Cooking the Books: Is Recovery Under Way?

IF YOU go by the official statistics the answer will be ‘yes’ since the quarterly figures for GDP (Gross Domestic Product) have shown a slight increase for a number of successive quarters now.

GDP, however, is made up of various elements – government spending, business spending and consumer spending – but it is only business spending that drives the economy, the other two being dependent on it and following the path it takes. So an increase in GDP due to one of the other two elements might not necessarily signify a recovery. So the relevant question is: is business investment increasing?

The government is anxious to play up the figures both to encourage business confidence, i.e. whistling in the dark, and to attribute them to its policies. ‘I have been vindicated on economy, Osborne claims’ was a headline in the Times (9 September) reporting his claim that critics who had advocated a different policy ‘cannot explain why the UK recovery has strengthened rapidly over the last six months.’

We have not been advocates of a different policy (it’s not the job of socialists to advise governments on how to run capitalism) but we can offer another explanation: that is something that has happened independently of government policy and was always eventually going to happen anyway.

Vince Cable, the Business Secretary, has been rather more cautious. According to the Times (11 September), he has spoken of the danger of ‘complacency, generated by a few quarters of economic data’ and said that ‘the beginnings of a recovery will not become meaningful until there is a strong and sustained business investment, which remains well down on pre-crash levels.’ Indeed it is. According to other figures from the Office for National Statistics:

‘From 1997 to 2008 GFCF was between 16 and 17 per cent of GDP. From 2009 onwards, this has fallen to between 14 and 15 per cent.’

GFCF is Gross Fixed Capital Formation which includes capital investment by the government as well as by businesses. Cable is right to point out that this will have to increase before there can be any talk of a recovery beginning.

Socialists accept that sooner or later there will be a recovery of business investment. As Marx pointed out, ‘permanent crises do not exist’ (Theories of Surplus Value, chapter XVII). Any more in fact that there can be a permanent boom. Capitalist production is a never-ending cycle of booms and slumps.

A slump eventually creates the conditions for a recovery of business investment (just as a boom eventually creates the condition for a slump). Stocks are cleared. Some businesses go under and their assets pass cheaply to their rivals (devaluation of capital). Real wages fall under the pressure of increased unemployment. Interest rates go down due to the supply of money-capital exceeding the demand for it.

With the possible exception of there still being room, even a need, for more business failures, these conditions have been met so the scene has been set for a recovery. But there is no telling how long it will take or whether it will be sustained. The slump won’t be over till GDP and business investment reach pre-slump levels and there’s a long way to go before that happens.