The Stagnation of Living Standards and Technical Decline

According to the latest government figures, real pay levels in Britain have not risen in 12 years, and are now lower than they were in 2007. Money wages have risen, but the rise in money wages has been totally absorbed in rising prices (Fig. 1↓). This is the worst and most prolonged fall in peacetime living standards since records began.

At one level this is a terrible indictment of the Conservative and Liberal governments since 2010, but the decline in earnings started in 2007 under the Labour government so the causes go deeper than just which government is in power.

Figure 1 The stagnation of wages in the UK.

If we look at Fig. 2↓we can see that even though earnings have stagnated, real national income has been rising since mid 2009. 

Figure 2 Growth of UK real national product (Chained Volume Measure, Office of National Statistics).

The rise in national income has not filtered through into pay because of two main reasons.

  1. The share of the national product going to the exploiting classes has risen since 2010. The share of national income going to the top 1% initially fell during the crash of 2009, but has subsequently recovered.

Figure 3 The rise in the income share of the top 1 percent.

  1. Such growth in national income as has occured, has been due to a rapid rise in the workforce.

Productivity has been stagnant. Since the industrial revolution economic growth has been mainly due to rising labour productivity. This has now come almost to a halt in Britain as can be seen from Fig. 4↓

Figure 4 The growth of labour productivity has been shrinking over the last half century in the UK. Growth rates computed as moving average over last 5 years from ONS data for output per worker for the whole economy.

This is one of the most remarkable economic changes that has occured in two centuries. For two centuries we have grown used to the idea that capitalism involves economic progress and technical advance. This seems to be ending in the UK where the industrial revolution started.

It is not just Britain that is experiencing a slowdown in technical advance. The same basic pattern can be seen in all the mature capitalist countries as shown in Fig 5↑

Figure 5 The decline in productivity growth is an international phenomonon. (Data obtained from Extended Penn World Tables.) Note that this data only goes up to the start of the 2008 recession.

Figure 6 Immigration and exploitation in the UK. Years with high rates of immigration have high rates of exploitation.

Throughout the capitalist world this law is in effect, slowing down the growth of labour productivity. The capitalist class seek cheap labour, which systematically holds back technical progress. They show chronic unwillingness to invest. Orthodox economists call this ‘secular stagnation’.

I am old enough to have seen the rate of technical change slow down a lot within my own lifetime. I remember that it was in the late 1970s that Greg Michaelson and I first noticed this slow down happening and started to discuss it. Technical change is nothing like as rapid as it was in the 1950s or 1960s, let alone between 1890 and 1914. The tendency is for the rate of advance of labour productivity to slow down.

Perhaps our grandchildren will be using magnetic levitation trains, but in the 60s we expected linear induction monorail trains to be in use by 1980. After all they were building a prototype in East Anglia. High speed tilting trains were being developed by BR in the late 60s and were scheduled for use in the 70s along with 125 mph diesels for other lines. Current Virgin Train diesels are no faster than those HSTs. In 1975 I could go from Edinburgh to London in 4hrs 20 mins, it is no faster today, forty years later. Where are the flying cars, personal jet packs, and and 15 hour working week that we were promised?

In some areas transport and technology has regressed considerably. 19th century style bicycle delivery boys are back on the streets, ‘badge engineered’ by Deliveroo. In the 70s Britain could build supersonic airliners, the Americans could land people on the moon. Neither of those technologies is available now. In the 50s the UK could from a complete standing start build a whole series of nuclear power stations with each one taking about 5 years. Now we have to import the technology at vast expense from China and France, and it takes over a decade.

During my grandfather’s lifetime, travel went from horse transport in towns and the only form of flight being by balloon, to generalised use of cars and mass jet transport. They went from magic lantern shows to cinema, and then television. There was no telephone system when he was born, let alone computers, but in his old age he came and saw the workstation I was using   and was immediately able to understand the Unix filing system.

Figure 7 Long term trend of net investment per worker as a share of output per worker is declining. Data for UK, USA, Italy, France, Japan.

When it comes to modernisation and technical change, the modern world has nothing like the rate of change 100 years ago or 50 years ago. For Scotland it is pretty clear that the apex of industrial development and modernisation occurred in the years before the first world war. After that, investment in the high tech Glasgow industries of the day – engineering, shipbuilding, aircraft, optics went into decline. Shipbuilding capacity peaked 100 years ago. From then on the process of destruction of industrial potential started.

Figure 8. Beardmores shipyard at Dalmuir 100 years ago. This was the most modern shipyard on the Clyde, but in the 1920s it was bought up by its competitors and demolished to remove competition.

What we are seeing is what Marx predicted in the 1850s when he wrote:

In the social production of their existence, men inevitably enter into definite relations, which are independent of their will, namely relations of production appropriate to a given stage in the development of their material forces of production. The totality of these relations of production constitutes the economic structure of society, the real foundation, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness. At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure.

Why is capitalism no longer able to develop technology the way it once did?

Basically it is because Marx was right, the natural tendency of a capitalist economy is towards ever increasing inequality. Unless checked by revolution, or the fear of revolution, the property owning classes concentrate more and more of societies income and property in their hands. As inequality and explopitation increase, the relative cost of labour falls.

As labour becomes relatively cheaper capitalists prefer not to invest in modernisation. Instead they just employ more workers at lower wages when they want to expand. As Fig. 7↑ shows, accross the capitalist world the trend is for investment to decline.

Low wages and high exploitation lead to technical backwardness. High wages force innovation. It was only the fear of communist revolution that forced capitalism to increase productivity after 1945. Fear of revolution led them to concessions which raised real wages. Fear of losing the technological race with the USSR led the West to engage in state led investment in order to compete.

After the fall of the USSR they no longer feared communism. Instead of investing in technology they sought to expand simply by importing cheap labour. As Fig. 6↑ shows, in years when immigration is high so is the rate of exploitation. But this very process of expansion via cheap labour leads to technical stagnation.

Since immigrant labour was the most immediately visible means by which British capitalists were increasing exploitation, it is no surprise that old working class areas voted so strongly for Brexit. Years of growing poverty produced a political effect. The first effect was to hit out at the most obvious policy of neo-liberal economics.

It is predictable that a tighter labour market after Brexit will make it harder for the employers to keep raising the level of exploitation here. In turn this will tend to incetivise them to invest in new techniques to compensate for the higher cost of labour. But if the lessons of our 20th century history teach us anything, it is that private capital can not be trusted to carry out the level of investment needed for continual industrial modernisation.

After Brexit the debate will shift onto what sort of economic policy can reverse the technical stagnation that the UK is experiencing. After the free movement of labour is challenged, the next topic on the political agenda will be the free movement of capital that allows capital to be exported to tax havens.

William Cockshott

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