An important reason for the hollowing out of the industry is that in the 1980s, British Prime Minister Thatcher used neoliberalism as an important basis for formulating national economic policies.
The welfarism constructed by the West after World War II to stimulate large-scale social production with large-scale mass consumption, after the 1970s, not only failed to serve the original rule, it led to a serious stagflation crisis.
First of all, because Western capitalist countries have long used fiscal deficits and monetary policies to stimulate economic growth and curb economic crises based on the Keynesian state intervention theory, Western economies have gradually developed overcapacity, excessive credit inflation, severe inflation, and sharp government fiscal deficits. Increased serious problems.
Secondly, the encouragement of national construction after World War II led to rising social expenditures, resulting in a downward trend in capital accumulation.
Finally, as social problems such as unemployment and inflation have become increasingly prominent, and social dissatisfaction has spread, the masses strongly demand the government to carry out large-scale reforms and intervention.
Under this situation, with the full establishment of financial monopoly capitalism, the economy is highly financialized and securitized, and all productive resources can be turned into financial assets that can be traded in the market. In order to pursue a higher return on profit, Neoliberalism was picked up.
▲ City of London, UK (Photo taken on April 14, 2020) Photo by Han Yan
The neoliberal theory with privatization, marketization, liberalization and global integration as its core content gradually replaced Keynesianism and became the basis of mainstream British economic theory and social and political governance.
After Thatcher was elected Prime Minister of the United Kingdom in 1979, he gave up Keynesianism, drastically reduced the obligations of the welfare state, privatized public enterprises, and lowered taxes to attract foreign investment. Since then, neoliberalism has become the solution for Britain to resolve its internal crisis.
The core of neoliberalism is “market determinism”, which advocates “market omnipotence”, opposes state intervention, levies less income tax on high-income earners, and safeguards corporate profits. At the same time, it advocates that the country completely abolish trade barriers and government intervention, open the economic market to transnational capital, require all factors of production to achieve cross-industry, cross-border, and inter-period free flow, and take the path of trade and financial liberalization, thereby reducing transaction costs.
Adhering to neo-liberalism has enabled monopoly capital to break the shackles of the domestic welfare state system, break through the barriers of foreign nation-state boundaries and national sovereignty, and become an ideological and policy tool for the global expansion of international financial monopoly capital and its global institutional arrangements.
“Globalization determinism” is another core idea of neoliberalism. The essence of what it calls globalization is capital globalization. Neoliberalism is the guiding ideology for the financialization of contemporary capitalism. Under its influence, since the 1980s, the service-oriented economy has gradually affected the adjustment of macro policies and industrial structures in developed countries, transnational economy, digital economy, finance and The service industry has become the focus of industrial development in the UK. The service-oriented economy advocates “de-growth” and believes that the manufacturing decline is insignificant.
According to data released by the World Bank, the share of the UK’s manufacturing value added in GDP has fallen from 16.67% in 1990 to 8.59% in 2019. In recent years, financial services (including insurance and real estate) have become the industry with the highest contribution rate. The profits of multinational corporations come from the low cost of intellectual property rights, market size and global industrial chain. The digital economy and financial services do not contribute much to the low-end labor and job market, so workers in traditional manufacturing industries in developed countries are excluded from the global value chain. The illusion of GDP prosperity caused by multinational corporations, digital economy, finance and service industries has appeared in the UK. At the same time, the decline of manufacturing industry and the unemployment of labor-intensive industrial workers have also appeared.
Loss of industrial advantage and hollowing out of industry led to the decline of the UK
Looking back at the history since the Industrial Revolution, the United Kingdom has risen due to the advantages of manufacturing, and has gradually declined due to the loss of industrial advantages and the hollowing out of the industry.
In the beginning, the United Kingdom was able to destroy the European economic hegemony that the Netherlands once held through several Anglo-Dutch wars, relying on the overwhelming advantage of the manufacturing industry gained by launching the industrial revolution first.
As the earliest “world factory”, British industrial products have become a “heavy artillery” sweeping the world market. The high growth in exports of manufactured products has won a greater scale advantage for the British manufacturing industry, and has compressed or even eliminated the growth of local competitors in overseas markets. Space, and laid the foundation for Britain to incorporate other countries into its own international division of labor system supplemented by military conquest and other means. The UK has reshaped the entire international division of labor system with its own country as the core, forming a virtuous circle of mutual promotion of industrialization and foreign trade, shipping, and investment.
Relying on international trade focusing on manufactured products, financial businesses such as trade financing and insurance have also developed. The sustained huge trade surplus and current account balance of payments surplus have become the source of a large number of British foreign investment and capital exports, further expanding the British financial hegemony to the world.
However, in the second wave of the industrial revolution that started around the 1880s, Britain fell behind, and the rising United States and Germany have successively completed the leap-forward process of industrial development, occupying the dominance of emerging industries such as electrics, internal combustion engines, and chemicals. Status, the output of major industrial products surpassed that of the United Kingdom.
With the loss of industrial advantages and the status of the “world factory”, the virtuous circle mechanism of British industrialization and foreign trade, shipping, and investment mutual promotion was completely reversed, so that this traditional large trade surplus country fell into a long-lasting trade deficit.
The collapse of the British Empire after the two world wars was ultimately due to the insecurity of British industrial superiority and the status of the “world factory”. The old international economic and political system with Britain at its core was unsustainable.
So, what is the root cause of Britain’s loss of industrial advantage and its status as a “world factory”? This is not only because of the mistakes of the British industry itself, such as being too conservative towards the new technological revolution and too afraid of the possible failures of developing new technologies and new industries. At a deeper level, it is due to the defects of the capitalist mode of production itself, and Some deep-rooted political traditions in Europe.
Since the 1980s, under the influence of neoliberal theory, European countries have advocated the principle of “small government” that prioritizes benefits and privatized public capital and resources on a large scale. Not only did they lose the financial power and ability to solve the imbalance of social distribution, but also Turning the government into an “attractor” of international capital and a manager of the investment environment has largely lost the ability and awareness of the macro and strategic aspects of governing the country. As a result, European political elites continue to promise and break their promises to the people. No matter which party is in power, they are unable to solve the problem of social injustice. The people gradually distrust the government’s ability and effectiveness.
Investment is inseparable for sustainable industrial development. Compared with the iconic industrial textile industry and steam engine of the first industrial revolution, the iconic industries of the second industrial revolution, such as electrical, internal combustion engine, and chemical industry, are much more prominent. The demand for larger-scale capital concentration and investment is relatively More urgent.
However, at that time, the capital accumulation in the United Kingdom, which had the highest accumulation of capital in the world, failed to develop new industries like most investors and entrepreneurs in the United States and Germany. Instead, they invested too much capital in finance and foreign investment, leading to investment. The capital for the renewal and development of the manufacturing industry has been reduced accordingly.
At the same time, with the UK holding financial hegemony, continuous large-scale foreign investment has also damaged the potential for sustainable development of the UK manufacturing industry in many ways. On the one hand, excessive overseas investment has reduced the resources available to the British domestic manufacturing industry; on the other hand, the continuous return of investment returns has greatly increased the price of assets such as domestic real estate and labor costs in the UK, thereby greatly increasing the domestic manufacturing industry in the UK. Development costs.
Since the 1970s, with the economic recovery of Japan and the Federal Republic of Germany, capitalist countries such as the United Kingdom have been severely threatened and challenged in the context of the gradual hollowing out of the real economy, especially after the collapse of the Bretton Woods system. The economic status of other capitalist countries continues to decline.
As neoliberalism advocates open markets and trade and financial liberalization, and seeks to obtain excess profits, the development of the United Kingdom in the financial field has intensified, and overseas direct investment and securities investment have grown rapidly throughout the capitalist world. Financial derivatives have transformed the global stock market and fund and bond market into a financial form completely different from the real economy. This highlights the unproductive accumulation of financial assets, that is, financial capital through patent rights, pricing power, financial real estate, and securities speculation. , National debt speculation, currency dominance and other means to carry out speculative, parasitic, and deprivation accumulation.
When financial capital accumulation falls into crises like insufficient effective demand, overproduction, and overcapitalization, it tries to solve the crisis by stimulating non-productive accumulation such as real estate speculation and securities speculation. This will instead cause a greater crisis and make domestic The degree of inequality continues to expand.
If the crisis is alleviated by stimulating real estate, it will increase the income of the parasitic class in society, increase the operating cost of the real economy, lose the advantage of industrial competition, and further impoverish the working class in society.
Financial capital tries to solve the crisis of productive accumulation by strengthening unproductive accumulation, but it just superimposes the crises to create a bigger crisis. As Marx said, the bourgeois solution to the crisis is “only a way to reduce the number of means to prevent the crisis.”
article links：Why did the earliest "world factory" lose their status?
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