Andrew Glyn

Tumbling profits – Crumbling industry

(October 1981)

From Militant, No. 574, 23 October 1981, p. 7.
Transcribed by Iain Dalton.
Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

New figures for the rate of profit published by the Department of Industry (British Business, 18 September 1981, p. 111) confirm the dire situation faced by the British capitalists.

In 1980 their rate of profit was 4.9%, compared to an average of 11.6% in the years 1960–65.

But the 1980 figure itself is heavily influenced by the profits from North Sea Oil. These are of temporary duration. A large part of them go to the American oil companies, and in any case they have no bearing on the profitability of the rest of British industry.

Excluding these returns from the North Sea, the rate of industry and commerce was 3.0%, barely a quarter of the level of the early sixties. The manufacturing sector, hardest hit by the cuts in production and the high exchange rate last year, was receiving only 2% on its capital employed.

The situation has deteriorated further this year. Figures are only available for the first quarter, but they indicate a further fall, perhaps to 1½% or less for manufacturing. Whilst profitability has fallen elsewhere, the decline has been sharpest in Britain. Latest figures (for 1979) show rates of 14% for USA, 10% for France and 14% for Japan (British Business, 4 September 81).

The Bank of England has just reported that manufacturing productivity rose by 3% to 4% between the end of 1980 and the middle of 1981. But as the Bank wryly comments, part of this is probably a statistical mirage.

If a number of the least productive plants are shut, the average productivity level automatically rises, without signifying any genuine gain. Indeed if the workers are thrown on the dole were counted, their productivity having fallen to zero, the average would certainly have declined!

While closing loss-making plants does improve profits the only real improvement in competitiveness occurs through genuine productivity in the more efficient plants. How much management has achieved in this respect is an unknown quantity.

The drastic state of profitability has important implications for the Labour Party’s expansionary Alternative Economic Strategy.

Many supporters of the AES admit that to secure an improvement in investment the capitalists would require an increase in profitability. But they often overlook the extent of this increase.

To return the rate of profit of industrial and commercial companies (excluding North Sea Oil) to the level of the early 1960s would require an increase in profits of nearly £21,000 million (1979 prices). This represent 25% of what companies are currently producing. It would therefore take 25% expansion of their output, all of which would go to profits, to return the profit rate to its earlier level.

Probably there is spare capacity to increase output by a bit more than this. Nevertheless, the restoration of profitability would take the lion’s share of extra production.

Whether or not even this would be sufficient to secure a radical improvement in investment is dubious enough in the context of anti-capitalist measures of the AES (nationalisation of profitable firms, planning agreements, etc.) But there would be huge pressure on a Labour government to secure such a boost to profits by holding down on any growth in living standards.

The contradiction of trying to secure production for need in an economy based on profit would face the government with a stark choice: Either abandon its objectives or move more decisively against the profit system.

Net rate of return at current replacement price
	All Industrial/ commercial companies %	Industrial & commercial companies exc. North Sea %	Manufacturing Companies %
1960	13.3	13.3	13.3
1961	11.4	11.4	11.0
1962	10.4	10.4	9.9
1963	11.4	11.4	10.6
1964	12.0	12.0	11.3
1965	11.3	11.3	10.6
1966	10.0	10.0	9.2
1967	10.0	10.0	9.2
1968	10.1	10.1	9.2
1969	9.8	9.9	9.1
1970	8.7	8.7	7.5
1971	8.8	8.9	7.7
1972	9.3	9.3	8.1
1973	8.9	9.0	8.1
1974	5.8	6.0	4.3
1975	4.9	5.2	3.9
1976	5.4	5.6	4.1
1977	7.1	6.7	5.8
1978	7.2	6.7	6.0
1979	6.3	5.0	3.6
1980	4.9	3.0	2.0

NOTE: Figures show net rate of return on capital employed. Net Return means gross operating surplus (i.e. gross trading profits less stock appreciation plus rent received) less capital consumption (i.e. depreciation) at current replacement cost. Net rates of return have fallen more than gross rates. Net rates were above gross rates in the 1960s, but since 1974 have been well below them, reflecting the increased share of capital consumption as profits have fallen. Excluding North Sea activities, capital consumption has increased from 20% of gross operating surplus in 1960 to 28% in 1979 and 56% in 1980.

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