Britain facing decline into Third World ?

Press, 11 October 1978, Page 16

Britain facing decline into Third World ?

By

PETER JENKINS

in the “Guardian,” London

No country has yet made the journey from developed to under-developed. Britain could be the first to embark upon that route. That is what it would mean to move away from a century of relative economic decline into a state of absolute decline. Here is how it could happen. Productivity continues to increase more slowly than in other countries. Wages grow at the same rate or faster. Unit labour costs and consumer prices thereby grow much faster. Britain’s share of world markets continues to diminish. So does the number of people employed in manufacture. Export trade ceases to be sufficient to keep factories open while imports strike more deeply into the domestic market. The moment comes at which it is no longer possible to finance a growth in real incomes. Relative decline will have brought about absolute decline.

It is vital to grasp that perpetual lagging behind is not an attractive option for Britain. It may not seem important that others grow richer provided Britain grows rich enough. Gentle decadence might prove an enjoyable state. Unfortunately it cannot go on: the loss of competitiveness leads gradually to industrial extinction.

Where is the motor-cycle industry today? Dead and gone. Look at what is happening to British Leyland: It has been obliged to retreat from the volume car market in the United States. Since 1964 Britain’s share of the world car market has fallen from 11 per cent to 5 per cent; of the shipbuilding market from 8 per cent to 4 per cent; of steel from 6.2 per cent to 3 per cent; of chemicals from 134 to 9.7 per cent; of non-electrical machinery from 16.2 to 10.2 per cent; of electrical machinery from 13.6 to 7.6 per cent; and of transport equipment from 16.3 to 6.1 per cent.

This is the process called de-industrialisation. It appears to have set in some time in the late 1950 s and to have marked a new stage in the course of Britain’s relative decline.

The most simple measure of it is the decline of employment in manufacturing. A decline in the manufacturing sector in relation to the growing service sector is a healthy feature of an advanced economy when it reflects the growing efficiency of the productive sector. In Britain it appears to have reflected the opposite, in striking contrast to what was happening in other countries. Between 1955 and 1973 employment in the manufacturing sector of the economy in Britain declined by 13 per cent. Everywhere else it increased — by 13 per cent in France, 18 per cent in the United States, 31 per cent in West Germany, 57 per cent

in Italy, and 155 per cent in Japan. Non-industrial employment also increased in these countries but not as quickly as in Britain where — as the Oxford economist, Bacon and Eltis, have chronicled — the exodus was from the factories into the offices of a burgeoning governmental bureaucracy. The result: a growing super-structural strain upon the productive sector of the economy. The index of production gives some idea of what has been happening in key industries. Since 1970 manufacturing output over-all has grown by 4 per cent — a deplorable performance in itself — but in key sectors it has declined: down 4.5 per cent in mechanical engineering, down 6.7 per cent in vehicles, and in engineering over-all — the heart of British industry — output barely kept up with the index. The record of British industry during the recession does not inspire confidence in what will happen if world trade turns down once more. Between 1973 and 1976 output per head increased in West Germany by more than 10 per cent, in France by more than 9 per cent, and in Japan by more than 7 per cent; in Britain it increased by only 1.2 per cent. Figures for industrial production are equally dispiriting. Since 1973, in spite of the recession, manufacturing output has grown by 7 per cent in Italy, 5 per cent in France, and 2.7 per cent in Germany; in Britain it was by last year still 6.1 per cent down. Over-all growth in Britain over the same period was nil while with the others it ranged from 5.9 per cent in Germany to 12.8 per cent in Japan. These figures show that Britain is emerging from the world recession in a further weakened state, less able to compete with the others than before.

During the recession other countries managed to adopt to the higher price of energy and transfer a proportion of their national income to the oil producers. At the same time they were able to increase the living standards of their own people. This they did by increasing their productivity to make up the difference.

Over the past 12 months real living standards have advanced sharply in Britain. North Sea oil helped to make this possible and so did last year’s public expenditure cuts. Nevertheless, real living standards on the Continent will have improved twice to three times the British rate over the five years since 1973. Th j British pre-elec-tion boom is not justified by increasing productivity. Low productivity and low wages are first the consequences of decline, then become its causes. It remains to be seen whether during the next few months

workers seek to obtain with their trade union muscle what they have failed to achieve in real Hying standards through their industrial productivity. The early confrontation at Ford is an ominous sign.

But the chief ingredient of a renewed inflation may be the cumulative effect of progressive taxation on take-home pay. The tax threshold as a proportion of median earnings is down to 50 per cent from 68.6 per cent in 1972-3, the standard rate of tax was up from 30 per cent to 33. That is the measure of the burden of public expenditure which had fallen upon the average worker.

Economic crises have taught the British to be unusually, and unhealthily, pre-occupied with the shortterm. The politicians from time to time deplore this, but they do much themselves to encourage it. If it is believed that this strike or that price increase, this export contract or that economic report, this or that Budget, is of crucial importance then it is easy to suppose that Britain’s economic difficulties are a series of contingencies rather than the chronic effects of a longterm deterioration. The late lain MacLeod used to say that he did not fear the precipice, only the long slide down.

That slide has been going on for a long while. It began in the 1860 s; World War II destroyed a vast part of the overseas assets which had helped to subsidise the British standard of living; the liquidation of the Empire meant the loss of traditional markets; then from sometime in the mid-fifties — in spite of an improved growth performance by historical standards — deindustrialisation began. Now the recession has made matters worse: the economy is less competitive than ever, more prone to import. One more winter, one more phase of pay policy, one more Healey Budget is not going to be make or break. The transition from relative to absolute decline may be somewhat distant yet — beyond the next recession, or the one after that, or the. one after that — who knows?

North Sea oil will help to stave it off. And even if that absolute decline sets in it may at first be hardly discernable, scarecly painful for the majority. For the great majority Britain should be a pleasant place to live for a good deal longer yet. There is time yet for the decline to be arrested and reversed. The prognosis is not an optimistic one but cure is not impossible. What can be said with certainty, however, is that the present pre-election boom, the glosses of the politicians in power and the panaceas of those who seek it, bear small relation to the truth of Britain’s underlying economic state.