development. When a company experiences falling profitability because shareholders have no long-term stake in the business, they may abandon the company in search of more profitable opportunities elsewhere, rather than shoulder the risks and costs involved in helping it to survive. These trends are exacerbated by the British banking system, which is also preoccupied with short-term returns, and is therefore reluctant to lend to firms for the purposes of long-term investment at affordable rates.
In case these arguments against short-termism might be interpreted as being in any way ‘anti-business’, the TUC asserts its pro-employer perspective: "There is… a significant shared agenda with business here. Short-termism is typically no more in the interests of companies than it is in the interests of employees". (p6)
The key question is: what is the source of short-termism? For the TUC it is the anti-industry bias of British banks and the impatience of shareholders. Government should therefore develop incentives and forms of regulation that will encourage banks and shareholders to invest for the long term.
But this completely misunderstands the nature of the relationship between finance and industry in the British economy.4 Historically, it is true that industry and finance in Britain were not highly integrated. But this was not because the banks were hostile to industry. Many firms did not want or need to become closely involved with the banks. Industry was able to secure the profits it wanted by means of privileged access to protected imperial markets and by sweating outdated plant and machinery. Firms preferred to fund new investments from their retained profits, rather than risk losing control of their assets by borrowing from banks.
With the end of empire after World War Two, and the end of post-war growth in the 1970s, parts of British industry became increasingly integrated into global finance. Firms borrowed more to fund mergers and acquisitions. They began investing in the financial markets. The more successful firms issued shares and became traded on the international stock exchanges.
This ‘financialisation’ of British industry did not happen because the banks suddenly became less hostile to industry. Confronted by a crisis of profitability, many British industrial capitalists sought to use the facilities and resources offered by financial capital as a means of restoring their rates of profit. Financial capital provided the credit necessary to fund investment in new technology and the relocation, acquisition and building of plant. The excess capital liquidity promoted by the deregulation of financial markets and the banking industry helped to support levels of demand for industrial output. Furthermore, becoming answerable to shareholders acted to discipline business operations, placing further pressure on workers to work harder to increase output, efficiency and productivity. There was also greater pressure from shareholders to close plant and impose mass redundancies in order to maximise profits.
There was a clear class motivation behind financialisation and the deregulation of money in the 1970s and 1980s. By converting the value of industrial assets into internationally traded shares, bonds and other forms of financial investments, the ownership and control of capital would become more international and mobile, and so less tied to particular nations. Capital could then move more easily around the globe and escape those places with politically powerful and industrially militant working classes.
No common cause
THE TUC IS right to implicitly recognise that financialisation has exacerbated short-termism. Highly competitive global commodity markets awash with excess liquidity are very unstable. In this context some shareholders and financial institutions constantly move their investment capital, searching for the highest rates of short-term return regardless of the consequences for long-term industrial development. This generates significant new business risks for capitalists – hence the rapid growth of ‘risk management’ services since the 1970s. However, while a few may bemoan the increase in short-termist behaviour, many capitalists view it as a tolerable problem preferable to the alternative: stronger political controls on the mobility and profitability of capital, with the related risk of increasing the industrial and political strength of the working class.
The TUC is therefore wrong to argue that business has as much interest in combating short-termism as workers. Any moves to significantly limit short-termism would necessarily involve government trying to exert greater control over the investment decisions of the financial markets and multi-national corporations. The most powerful capitalists would view such attempts as an intolerable interference with their private business decisions and would offer fierce resistance. The appropriate response to this would be for socialists to mobilise the labour movement and the working class to confront and defeat that resistance. Building for such a strategy is not an option considered by the TUC.
Ultimately, short-termism is the product of the free markets and open competition that the TUC endorses. Ending it will require abolishing the market. It will require replacing the chaos and waste generated by competition with a rational, planned, democratic economy. And no capitalists, be they financiers or industrialists, will ever support that. Therefore, attempts by the labour movement to find common cause with the capitalist class on this issue are both doomed to failure and politically counterproductive.
These TUC policy documents confirm the extent to which a large number of trade union leaders, and a leading layer of the British trade union bureaucracy, have come to fully accept the economic logic of capitalism. What kind of ‘alternative economic strategy’ for the labour movement is it that accepts all the fundamentals of capitalism, argues that workers have fundamentally similar interests to those who employ them, and advocates policies none of which will make a substantial difference to the problems they are supposedly intended to solve?
But these weaknesses also apply to most members of the so-called ‘awkward squad’, such as Billy Hayes (CWU) and Tony Woodley (TGWU). Both have spoken and written in recent years about how important it is that the left develops its own economic strategy in opposition to neoliberalism. What such a strategy might contain was indicated by Woodley in a Guardian article in May last year.5 On the Rover closure he concluded: "The government did all it could to help during the Longbridge crisis – within the tightly drawn parameters of the global free market that apparently set the limits for political debate and decision-making".
And Woodley’s alternative to this ‘global free market’? More state money to help ‘return companies to health’. Woodley’s practical policy proposals differ little from those of the TUC – except he wraps them up in some vaguely anti-capitalist rhetoric.
The lesson to be learned from the deepening crisis of employment in Britain’s manufacturing base is that in the absence of a credible and popularly understood socialist economic strategy that can challenge the economic logic that drives plant closures, and which offers a positive alternative based on prioritising the social needs of the working class, much of the labour movement will be limited to observing the crises of capitalism rather than acting to bring them to an end.
However, the main obstacle to learning this lesson is not one rooted in the complexities of economic theory and policy. It is political. The key problem is that most of the awkward squad, in common with the TUC, do not believe it is possible or desirable to build a new mass party to the left of New Labour. If the Labour Party is the only possible political vehicle for trade unions, then there is no point in arguing for socialist economic policies, no matter how necessary they may be from the point of view of workers, because Blair, Brown and the rest of the leadership will simply ignore them. Having limited their economic horizons to those set by a thoroughly pro-capitalist political party, it is not surprising that the resulting policy recommendations are completely inadequate.
The question of which economic policies the labour movement should argue for is therefore inseparable from the question of which political party is likely to implement them. If policies that really can reverse industrial decline, guarantee employment and eliminate short-termism will not be implemented by the Labour Party, then it is time to build a party that will.
1 The Work Foundation (2006), Life After MG Rover: a report prepared for BBC Radio Four
2 OECD figures quoted in M Kitson and J Michie (2000), The Political Economy of Competitiveness. Routledge, London
3 Office of National Statistics, www.statistics.gov.uk
4 For a Marxist account of the historical relationship between finance and industry in the British Economy, see S Clarke (1988), Keynesianism, Monetarism and the Crisis of the State. Edward Elgar, Cheltenham
5 An end to passivity: the state must act to prevent another Longbridge, The Guardian, 3 May 2005