The recent news that the UK economy shrank by 0.3% in the last quarter of 2012 will come as no surprise to working people. Four of the last five quarters have seen the UK economy contracting in what has been described as a “flat 2012.” The reality is that a triple-dip recession is now very much on the cards. But the most visible sign of the continuing economic decline in the UK has come in the British retail market. Ben Peck reports on the recent closure of many famous high street chains.
The recent news that the UK economy shrank by 0.3% in the last quarter of 2012 will come as no surprise to working people. Four of the last five quarters have seen the UK economy contracting in what has been described as a “flat 2012.” The reality is that a triple-dip recession is now very much on the cards. Manufacturing has again been badly hit with a 0.9% decline in the last quarter, but the most visible sign of the continuing economic decline in the UK has come in the British retail market. A number of well known High Street retailers – Jessops, HMV and Blockbuster – have all gone into administration, potentially leading to thousands of redundancies. This follows on the heels of Comet, who went into liquidation in November. However, this has been hailed in the pages of the bosses’ press as all being part of the process they call “creative destruction”.
The collapse of the high street
The first to go was Jessops, the photographic retailer, which went into administration on January 9th, followed on January 15th by the music and DVD retailer HMV and a day later by Blockbuster, the film and game rental chain. It had over 500 stores throughout Britain and 2m customers. Over fifteen years these customers spent £3.5bn with Blockbuster, yet the company paid less than £250,000 in corporation tax. Now, with administration, over 4,000 jobs hang in the balance. Along with Jessops and HMV, 10,000 workers are set to be released into a jobs market where officially 2.49m are seeking work, according to the Office for National Statistics.
In 2012, according to the Centre for Retail Research, 54 companies “failed”, affecting almost 4,000 stores nationwide. Closures last year affected 50,000 workers. With January not yet finished, the number of workers hit by retail closures has already reached 20% of the 2012 figure. Matthew Hopkinson, director of Local Data Company, warns that the net number of stores closing every day this year could be double the 20 units closed each day in the first half of 2012.
On January 14th, the London Metro ran an article entitled “30,000 jobs under threat from ‘High Street bloodbath.’” Meanwhile the Financial Times (FT), the serious press of big business, struck a different chord: “Slaying zombies of UK retailing” went the more upbeat headline. In a ringing indictment of the capitalist system, the problem with the British economy, argued the FT, is that not enough unhealthy companies are going bust:
“The result has been that an army of “zombie companies” has kept capital from shifting to more productive areas of the economy where new jobs could be created. The collapse of retailers such as Jessops, Comet and HMV, which all struggled to adapt to the lower-cost online world, implies that the war on zombies has begun.”
In Michael Stothard’s article entitled “Rise of the Zombie” (FT Jan 8th) he quotes Andrew Mellon, the notorious US Treasury Secretary, who in 1929 said:
“Liquidate labour, liquidate stocks, liquidate farmers, liquidate real estate … it will purge the rottenness out of the system. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less enterprising people”
Survival of the fittest indeed! Stothard’s argument is that part of the problem with the economy is that an unnecessary amount of capital is being dedicated by banks in the form of credit to “zombie companies” and that in turn these companies spend many of their resources servicing interest payments rather than investing in future growth areas or new machinery. In fact R3, the insolvency industry trade body, reports that 10% of UK companies are only able to make the interest payments on their debt, with no prospect of reducing the debt itself. They are barely keeping their heads above water.
The Bank of England first raised this issue in October, where in its monetary policy meeting minutes it said that “some companies may have been able to remain in operation during the recession [as a result of government and central bank action]”, and that this might have “hindered the reallocation of capital towards more productive sectors.”
For the likes of Jessops, HMV and Blockbuster, the Christmas sales were the last roll of the dice. Bad seasonal sales figures meant that in January the banks and creditors decided to pull the plug, cancelling already over-stretched overdrafts, to the delight of the FT, Stothard et al.
However, the argument that keeping “zombie” companies afloat stops investment in “more productive sectors” does not hold water. We have reported before that the amount of liquid capital, i.e. money that is easily accessible, currently held by British companies has quadrupled in the past decade to over £700bn. Philip Jennings, general secretary of the global union Uni stated in Davos that “There is a trillion dollars on corporate balance sheets doing nothing.” (Guardian, 21st January).
The fact that this money is being sat on, is lying idle in company vaults and not invested, is not accidental – it is because there is nowhere for this money to be invested. If the resources currently dedicated to servicing low-interest debt were freed up, they will just add to this glut of underinvested capital, because no capitalist worth his or her salt will invest where they do not expect to make a profit.
That said, this is all part of the process of creative destruction, so the argument goes. It is the survival of the fittest, the weeding out of the weakest and part of the dynamic innovation of the market, “There are shifts in the market place all the time. Blockbuster had a window about five years ago to respond to changes in the market and perhaps buy a streaming service and continue to build on their strong brand – but they didn’t move with the times.” Phil Dorrell, London Metro, Jan 17th.
If this were merely a case of capitalism creating new needs, then it might be argued, as the advocates of the ‘free market’ do, that as demand travels away from digital cameras, CDs and DVD rentals and towards camera phones, online downloading and streaming, so too will investment. Therefore the jobs lost in one sector will be compensated for by jobs opening up in the new sector. The disruption to workers is relatively minor in the grand scheme of “creative destruction”. Perhaps some re-training will be required at the worker’s expense, maybe they will have to uproot and move to a new town. But the argument is that capitalism is not getting better or worse, it is just shedding a new skin.
This argument deliberately ignores the fact that there is more than one material reason for the change in demand. It is not just a question of use-value. The demand for digital cameras hasn’t declined at the expense of camera phones because they are inferior. Digital cameras are, on the whole, superior for their purpose as cameras. But people do not buy camera phones for the cameras; they buy them for the phones. And once they have the phone, they find they have a perfectly good camera thrown in for free. Therefore the fall in demand for digital cameras is, as with other commodities generally, also a question of price. If you can buy a phone and get a free camera, why buy a camera? And with far less disposable income in customers’ pockets, demand is not there.
The move towards new online formats at the expense of high street retailers is certainly in part due to their superior quality, namely their convenience. But if downloading an album online were to cost, for whatever reason, more than buying a CD in HMV, the story would certainly be different. Online downloading would certainly still be seen as superior and more convenient but nevertheless it would be regarded as a luxury and necessarily limited in its share of the market.
The reason why downloading an album is virtually free is because the copying of the album occurs between computers. The computer is a CD factory and CD player rolled into one. The computer has already been paid for and does not figure into the calculations of the downloader. Whereas the pressing of a CD occurs in a factory, many miles from your house and involves far greater costs in material, human labour, machinery, packaging, transportation and retail.
Some economists are arguing that all the workers involved in these areas of industry will be re-allocated to the burgeoning warehouses and transport fleets being created by the internet.
According to Verdict, the retail research group, the internet will account for about £1 in every £8 spent in the UK this year. However, from the above example, it is clear to see that the changing of the high street is not solely about capitalism creating new needs. The development of science and technique also economises human labour.
The creation of new factories for new commodities entering the market such as tablets, smart phones, etc, means factories equipped with the latest word in cutting-edge technology. All things being equal, the productivity of labour will only rise in an increasingly competitive market. Under capitalism, competition between different capitalists, in the search for greater markets and larger profits, leads to investment in new technology and an increase in productivity. But the introduction of new technology under capitalism simply means throwing more workers on to the scrap-heap in order to reduce costs and further increase private profit. In a socialist society the economy of human labour would be the impulse to development, and new science, machinery, and technology could be used to reduce the working day.
The human cost
The FT soberly informs us that the process of creative destruction will inevitably involve some pain, but also compensation, “There will be some losers. There always are when technological change accelerates. High streets will continue to have vacancies, some may even become retail vacuums, with social and economic consequences. But their fate is not as gloomy as some believe. As rents decline, other occupants will be able to move in to the space left by obsolete retailers. Schools, houses and community centres could return, thereby rebuilding social capital.”
As if the dazzling future of the cyber high street and the mass armies of warehouse workers weren’t enough, according to the FT the destruction of the high street could be the answer to the housing problem and, from the quote above, look out for the new school in your local high street!
Certainly in a socialist society the idea of a house going to waste would be viewed as something of an absurdity. However, according to the London Evening Standard of Jan 23rd, 1 in 7 shop premises in British towns are already without a tenant. How is the ‘market’ solving this problem? Apparently the government is attempting to stay the invisible hand of the market. It is protecting these spaces in the belief that the high street might revive one day. The sober FT says to get real and that the high street will never revive to its former glory.
Of course more empty buildings should be redeveloped for the housing stock, which is in serious short supply. All the components exist for it: able workers, raw materials, abandoned building sites and families in need. But it is no surprise that landlords are having a field day at present as more families rent, getting a mortgage is harder than ever and investment in cheap, affordable housing is at its lowest point since the 1920s.
Speaking on Channel 5, Coalition Business Secretary Vince Cable had this to day:
“There is a problem among people losing their jobs but it is not the job of government to sort out the problems of competition on the high street – consumers make their choices and there are consequences.”
On January 24th the Metro featured the headline: “Blockbuster worker: Body found.” Newlywed John Ankers, 28, failed to turn up to his place of work in Birkenhead, Merseyside, the previous Sunday after reportedly hearing that the company had gone bust. The lives of this man and his family are just small change in the schemes of the Coalition, Cable et al, when it comes to the business of rent, interest and profit.
In a socialist society innovation would not be the bane of the worker but a continual process of striving to economise labour. This has been a constant feature of the history of humanity, and it has reached great heights. However, to realise its potential for freeing up humankind from the drudgery of labour and the insecurity of work, what is now required is an innovation in society.