The Chinese stock market bubble has burst and China has had its own “Black Monday” (on 23 August). Its economic growth is slowing down and the after effects of the turmoil in its stock market and the rest of the global economy is, according to the commentators – making finance ministers ‘jittery’.
Going by today’s reports (1 September) they are right to be worried. Manufacturers have reduced their headcount for the first time in two years because of fears that the world’s second largest economy is running out of steam.
Without any sense of irony the chancellor, George Osborne, said that it was a reminder that we are not immune from what happens in the rest of the world. Yet when the global economy crashed in 2008, triggered by the US sub-prime mortgage market, and recklessness in banks that were too big to fail, the Tories managed to turn the economic crisis into a crisis for the Labour party.
It was a masterclass of political guile and spin. Accusations that Labour’s ‘profligate spending’ had caused the crash became the established economic narrative. Labour was dumbstruck and they paid the price in the 2015 general election.
There seemed to be a moment when the neo-Liberal economic model – begun under Margaret Thatcher and adopted by New Labour – would be abandoned or at the very least modified. Not only did that not happen under this government, and the coalition before it, neo-economic liberalism has deepened – a project pushed through by removing the focus off growth and onto the deficit.
Now governing on their own, despite a narrow majority of only 12 seats, delivered by just 24 per cent of eligible voters, the Tories have been turbo charging their objectives to destroy large parts of the state. Plans for a £32bn sale of state assets were revealed by the Financial Times on the 3 August 2015.
During the election campaign Iain Duncan Smith, secretary of state for Work and Pensions, refused to say how and from where £12bn worth of welfare spending would be cut. Only weeks later however in Osborne’s first budget of this parliament he outlined who would be hit – unsurprisingly it was disabled people, lone parents, and the lower paid who were hardest hit, again, after already taking repeated blows from the Coalition.
At the same time, adding salt to the wounds the High Pay Commission reported (17 August) that chief executives’ pay of the top 100 companies climbed to £4.964 million in 2014. CEOs are now paid approximately 183 times the average UK worker. In short, the very rich have got a lot richer at the same time as everyone else is getting poorer.
Consequences of Osborne’s economic plan
A consequence of the reckless drive for the spending cuts of Osborne’s 2010 emergency budget – only Greece and Luxembourg cut at a higher level – meant that we went back into a slump and recession. Austerity didn’t work on any level, and it has certainly not been the road to prosperity. Yet Osborne’s 2015 budget conducts the experiment all over again.
The mantra now being peddled by prime minister David Cameron and Osborne is that they are pursuing a ‘high wage, low tax, low welfare’ economy. But while they are certainly slashing benefits of the low paid and those who rely on such support, there are no actions to achieve high wages. Their so called ‘National Living Wage’ is in reality a National Minimum wage (NMW) premium – a slightly higher rate for those aged over 25 years, and is their latest rhetorical wheeze designed to wrong-foot Labour.
The increase in wages afforded by this increase is £4billion however a third of the cuts (£12 billion) are being made to benefits, and given that 60% of jobs paid at minimum wage are actually part-time (two thirds of which held by women), then we can see that the wage system cannot offset the cuts in benefits.
Alongside this, at the time of writing there had just been two consecutive monthly rises in the unemployment figures for the first time in two years.
Economic growth needs to be stronger
We know that the current increase in headline economic growth is fragile rooted in the sands of consumer spending and private debt. This isn’t healthy or sustainable – we need government investment in areas such as housebuilding and other areas of infrastructure to get us onto a better economic path.
Unite has argued for stronger economic growth with better distribution of economic gains, including tax justice that goes hand in hand with social justice.
An increase in the National Minimum Wage to £8 an hour immediately would create a net increase of 30,000 jobs, improve the public finances and reduce the welfare bill and £10 an hour increase would be even better. This – combined with stronger trade union and employment rights – could finally start delivering the increase in real wages and increase in living standards for all after the seven years of falling real wages.
A further damaging economic consequence of austerity has been low productivity.
Commentators have latched onto this arguing that we can only have growth and better living standards with increased productivity but as a TUC report demonstrates there is no ‘productivity puzzle’ – austerity is the cause: “The truth is that investment and increases in demand and an end to austerity economics will inevitably boost productivity – and with the right supply-side policies to ensure growth is fairly shared and that investment can get a good return can deliver a virtuous circle where demand boosts productivity which in turn produces more growth.”