Tuesday, 19 February 2019

Bigger problems than Honda

In case yesterday's post didn't depress you enough, it prompted some further discussion about the direction of travel for the UK and the West more generally. Basically, we are a nation living beyond our means, on the basis of an economic and social model that is completely outdated.

There are several crucial contradictions right at the core of our existence, and we are not going anywhere until you address them. The first thing is the fact that you only need a very small number of human beings to provide for the physical needs of the population as a whole. Thus, the world is split into producers (a tiny minority) and consumers.

The problem there is the economic model where, in order to be a consumer, you need access to an income which derives mainly from production. And as long as wealth (of a nation) is measured in the capacity for physical production, we will be striving to produce things which people either don't want or need (or should not have), simply to earn them an income.

At the same time, as long as people have to buy things in order to generate wealth, they have to be produced at a cost people can afford, which means that either they have to be produced by machines, or cheap labour in developing countries. We cannot afford to make the things we want at a price people can pay, in order to earn a living wage. Therefore, we end up with a small body of highly efficient producing people, supplemented by machines, in order to provide goods to an increasing number of unproductive people - who must then be given jobs so that they can "earn" the money to buy the goods to keep the productive people in work.

These "jobs" can't be producing jobs because we don't want or need the goods that they would produce, so they have to be in the service sector. The trouble is that there are either not enough "services" to keep the non-productive population occupied, the people are too expensive, or they are services which people don't want to provide (or any combination). This means it is "cheaper" in our economic model to bring in immigrants and keep an increasing sector of our economy unemployed or under-employed.

We do this in many ways - keeping children in full-time education for longer and longer, or the gig economy, longer retirement, relative to overall lifespan. The only trouble is that we can't afford those options either.

All this is against a background of individual expectations which are also unaffordable. The meanest of British citizens has material wealth beyond the wildest of imagining of my father's generation. Only the very richest of people could afford carpets, much less fitted carpets which were regarded as unimaginable luxury. There was only one radio in the house and no television. Nowadays, people have expectations of acquiring consumer goods which are simply unaffordable. The costs of these goods is deflated to well below the actual cost of production. A car used to be a multiple of annual earnings - now it is a fraction of them. That is unsustainable.

The trouble is that there is no politically sustainable answer. We once put up with impoverished lives because we didn't know any better, and many of the consumer goods that we now take for granted simply didn't exist and everyone was in the same boat. We once lived in cold, draughty houses because that was the norm. Not even rich people could afford central heating. Even a water heater was a luxury. For many people, having a hot bath meant heating the water over the fire, and sharing the water.

People simply won't tolerate this any more so we effectively have to make them poor by stealth, except that they then can't afford to buy the things we need them to buy, or to pay the taxes the state needs to keep functioning. The whole of society is built of false expectations that cannot be sustained. Hence, much of fiction today is of a dystopian future.

We know in our bones that our lives are unsupportable but we can't admit it. We can't disinvent human productivity, or abolish the industrial revolution and go out tilling the fields with hoes. We have developed into a cul-de-sac - and even global war is no longer an answer as the risks of nuclear war are too great.

We are, therefore, in a bit of a pickle. Government is wholly reluctant to destabilise the status quo because they don't have any answers and the ones who claim to have alternatives don't actually reside on this planet. We need some serious alternative thinking right about the time when very little thinking is done at all.

For whatever reason Honda is departing from the UK, it won't be the last and every town dependent on a large multinational is facing serious questions about its viability. The labour market does not have the absorptive capacity for simultaneous departures, but by leaving the single market that is a near certainty. If your sole concern was slowing the rate of migrant workers then your wish is about to be granted. There's no work for them.

It may not be Brexit that does it, but I think we have started something that could very well be the beginning of a cascade failure for society as we now know it. There are too many imbalances, far too much is overextended and it will take only a small shock to start the ball rolling.

As far as Honda goes, the reality is that the car industry is going through a shitstorm at the moment. Many will say it is a much needed industry contraction. Unfortunately, it coincides with Brexit but, from the look of this, it was going to happen anyway. Current production levels are a bubble and can't be sustained. The Honda factory is only running at 60 percent of capacity.

One of the main factors seems to be the rapid expansion of car leasing, which has artificially inflated demand for new cars on the back of cheap credit. Everyone wants a nice shiny car that's nicer then they can really afford and the banksters have contrived to let them have what they want. Which is something of a problem.

That demand bubble, though, has run its course and the market is now saturated with good quality second-hand cars which are going to be a drag on the market for some years. All car manufacturers are looking to a contracting market and increased costs, with limited opportunity for business expansion and something has to give. Brexit may have had a role in pricking the bubble but this was going to happen anyway. There is massive oversupply in the market and there are too many damn cars on the road.

This blog has long maintained that the UK is a zombie economy and the problems are structural. Remaining in the EU would have allowed us to continue ignoring them and allow us to keep our illusions rolling for a few more years - very probably worsening the problem. We were always going to need a full scale market correction on everything from houses to cars. This house of ours was built on a foundation of sand.

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