The changing structure of the British economy

Issue: 106
Posted: 5 April 05

Jane Hardy

Capitalism, according to Marx’s analysis, is a dynamic system subject to continually changing forms. We bear witness to the ‘permanently revolutionary’ character of the system every day as it transforms, in some cases dramatically, all aspects of our lives: where we work and organise, our access to welfare services and pensions, how and where we spend our leisure time.

This is very much in evidence close to where I live and work in Hatfield. British Aerospace (formerly de Havilland) dominated the landscape in the post-war period, physically and in terms of the jobs and education on offer. Ten years after its closure in the early 1990s the British Aerospace buildings have been demolished and replaced with shiny new buildings which include gargantuan warehouses, a complex of six buildings owned by T-Mobile, the Ocado internet food order firm and a Royal Mail parcel depot. In 1998 Saving Private Ryan was filmed on the old airstrip. One of the biggest employers is the local university which was originally designed to train aerospace engineers, but now has a ‘state of the art’ new campus on the old British Aerospace site. It raises a huge amount of revenue from the large number of overseas students who pay exorbitant fees. Across the road is a giant shopping centre with a cinema (showing exactly the same films as the other three multiplexes within a ten mile radius), bars and fast food restaurants. Many of the shops in Hatfield town centre are either boarded up or charity shops. When Wal-Mart bought Asda and closed it for ‘refurbishment’ in 2002 the nearest place to buy food was three miles away.

Academics have seized upon such changes under the banner of the ‘new economy’ to suggest that we are living in an entirely new phase of capitalism. We were told in the mid-1970s that we were moving into a post-Fordist phase, with the end of mass production, flexible employment and apparently more satisfying work. A report from the Work Foundation proclaimed the advent of the ‘weightless economy’ in 2002,1 where ‘creating value depends less and less on physical mass, and more and more on intangibles such as human intelligence, creativity and even personal warmth’. Hardt and Negri have jumped on this bandwagon by suggesting that we live in a ‘post-industrial economy, an informational economy’.2

Will Hutton argues that mass production in the UK is dead and that there is a new global division of labour. Production will move to China and other parts of South East Asia, while Britain concentrates on goods that ‘are tailored, customised, niche products, exploiting research; in other words knowledge goods’.3 New Labour has tried to sell the ‘creative industries’ as a panacea for the UK economy. In the same vein the terrain of academic discussion has shifted to an obsession with the knowledge economy, innovation, networked economies4 and clusters.5

Others with a more critical perspective who have distanced themselves from overtly corporate agendas have emphasised the role of finance as a malign influence on British growth and productivity, and in some cases it has been elevated to a new phase of capitalism. Boyer and Aglietta talk about finance-led capitalism as a new epoch. Others talk about financialisation as a fundamental change driving the restructuring of the system.6

Taken together all these claims about ‘weightlessness’, ‘knowledge economies’ and ‘creativity’ are used to suggest that the working class has disappeared.

‘The present society is no solid crystal, but an organism capable of change, and constantly engaged in processes of change.’ So writes Marx in


his preface to Capital. We have to concentrate not simply on the form that capitalism takes but on its underlying driving forces if we are to understand its complexities and contradictions and how these are manifested in concrete phenomena. As David Harvey puts it:

bq. The geographical landscape of capitalist activity is riddled with contradictions and tensions and it is perpetually unstable in the face of all manner of technical and economic pressures operating upon it. These…all arise out of the molecular processes of endless capitalism in time and space. And these tensions are caught up in the general expansionary logic of a capitalist system in which the endless accumulation of capital and the never ending search for profits dominates… Capitalism perpetually seeks to create a geographical landscape to facilitate its activities at one point in time only to have to destroy it and build a wholly different landscape at a later point in time to accommodate its perpetual thirst for endless capital accumulation.8

This article tries to capture some of the changes which are shaping the structure of UK capitalism as it responds to its insertion into the world economy and place in the global division of labour.

h2. Changes in the structure of production in the UK

h3. Table 1: Changing structure of industry

Source: A Griffiths and A Wall, Applied Economics: An Introductory Course, tenth edition (London, 2004), p6

|_. (All figures are percentages)|_. 1964|_. 1969|_. 1973|_. 1979|_. 1990|_. 2001|
|_. Primary|_. 5.8|_. 4.3|_. 4.2|_. 6.9|_. 3.9|_. 3.9|
|Agriculture, forestry and fishing|1.9|1.8|2.9|2.2|1.8|1.0|
|Mining and quarrying|3.9|2.5|1.1|4.5|2.1|2.9|
|_. Manufacturing|_. 40.8|_. 42.0|_. 40.9|_. 36.7|_. 31.5|_. 24.8|
|Manufacturing|30.0|31.2|30.4|27.9|22.5|17.6|
|Construction|8.4|8.4|7.3|6.2|6.9|5.4|
|Electricity, gas and water|2.4|2.4|2.8|2.6|2.1|1.8|
|_. Tertiary|_. 53.8|_. 53.0|_. 54.9|_. 56.5|_. 64.4|_. 71.3|
|Distribution, hotels and catering|14.0|13.3|13.1|12.7|13.5|15.6|
|Transport, storage, post & telecommunications|6.0|6.3|7.0|7.3|7.6|8.0|
|Financial intermediation, real estate, Renting and business activities (including ownership of dwellings)|13.7|14.1|17.7|18.3| 22.6|24.7|
|Public administration, national defence and social security|7.6|7.0|6.1|6.1|6.3|4.8|
|Education, health and social work|6.9|7.1|7.7|8.1|8.9|13.0|
|Other services|5.6|5.2|5.1|5.7|5.5|5.2|

h3. Table 2: Workforce jobs by industry in the UK, 2004

Source: UK 2005: The Official Yearbook of the United Kingdom of Great Britain and Northern Ireland (Office for National Statistics, 2005), p147

|_.  |_. Jobs (thousands)|_. Jobs (percent)|_. Percentage change 1984-2004|
|Agriculture and fishing|420|1.4|-36.5|
|Energy and water|203|0.7|-64.3|
|Manufacturing|3,654|12.1|-32.4|
|Construction|2,111|7.0|+15.5|
|Services|23,939|78.9|+37.6|
|Of which:| | | |
|Distribution, hotels and catering|7,040|23.2|+25.3|
|Transport and communication|1,813|6.0|+13.5|
|Finance and business services|5,828|19.2|+80.0|
|Public administration Education, health|7,362|24.3|+28.3|
|Other services|1,893|6.2|+57.3|

The most outstanding trend between 1964 and 2001 (shown in Table 1) is the falling share of total production of the secondary sector, especially manufacturing, and the increase in the tertiary sector, especially finance. By 2001 manufacturing in the UK accounted for only 17.6 percent of output, while the financial sector’s output had grown to make it the largest sector of production with 24.7 percent of total output.

By 2004 only 12.1 percent of workers were employed in manufacturing, with their numbers having fallen by 32 percent in 20 years. Finance and business services employment grew by 80 percent over the same period, until they accounted for 19 percent of workers (see Table 2).

Such figures provide a broad sketch of the changes taking place, but exaggerate them. As Harman points out, some of the shift from the ‘industry’ to the ‘service’ sector amounts to no more than a change in name for essentially similar jobs.9

Someone who works in a factory putting food in a tin so that people can warm it up to eat at home is a ‘manufacturing worker’; someone who toils in a fast food shop to provide near-identical food to people who do not have time to warm it up at home is a ‘service worker’.10

This distinction between the sectors has been further blurred by the way many manufacturing firms have responded to competition by transforming themselves into service or part-service firms. For example, a large part of Xerox’s activity is now in servicing as well as making and selling office equipment, and Volvo not only make buses but design local transport systems. The outsourcing of cleaning, computer programming, transport and a whole range of other functions which used to be carried out in-house inflates the scale of the shift from ‘manufacturing’.

What is more, the concepts of ‘tertiary’ and ‘services’ lump together activities that play different roles in capitalist economies.11 Some of them produce commodities just as much as does manufacturing, with which they are intertwined. As Marx saw it, anything that results from the use of capital and generates surplus value is a commodity. This would include marketed services such as airports, gyms and entertainment, and all those activities that aid the production of commodities such as cleaning and computer programming. Commodities have to be moved from their point of production to their final destination for consumption and these physical movements are also part of the material production process.

However, British capitalism has faced a more rapid fall in manufacturing than other advanced economies, even if conventional measures of economic activity overestimate the shift to the so called service sector.

h2. The long term decline of British manufacturing

The relative economic decline of Britain, and manufacturing in particular, has been long in the making. Britain for much of the 19th century was the most advanced capitalist power. But the monopolistic stranglehold exerted on certain industries through the captive market of the colonies bred complacency and low rates of investment. The British ruling class had an inflated sense of its importance and delusions of grandeur which were increasingly disproportionate to its economic power by the middle of the 20th century. However, by the 1960s this spiral of relative decline was clearly evident. The growth in GDP in the UK between 1950 and 1973 was only 2.5 percent compared with 4.9 percent in Germany and 8 percent in Japan. Industrial employment fell by 14.8 percent in the UK between 1964 and 1979, while continuing to grow in certain other major economies (see Table 3). The rate of capital investment in machinery and factories was well below that of Japan or of other European countries. This had a cumulative impact and was reflected in an enormous productivity gap between the UK and other major centres of capital.

In the early 1970s Britain’s final admission to the Common Market exposed inefficient capitals to ferocious competition, a situation compounded by the recession of the mid-1970s, and the state had to bail out British Leyland, shipbuilding and British Steel to slow down their decline. The recession of the early 1980s resulted in a serious bloodletting as inefficient firms went bankrupt, and there was a loss of nearly 19 percent of manufacturing jobs in four years.

h3. Table 3: Changes in industrial employment in selected countries

Source: A Griffiths and A Wall, Applied Economics: An Introductory Course, tenth edition (London, 2004), p9

|_. country|_. 1964-79|_. 1979-83|_. 1983-2001|
|UK|-14.8%|-18.9%|-10.4%|
|US|+27.2|-8.7|+6.7|
|Canada|+35.7|-8.7|+21.1|
|Japan|+28.3|+4.1|-1.9|
|Belgium|-18.6|-15.2|-13.4|
|France|+2.3|-7.4|-19.6|
|Germany|-10.6|-8.5|+11.4|
|Sweden|-10.9|-7.1|-20.2|

The Single European Market in 1992 was a strategy of the European ruling class to restore the competitiveness of their economies in face of competition from the US and Japan. The reduction of barriers between countries meant that capital (but not workers) had free rein. This opened up to competition a whole tranche of industries such as telecoms, utilities and public contracts that had previously been protected by capitalist states and led to a massive restructuring of capital with unprecedented mergers and acquisitions on an international scale. US and Japanese capital sought to gain a foothold in fortress Europe, and a spate of national and European mergers were aimed at breeding and protecting European and national champions.

The recovery from the deep recession of the early 1980s was again highly uneven between countries. Between 1983 and 2001 the UK, France and Belgium underwent a contraction in their manufacturing bases. Germany,12 Canada and the US had increases in industrial employment. Although the UK faced a further decline of 10.4 percent, it was less than that of France and Belgium. This can probably be accounted for by a sharp increase in UK productivity from an intensification of work. But the increase in competitiveness was insufficient to stave off a further haemorrhaging of manufacturing jobs under Labour as well as the Tories. Some 575,000 more manufacturing jobs were lost in the UK between 1997 and 2002—a fall of a further 18.6 percent.13

Table 4: Leading exporters and importers in world merchandise trade

Source: International Trade Statistics 2003 (WTO, 2003), p21

|_. Rank|_. Exporters|_. Share %|_. Rank|_. Importers|_. Share %|
|1|US|17.4|1|US|13.3|
|2|Germany|7.8|2|Germany|9.6|
|3|Japan|6.3|3|UK|6.9|
|4|France|5.5|4|Japan|6.6|
|5|China|4.1|5|France|4.4|
|6|UK|4.0|6|China|4.0|
|7|Canada|3.8|7|Italy|3.6|
|8|Italy|3.4|8|Canada|3.0|
|9|Netherlands|2.9|9|Netherlands|2.7|
|10|Belgium|2.5|10|Hong Kong|2.6|

h3. Table 5: Gross value added in manufacturing, UK, 2003

Source: United Kingdom National Accounts 2004: The Blue Book (Office for National Statistics), p422

|_. Standard Industrial Classification (SIC) category|_. % contribution|_. Rank|
|Food, drink and tobacco|14.5|1|
|Textiles, leather and clothing| | |
|Textile and textile products|3.6|10|
|Leather and leather products|0.4|13|
|Wood and wood products|1.7|12|
|Paper and paper products; publishing and printing|13.3|2|
|Coke, refined petroleum products and nuclear fuel|2.0|5|
|Chemicals, chemical products and man-made fibres|10.1|5|
|Rubber and plastic products|5.2|8|
|Other non-metallic mineral products|3.6|10|
|Basic metals and fabricated metal products|10.0|6|
|Engineering and allied industries| | |
|Other machinery and equipment|7.9|7|
|Electrical and optical equipment|11.0|4|
|Transport equipment|11.9|3|
|Other manufacturing|4.9|9|

Contrary to Hutton’s thesis that manufacturing jobs in Europe are being moved out to China and South East Asia, employment in Europe actually increased. According to the EU Commission employment in manufacturing went up by over 500,000 in Spain between 1997 and 2002, by over 400,000 in Italy, by nearly 120,000 in Germany, and by nearly 150,000 in France.14 Although definitions of ‘high tech’ are problematic and arbitrary, the loss of UK jobs in this sector suggests Hutton’s thesis of a knowledge economy may amount to little more than wishful thinking.

h2. Real production still matters

The decline of industrial production in Britain has been greater than in other advanced capitalist economies. However, the picture of the collapse of manufacturing is simply a nonsense. Britain is still a significant exporter of goods, being ranked sixth in the global economy, with almost the same world share of exports as China, despite the popular notion that China is now the workshop of the world (see Table 4). To use a football analogy, it has fallen down the Premier League, but has not been relegated to the First Division.

There are significant variations as regards the profitability and dynamics of the different sectors of British manufacturing industry.

By far the biggest contributor to total production is the food and drinks industry, which is dominated by large transnational firms such as Nestlé and Unilever.15 However, the industries which are hailed as the ‘jewels in the crown’ of British capitalism are car production, defence and pharmaceuticals (see Table 5).

Car production is expanding and competitive, despite the end of car assembly by Ford at Dagenham and Luton in 2002, and of Jaguar production in Coventry in 2004. The UK produced 1.7 million cars in 2004, which is the highest number for 30 years.16 This is despite the significant relocation of auto production to Poland, the Czech Republic and Slovakia. The car industry has undergone massive restructuring and is dominated by foreign capital. There has been a clearout of inefficient capitals, usually the established older sites, in favour of greenfield production in new locations largely based on Japanese capital. Nissan in Sunderland and Toyota in Burnaston (West Midlands) are the most efficient car plants in Europe.17

The pharmaceutical industry is hailed as one of the great success stories of British capitalism, with two British firms, GlaxoSmithKline and Astrazeneca, occupying second and third place in the global league table of companies. The industry employs 83,000 people with about 250,000 in downstream related sectors, and fits with the image of the UK as doing ‘high-tech’ production based on innovation. Smallish biotechnology firms have come to be seen as the panacea for restoring competitiveness and comparative advantage in the high-tech sector. However, these are gobbled up by large pharmaceutical companies as soon as they make any (potentially) profitable discoveries, and quickly absorbed into the accumulation and competition strategies of the mega global firms. 83 percent of jobs in pharmaceuticals are involved in research. Government and bosses give this as a glowing example of ‘high-tech’, ‘knowledge-based’, ‘research-oriented’ jobs which are part of the ‘new economy’. It rings all the right bells. However, science and research workers are subject to all of the same pressures as other workers. There have been rounds of redundancies as firms close or merge. Work is intensified and the plug pulled on projects as these giant firms look for the next money-spinning drug.18

The UK has one of largest defence manufacturing sectors in the Western world, producing minor and major weapons of destruction. Big firms such as British Aerospace and Rolls-Royce are no longer workshops of the Ministry of Defence.19 They have moved from being manufacturing companies in the traditional sense to being assemblers of the components of subcontractors. In the process of this ‘hollowing out’ defence firms, BAe being a good example, have got rid of substantial numbers of workers and productive capacity.20 Despite claiming to be global firms these companies are firmly tied to the national (or European in the case of Airbus) base, relying on the state as a major customer and to secure orders with other governments. Furthermore, defence firms rely on huge subsidies in the form of export guarantees to underwrite any deal.

h2. Deeply enmeshed in the global economy

One legacy of imperialism is that Britain has been more enmeshed in the world economy than its competitors in terms of finance, trade and the internationalisation of capital. Table 6 shows that outflows of capital have been a major way for the British ruling class to deal with falling profits in the home economy and find new profitable outlets for capital.

Britain remains the recipient of the largest inflows of foreign capital in Europe. Outflows of capital are even more significant. It is by a wide margin the largest foreign investor in other economies in Europe, second only to the US. This explains the pro free market stance of the British ruling class, whose strategy and flow of profits is highly dependent on the opening up of new markets through the WTO or individual diplomacy. Witness the plane-loads of executives from large British firms and British civil servants that accompany politicians on overseas visits.

‘Cathedrals in the desert’: global outposts of foreign capital: A distinctive feature of British capitalism has been to cultivate itself as a low-cost site with ‘flexible labour’ for foreign firms, especially Korean and Japanese, jockeying for position within the European Union. Foreign-owned firms accounted for nearly 50 percent of manufacturing investment in the North East and 30 percent for the country as a whole between 1998 and 2001.21 New Labour have followed the path of the Tories and have worked with their acolytes in the big business of regional regeneration to pump huge amounts of money into attracting foreign capital, despite the rhetoric of the market and competition. These firms have often had little impact on local economies. They are like ‘cathedrals in the desert’, largely screwdriver plants undertaking simple assembly operations. A Financial Times survey in 2003 reported that half of the £750 million of grants offered to 50 regional aid projects over the previous decade went to 16 companies which had either closed or fallen a long way short of job creation targets. In Scotland, Wales and the north east between 2000 and 2004 12,390 jobs were lost in the electronics industry as firms such as Motorola, Panasonic, Eriksson and Samsung, among many others, closed down or relocated elsewhere.22 There were, however, a few exceptions outside the electronics sector, most notably the Nissan plant built in 1984 which employs 5,000 people.23

h2. The finance sector: prophets, falling profits and swindlers

The number of people working in finance increased by 80 percent between 1984 and 2004, until finance and business activities accounted for nearly 25 percent of total output. We need to explain not only the enormous expansion of this sector, but its impact on and relationship with the real economy.

Circulating surplus value: Marx argued that credit plays a dual role in capitalist economies—that of a prophet and that of a swindler. As a prophet, credit ushers in new technologies, new industries and new forms of production. It brings together those capitalists that do not have an immediate outlet for their profits and those with an idea for productive investment but no capital. Financial capital acts as a sort of lubricant for the redistribution of surplus value created in the process of production.

Firms used to finance mergers and acquisitions mainly from their own funds or in conjunction with merchant banks. However, the massive mergers and acquisitions of the last 20 years would not have been be possible without syndicates of financial institutions or leveraged buyouts to underpin them. They have provided the means for capital constantly to restructure itself and survive in the face of competition and falling profit rates. The credit system makes capital more mobile geographically, allowing capitalists to shift from one sector to another and expand to other parts of the world. Marx could not have foreseen the mega-mergers of the last 15 years, but he was very prophetic in anticipating the role of finance in restructuring capitalism through the concentration and centralisation of firms:

bq. The credit system in its first stages furtively creeps in as the humble assistant of accumulation, drawing into the hands of individuals or associated capitalists, by invisible threads, the money resources which lie scattered over the surface of society in larger or smaller amount; but it soon becomes a new and terrible weapon in the battle for competition and its finally transformed into an enormous social mechanism for the centralisation of capitals.24

The massive ‘money resources’ that buy-out companies are now able to muster are financing increasingly large mergers and acquisitions. Big private equity groups are becoming big players in increasing the concentration in various sectors as they raise ever larger funds.

Financialisation: The financial system is critical to the dynamics of capital accumulation, but finance capital also embraces a vast range of unproductive activities which are simply a way of making more money, are purely speculative and have nothing whatsoever to do with facilitating investment in productive activities. However, finance and financial institutions have deep impacts on the overall dynamics of capital accumulation.

‘Financialisation’ and ‘shareholder value’ are the new buzz words. In short they mean that firms are increasingly driven to make short term, high profits to keep shareholders happy. This has become an important tool in disciplining capital and punishing firms that are not delivering a high enough rate of return. Share prices fall in firms which are not making enough profits, making them vulnerable to hostile takeovers by leaner, fitter firms. Firms try to rescue their falling shareholder values and profitability by downsizing and getting rid of their less profitable operations or through an endless series of financial dodges, ranging from raiding pension funds to the massive fraud of companies like Enron.

We are not in a new epoch of financial capitalism as some have suggested. However, financial markets now play an important role in accelerating the restructuring of capitalism by exposing firms with lower returns to the hostile predations of stronger capitals. This trend is much more pronounced in the UK and US than in other capitalist economies.

The growth of financial products: One reason for the growth of the finance and commercial sector that has been given little attention is the proliferation of so called ‘financial products’. This is a swindle that workers face every day. Banks and building societies try and entice customers with a bewildering array of savings products, loans and insurance to deal with every eventuality. A new departure is that the non-financial sector has also jumped on the bandwagon to offer a panoply of store cards, loans and insurance. Leaflets at the Tesco checkout advertise everything from holiday insurance to pensions. Water and gas providers try to persuade people of the dire consequences of not taking out monthly insurance. Many of these activities are unnecessary, costly and play on the fears of workers, but they generate a whole new sphere of economic activity and employment, and are an outlet for capital in some parts of the real goods sector when profits levels are low or negative. Financial services provided 80 percent of profits for General Motors and 26 percent for Ford in 1998.25 In the electronic and consumer goods sectors significant profits are derived from exorbitant interest rates and costly guarantees. Such moves into finance by large multinationals blur the lines between the real economy and finance.

h2. The City of London

The UK ranks second as an exporter of commercial services and accounts for 7.8 percent of world trade in this sector (see Table 7). The role of the City of London lies behind the expansion of finance generally, and specifically British capitalism has a competitive advantage in this sector.

h3. Table 6: Inflows and outflows of foreign investment (% of world total)

Source: World Investment Report 2003: FDI Policies for Development: National and International Perspective (UN Conference on Trade and Development, 2003)

|_. country|_. Inflows 1991-2002 annual average|_. Outflow 1991-2002 annual average|
|Belgium & Luxemburg|6.7|6.5|
|France|6.0|9.9|
|Germany|4.5|8.7|
|Ireland|1.2|2.1|
|Italy|1.2|2.0|
|Netherlands|4.0|3.5|
|Spain|3.0|2.5|
|UK|7.2|12.7|
|US|19.9|20.0|

h3. Table 7: Leading exporters and importers in world trade in commercial services

Source: International Trade Statistics 2003 (WTO, 2003), p23

|_. Rank|_. Exporters|_. Share %|_. Rank|_. Importers|_. Share %|
|1|US|17.4|1|US|13.3|
|2|UK|7.8|2|Germany|9.6|
|3|Germany|6.3|3|Japan|6.9|
|4|France|5.5|4|UK|6.6|
|5|Japan|4.1|5|France|4.4|
|6|Spain|4.0|6|Italy|4.0|
|7|Italy|3.8|7|Netherlands|3.6|
|8|Netherlands|3.4|8|China|3.0|
|9|Hong Kong|2.9|9|Canada|2.7|
|10|China|2.5|10|Ireland|2.6|

The City’s pivotal role in international finance and commerce originated in Britain’s grip on world trade in the 18th and 19th centuries and the rise of British imperialism. But its international importance has long outlived the decline of the British economy. Up until 1945 it was the leading financial centre and sterling the dominant currency. This role passed to the US after the war, but the City assumed a new role in the 1950s and 1960s at the heart of the Eurodollar market, based on borrowing and lending dollars held outside the US, and fought to maintain its dominance in finance in the face of competition from other emerging financial centres in Japan and Germany. The so called ‘Big Bang’ of 1986 swept away many of the traditional restrictive practices which were driving business elsewhere, and it created LIFFE (London International Financial Futures Exchange) as a casino for large-scale betting on the future price of currencies, interest rates and derivatives (which are a combination of interest rates and currency).

The internationalisation of finance through the lifting of restrictions on the movement of capital in the 1980s opened up more profitable opportunities for the City. The Business Times estimated that the global value of derivatives rose from $2.9 trillion to $127 trillion between 1990 and 2002. The UK share of world turnover represented average daily turnover of $643 billion in April 2004 compared with $275 billion in 2001.26

The privatisation of pensions has hugely increased the funds available to the financial sector, with workers increasingly being forced to make their own pension provision as firms have closed their final salary schemes. The real value of insurance and pension funds has increased more than fivefold over 20 years and their surpluses, after paying out benefits, increased from £27.7 billion in 1990 to £43.3 billion in 1996.

h2. GATS and the finance sector

Four out of the top ten global financial corporations are based in the UK (HSBC, Bank of Scotland, Barclays and Lloyds).27 The importance of banking and finance in the UK economy means that the liberalisation of trade and investment is crucial to the profitability and expansion of this sector. Therefore the GATS (General Agreement on Trade in Services) implemented at the end of 2003 was particularly important for British capitalism. This meant an end to any national laws and regulations that were a barrier to trade in any form of ‘services’ from finance to old people’s homes. The opening of markets for financial firms from the US and UK were key forces behind the GATS negotiations during the Uruguay talks (1986-1994) that created the WTO. US and European firms, including those from the UK, lobbied very hard for the prising open of new markets, especially the lucrative Chinese market during negotiations for its entry to the WTO.

The ability of the City to maintain profits and its central position in the global economy are highly dependent on the expansion of British financial capital and British global financial corporations being able to grab new markets. However, although financial services have not experienced the scale of restructuring of other sectors, competition is intensifying. There is particular pressure on labour costs and an incentive to look for low-wage locations to bolster profits.

h2. Export of ‘back-room jobs’

The press has been full of stories reporting job losses as a result of high- profile British firms in the financial sector uprooting and transferring some part of their service operations to India, the Philippines or China. Between December 2003 and August 2004 three British insurance companies (AVIVA/Norwich Union, Axa and Lloyds TSB) and HSBC relocated 9,000 jobs between them out of the UK.28 In addition, the list of services that can be outsourced is being extended to legal work, medical reports and clinical trials. Firms facing intense competition find the idea of an un-unionised workforce who will work for longer hours and whose wages are less than one sixth of the amount they would pay in Britain an attractive quick fix.

But the hype does not reflect the reality. Call centres constitute the biggest part of this BPO (Business Process Offshoring) market in India. According to industry estimates, there were over -300,000 call centresworldwide at the end of 2002 employing around 18 million people.29 Yet India had just 250 call centres, employing 33,800 people in the summer of 2004. A survey of US firms in 1996 showed that 26 percent were unhappy with the results of outsourcing and 51 percent of those had recalled their activities in-house.3° Part of the answer for this is there is a limit to the rate of exploitation of labour. In India the employee turnover rate at call centres rose from 16 percent in 2002/03 to 35-45 percent in 2003/04.'"

An Income Data Service survey of 107 companies in October 2004 suggested employment in UK call centres was likely to increase rather than contract: 58 percent of firms had increased staff levels and planned further expansion in the future.32 Ironically in 2004 an Indian firm opened a call centre in Belfast.33

Logistics, distribution and transport



Marx wrote in the Qrundrisse in 1857 that as capital sets out to 'conquer the whole earth for its markets, it strives to annihilate this space with time'.34 Trade has taken place over vast geographical distances for thousands of years, but the crucial aspect now is the dimension of time. This idea of 'time compression'35 not only applies to trying to get access to new markets quickly but to the production process itself.

Firms need to reduce the time they spend producing goods in order to turn over capital more quickly. This involves a whole raft of activities and research into new products, logistics, warehousing and transport. Intensified competition makes the nature and efficiency of distribution systems central. For the system as a whole the "annihilation of space through time' means developments in transport, with parallel changes in flows of information through the postal system, radio, telecommunications and then the internet. For individual capitalists it means bringing goods to the market more quickly; eliminating waste in the form of time, effort, defective units and stocks in manufacturing-distribution systems; strategies such as just-in-time management, lean logistics, direct delivery, and the outsourcing of logistics services; and shortening the life cycle of products, so as soon as you have bought a new computer or mobile phone it is out of date and has been superseded by the next model. These methods all serve to speed up the realisation of surplus value and the starting of another round of accumulation.

Significant numbers of workers are employed in these sectors. Transport and logistics firms such as BOC are themselves large multinationals and big employers. Airports employed 180,000 workers directly (0.8 percent of total emplovment) and 200,000 indirectly in 1998. This amounted to 3.4 percent ot total employment in London and the south east.* Such workers are not peripheral to capitalist production but central to it. A strike by those delivering components would bring production lines to a halt in a matter of hours in a just-in-time system. One by drivers delivering food to supermarkets would mean empty shelves in a short space of time.

Creative industries, creative accounting



The 'creative' and 'cultural' industries have been flagships of New Labour's economic policy. Chris Smith, when minister ot culture in 1998, said they had "moved from the fringes to the heart of the UK economy' and were 'a key economic driver, providing the jobs of the future and maintaining our position in the world'.37
Such industries are defined as those with 'their origin in individual creativity, skill and talent' and with 'the potential for job creation through the generation and exploitation ot intellectual property'. They include 'advertising, architecture, the art and antiques market, crafts, design, designer fashion, film and video, interactive leisure software, music, the performing arts, software and computer services, television and radio'.38

Grandiose claims suggest that the creative industries generated around -£112.5 billion of revenues in 2001 (double those of 1998), employed 1.3 million people (compared with 966,000 in 1998), made ,£10.3 billion of exports and accounted for over 5 percent of GDP.39 But such figures rest on a completely spurious definition ot 'creative', and lump together a disparate group of industries and economic activities. If software and computer services are left out (which arguably could be counted as science or business) then the numbers would immediately fall by half a million people and -£36.4 billion. And to associate these industries with either small, innovative firms or some sort of individual creative endeavour is ludicrous.

The media is an area ot economic activity completely dominated by huge global firms. Two pieces ot legislation10 by New Labour gave the green light for a spate of massive mergers and acquisitions and the emergence of mega media groups owning companies across television, radio and newspapers and magazines. AOL-Time Warner, News Corporation, General Electric, Sony, Vivendi and Viacom along with a few others control vast sections of the media. Close to 35 percent of newspapers in circulation in the UK belong to Murdoch's News Corporation.4' At the other end of the scale many people working in these 'media' and 'creative' industries are often self-employed and badly paid, living from one short term contract to the next.

Supermarkets, super-concentration of capital



Supermarkets employed 1.02 million workers in 2004, making them the largest employment sector in the UK.
Tesco alone accounts for -£1 out of every £8 spent in shops in the UK, its turnover accounts for 2.6 percent of gross domestic product and it employs 236,000 people, twice the number in the British army42

New store expansion was the all-consuming engine of corporate growth by major UK food retailers in the 1980s and early 1990s. Profit margins were high and these cathedrals ot consumption completely changed the urban landscape as the number of supermarkets and hypermarkets tripled. This 'golden age' came to an abrupt halt during 1993/94, when the major food retailers became engulfed by financial problems. Since then hyper-competition has led to firms battling for survival within the sector.
There has been huge investment in information technology to shorten the time from field to shelf. All operations from purchase to distribution have been centralised, with increased use of EPOS (electronic point of sale) units, enabling retailers to cut costs and stocks. These processes have been critical in ensuring the expansion of fresh and chilled products, which are the ranges on which supermarkets make the highest profits. In 2002 Tesco could replace depleted stock in eight to ten hours while Sainsbury's rook 24 to 48 hours.

There has been a spate ot mergers and acquisitions. Asda being taken over by Wal-Mart (2000) and Safeway by Morrisons (2004). A decision by the Competition Commission to categorise convenience stores and supermarkets as separate markets gave the green light to large food retailers to recolonise high streets through the new breed of convenience stores such as Tesco Metro and Sainsbury's Local, as well as petrol garage forecourt stores. The degree of concentration in this sector is enormous. The only small food ..ops that can survive the competition are family businesses based on self-exploitation and open for 15 hours a day. Meanwhile, the competition between giants had led to large-scale international acquisitions. Tesco is now the largest supermarket chain in Hungary and has 144 stores in the Czech Republic, Hungary and Poland. It has also expanded into the Far East with stores in Thailand, Singapore, South Korea and is currently moving into mainland China with the acquisition of a hypermarket chain in 2004.

There has also been warfare between different firms in the supply chain—the producers of fresh food, the packagers and processors, and the and retailers. Relationships between giant food-producing transnationals and giant supermarkets became increasingly adversarial, with Unilever, Kellogg and Heinz whining that they find themselves compelled to produce UK supermarket own brands or risk losing shelf space for their own products. From 2000 onwards major food retailers gained more power over their suppliers through the use of internet markets and Globalnetxchange, an electronic virtual marketplace. The large firms gain as suppliers are forced to drive down prices and middle wholesalers are cut out of the picture completely. As supermarkets make huge profits these lower prices are not passed on to consumers.

Finally, firms have concentrated on their largest single cost, namely labour. As opening hours have been extended large food retailers have used an array of different contracts to increase the flexibility of the workforce, from rolling schedules, seasonal work, flexitime, zero-hours contracts, annuahsed work and term time only. Since 2000 hyperflexibility has included giving a minimum of hours and expecting workers to 'flex' up to any number of additional hours; averaging hours; changing rotas every few weeks; and doing away with overtime and unsociable hours payments. A further attack on workers in 2004 involved supermarkets refusing to pay the first three days sick pay Food retailing has the greatest number of part-time workers of any industrial sector in the UK—68 percent in 1994, an increasing proportion women.

The numbers employed in individual supermarkets now compare to those in factories historically. These new workplaces have exactly the same potential as the old for workers to talk, argue, share grievances and organise on questions of pay and working conditions.

Uneven landscape of British capitalism



Capitalism creates new landscapes at one point in time only to destroy them and build wholly different landscapes elsewhere. The changes in the structure of production have profound implications for the geography of British capitalism. As activities emerge within or are captured by particular places others go into decline. The growth of the City of London has not only created large numbers of jobs in finance, but is accompanied by a huge number of other workers to support them. A huge wave of construction of buildings and transport infrastructure in the City provides even more jobs and changes the physical landscape.
European regional economic statistics predicted that five out of the ten fastest growing European regions between 2004 and 2009 are expected to be in the south of England. Some of the slowest regions are also in the UK.43 Changes in the structure of the production and particularly the huge expansion of finance has driven demographic changes. Most northern cities have suffered from falls in population, while the proportion of graduates living in London has increased from 16 percent to 20 percent.44

A report from researchers at the University of Sheffield argues, 'The country is being split in half... To the south is the metropolis of greater London, to the north and the west is the "archipelago of the provinces"— city islands that appear to be slowly sinking demographically, socially and economically'.45 However, the unevenness is more complex than this. Gentrification is taking place in cities such as Manchester, Leeds, Liverpool and Edinburgh. The docklands of Liverpool (as in London) have turned into expensive flats, exclusive shops and wine bars. On the other hand, behind the glittering facades of places like Canary Wharf there is a whole world of low-paid workers in cleaning, catering, security and delivery work. Within a stones throw is Tower Hamlets, one of the poorest areas in Britain. The superstar regions are characterised by extremes of poverty and weaJth and provide a microcosm of the fundamental contradictions of global capitalism.

Conclusion



British capitalism has been involved in large-scale restructuring across international boundaries. The scale and depth of this restructuring has been greater than in other advanced European economies.

Despite the decline in manufacturing the apocalyptic picture of its collapse is far from true. Britain still retains a significant manufacturing core, and its share of global exports is equal to that of China. The claim that there is a new division of labour whereby all low-skilled jobs are being exported is highly exaggerated. Such claims are empirically selective and overestimate the potential for moving production (or parts of production) out of the country. The widely cited sectors of electronics and textiles have always been footloose. However, other important areas of production such as food retailing, transport and welfare services are firmly rooted in the home economy. Within a sea of poor productivity there are islands of efficiency in some sectors, with highly profitable global firms in car production, defence, pharmaceuticals and food retailing.
What is true is that British manufacturing employs far fewer workers. However, the automation and the just-in-time production methods used by bosses to restore profits or steal an advantage on competitors are also a source of weakness. A strike in one part of the production chain can bring the whole operation to a grinding halt in a matter of hours.

The openness of the British economy generally and its role in recycling global finance explains why New Labour and the ruling class have thrown themselves so enthusiastically behind and championed deregulation and liberalisation. Heavily dependent on foreign investment in manufacturing, and on being the second most important exporter of capital, the profitability of UK firms lies in the prising open of foreign markets. The pivotal role of the City in global capitalism and the need for expansion means that future profits are highly dependent on big new markets like China.
New Labour has played a significant role m the restructuring of the economy through its attitude to different sections of capital, despite the rhetoric of free markets.

There are important changes taking place in commodity production and where people work. There is the growing importance of the production of'intangible' commodities which are classified as part of the service sector. There are larger numbers than before of workers in transport, logistics and computer programming who contribute to the production and productivity of goods. In a situation of hyper-competition these jobs are critical to the profits of individual firms. And there has been a huge growth of people working in the finance sector. The working class is not disappearing. It is working in different places. Neither is it turning into a privileged layer with better working conditions and wages. There is no more job satisfaction working in a call centre or inputting data into a computer than sitting on an assembly line. Although some people working in the City earn exorbitant salaries, many of the jobs in finance are repetitive, hard and badly paid.
The mantras of the 'new economy', 'creative industries' and 'weightlessness' implying a new era of better and more satisfying work are propaganda on the part of New Labour to give capitalism an acceptable face. The bottom line is that the interests of the vast majority of workers in the so called service sector he in being organised to defend their wages, working conditions and pensions.

NOTES



T: D Coyle and D Quah, Getting the Measure of the New Economy (Industrial Society, May2002).
2: M Hardt and A Negri, Empire (Harvard, 200l), p285-
3: W Hutton, 'Don't Weep for Our Lost Factories', The Observer, 19 December
2004-.
4: The idea of networked economies was popularised by M Castells in The Rise of the Network Society (Oxford, 2000).
5: The notion of clusters of industries producing growth in local economies is very popular in academic circles and among policy makers. For a discussion and critique of this see F Currie and J Hardy, Clustering, Knowledge and Locality: The Case of the Pharmaceutical and Film Industries in Hertfordshire (report produced for the Association of Universities in the East of England, June 2002).
6: See articles by R Boyer and M Aglietta and others in a special edition of Economy and Society, vol 29, no I, Shareholder Capitalism and the Political Economy of Late Capitalism' (February 200O).
J-. M Haynes, Capitalism in Marx's Time and Ours', International Socialism 19 (spring 1983)-
8: D Harvey. The New Imperialism (Oxford, 2003), pplOO-101.
9: C Harman, The Workers of the World', International Socialism 96 (autumn 2002).
TO: As above, p286.
II: There is no intention here to get into thorny debates about productive and unproductive labour (see S Freeman and B Vandesteeg, What is 'Unproductive Labour"?', International Socialism 12 (1981), but to make the point that in Marxist terms the distinction between goods and services is an artificial one. Intangible goods are equally part of the process of production.
12: This may be partly explained by reunification.
13: EU Commission figures quoted in Manufacturing Now: Delivering the Manufacturing Strategy' (TUC, 2004). http://www.tuc.org.uk/economy/tuc-8248
-fo.cfm
14^ EU Commission, as above.
15^ S Broadberry and N Crofts, as above, argue that the productivity gap in sectors such as food and tobacco was lower than other sectors. In particular British manufacturing was bad at implementing mass production methods and was disadvantaged (along with other European countries) relative to the US.
16: W Lyons, The Car in Front is British as UK Output Nears Record of 1972'. The Scotsman, 15 September 2O04-
17: 'UK Plants Most Efficient in Europe'. BBC News, 26 June 2001.
18: K Randle, 'The White-Coated Worker: Professional Autonomy in a Period of Change', Work, Employment and Society, vol 10, no 4 (1996), pp737" 753-
ig: BAe (British Aerospace) supply armaments such as missile guidance systems, Rolls-Royce supply military engines across the global economy, Airbus UK is part of a European consortium where the scale of research and development is too large for one national capital.
20: P Dunne, 'Restructuring of the British Defence Industry', paper presented at ECAAR Panel on peace economics. AEA/ASSA meeting, Boston. January 2000.
21: Office for National Statistics, Regional Competitiveness and State of Regions (May 2OO4), pIO.
22: C Tighe, Samsung to Quit UK Site in Quest for Cheaper Labour', Financial Times, 16 January 2004.
23: As above.
24= K Marx, Capital, vol I (Penguin.
1976), p778.
25: J Froud et al, as above.
26: 'The UK Foreign Exchange and Over the Counter Markets in April 2004', Bank of England, 2004.
27: M Vander Stichele, Critical Issues in the Financial Industry: SOMO Financial Sector Report (March 2004).
28; I Gordon, C Haslam, P McCann, B Scott-Quin, Off shoring and the City of London (report for the Corporation of London, 2005).
29: R Rao. 'How to Tap the Opportunities for Outsourcing', Financial Times, 25 August 2004-

30: As above,
31: As above.
32: J Moules, 'Call Centres Defy Threat of Overseas Competition', Financial Times, 5 October 2Q04.
33: J Moules, Indian Operator Taps Skills of Loyal Belfast Workforce', Financial Times, 5 October 2004.
34: K Marx, Grundrisse. 1957*
35: Not exclusively but extensively used by D Harvey, Limits of Capital (London, 1999)-
36: The Economic Contribution of Aviation to the UK: Part 2 Assessment of Regional Impact: Final Report (Oxford Economic Forecasting. May 2O02).
37: 'Britain's Creative Industries Booming' (BBC News, UK Politics: Talking Politics, II November 1998).
38: As above.
39: As above.
40: The Broadcasting Act I996 and the Communications Act 2003-
41: Media Ownership Laws to be Relaxed' (BBC News, 8 May 2002). http://news. bbc.co.Uk/l/hi/uk-politics/i9725i9.stm
42: N Pratley and J Finch, How Tesco Took Over Britain', The Guardian, 6 January 2OO5.
43: B Willis, 'North-South Divide "Set to Widen"', Guardian Unlimited, 13 August 2OO4. http//www. guardian, co.uk/north south/article/0,2763, 1282 728,00.html
44: L Elliott, 'The United Kingdom of London', The Guardian, 5 Ju-y 2004-reviewing D Dorling and B Thomas, People and Places: A 200J Census Atlas of
the UK (Sheffield, 2004).
45: As above
http://news.bbc.co.Uk/l/hi/business/ i4H386.stm.