GDP

Gross Domestic Product (GDP) is a statistic to which much importance is attached by the high priests of capitalism, our celebrated economic ‘experts’ and central bankers with their panels of expert advisers. Estimates of the growth or decline in GDP in the previous quarter are eagerly awaited, and forecasts for the coming year and beyond are given much credence and lead to sighs of relief when, as with the recent forecast for UK GDP from Moody, they predict growth of 1.2% for 2017, only slightly lower than the 1.5% forecast for 2016. The collective group-think is that, while the UK economy is slowing down, the EU Referendum result will not, as previously feared, trigger a recession. This confidence is buttressed by forecasts of GDP growth in the rest of the world, the recent fall in the value of the pound and the Bank of England’s further resort to ‘quantitative easing’ – the strategy whereby the government, in effect, prints money and lends it to the commercial banks without any strings attached.

Capitalist economies are, of course, always driven by such vague sentiments, reinforced by the wisdom of ‘experts’ who actually have little understanding of how their economies really work or when the next crisis will hit. Moody’s forecast assumes that another financial crash of the kind experienced in 2007 and 2008 won’t occur. Considerations such as the instability of the Euro, the house price bubble and bankers’ continued addiction to casino and arbitrage activity instead of investment in productive enterprises are simply ignored. Also disregarded, perhaps because it is simply too painful for the ‘experts’ to contemplate, is the much greater difficulty governments and central banks will encounter if a crisis in the banking and finance sector occurs sooner rather than later. Next time it won’t be so easy to lay the burden on ordinary workers and their families. That trick can only be played when memories have faded.

The tendency for capital to over-accumulate and resort to speculative activity as the rate of profit declines makes another economic crisis inescapable. It may not arise in 2017, but it’s coming.

Finally, a brief note on GDP. GDP is arrived at by summing the value added from separate commodity generating activities across the economy, thereby avoiding double counting the production of commodities used in subsequent production. It thus represents the income available to a nation to pay wages, capital costs, taxes and (most important to capitalists) profits. It is a useful measure of the scale of an economy, but it has several shortcomings. In particular:

  1. it fails to measure inputs and outputs at their true economic cost. In particular, no allowance is made for the damage to the environment caused, for example, by CO2 emissions;
  2. there is no allowance for depreciation of plant and machinery. If this were done GDP would be a good first order estimate of surplus value – a key measure in Marxist economics which bourgeois economists prefer to ignore – assuming that is they understand what it is;
  3. GDP, even after deduction of depreciation, requires a deflator before it can be used as an efficiency measure. The available deflators such as hours worked have limitations; and
  4. the statistic tells us nothing about how GDP is shared between capitalists and workers.

 

For those interested in these more technical matters, I will post a short piece shortly on the  Communist University in South London website.

 

Co-operative Bank

It is difficult to see the withdrawal of banking facilities for the Palestine Solidarity Campaign and the Cuba Solidarity Campaign by the Co-operative Bank as anything other than a nakedly political act. As the Daily Torygraph crowed on 29 November:

Activist group linked to Jeremy Corbyn has accounts closed amid fears it may be funding terrorism”.

This would only be true if by “terrorism” they meant standing up to the illegal occupation of the West Bank by Israel and the illegal blockade and harassment of Cuba by the USA.

The Co-operative Bank itself responded much more diplomatically than the Torygraph. In a letter to me in response to my complaint about their action, they said they had withdrawn banking facilities because PSC and CSC “sent money to high risk locations [requiring] high diligence checks to ensure the funds do not inadvertently fund alleged or proscribed activities” and “after quite extensive research [they] did not meet our requirements”.

The Palestine Solidarity Campaign has launched a legal case against the Co-operative Bank claiming that the Bank’s decision is discriminatory and contravenes sections 13 and 29 of the Equality Act 2010. ITN solicitors, acting for PSC, said the Bank’s failure to explain its actions or provide appropriate disclosure led it to believe the decision was based on PSC’s defence of Palestinian rights, including the right to oppose Israel’s illegal occupation of Palestine and its violations of international law. We wish them well, but whether they will secure adequate compensation remains to be seen. Don’t hold your breath.

There was once a good reason to bank with the Co-operative Bank and its internet banking arm, Smile. While never a true co-operative, it was owned by the Co-op and therefore arguably part of the co-operative movement and apparently distinct from the capitalist banks that had held the nation to ransom in 2006. The Co-op Bank was very appealing to socialists for their personal banking and indeed anyone who wanted to disassociate themselves from the bangsters. It was for this reason that we continued to bank with it, not its always somewhat specious “ethical” banking policy. Unfortunately, this appeal has vanished: the Co-op had its own problems requiring it to sell off businesses and the Co-op Bank engineered its very own and quite separate mini banking crisis, necessitating a “rescue” in 2013-14 to address a capital shortfall of some £1.9 billion. As a result 80% of it is now owned by the worst type of predatory capitalist: hedge funds. In theory the ethical banking policy remains as a marketing ploy, but who are they trying to kid? It was never much of an attraction and their decisions on PSC and CSC shows it up for the sham it always was.

Legislation requires financial advice to be surrounded with such weasel words as

Information on this website should not be taken as financial advice or seen as an endorsement of any particular product. We’ve provided information so that you can make an informed choice about where to move your money, and if necessary, you should consider speaking to an independent financial advisor.

Take that as read – provided you understand that a so-called Independent Financial Adviser is actually a salesman who earns commission from the businesses he/she recommends. But what you should do if you still bank with the Co-operative Bank or Smile is to dump them just as they dumped PSC and CSC and switch to a building society such as Nationwide that offers banking services. But don’t prevaricate like the Co-operative Bank itself did: tell them exactly why you did it.