Internationally,
capitalism is emerging from its worst crisis since the 1930s. There
is palpable relief in the ranks of the ruling class at avoiding a
financial meltdown. However, despite heated talk of green shoots,
there is a universal gloom about the current situation.
“Millions
experience cuts in living standards as bankers continue to award
themselves millions in bonuses”
In
September, job losses in the USA jumped by a much worse-than-expected
263,000, hitting a 26-year high. It was the 21st consecutive month
the US economy had shed jobs. Since the recession began nearly two
years ago the number out of work in America has doubled from 7.6m to
15.1m. The average working week fell back to 33 hours, while wages
have fallen by 5%, further undermining consumption. The $787bn
stimulus package is not having the expected effect and there is
serious talk of a double-dip recession.
In
other words, the capitalist crisis is by no means over. The massive
crisis of over-production is exacerbated by widespread over-capacity
in practically every sector of the world economy. “Unless we deal
with excess capacity, it will wreak havoc on all countries,” states
Justin Lin, chief economist at the World Bank.
Financial
Implosion
Britain
has already experienced a fall in production greater than in 1931.
Rising unemployment is on target to reach 3m in 2010, while some
estimate it could reach 4m. The government’s efforts to bail out
the banking system have undermined public finances, as unemployment
rises and tax revenues collapse. Over the next two years the
government will need to borrow a staggering £350bn. “This
financial year, the UK government is forecast to spend £4 for every
£3 it raises. Never before, in peacetime, has the UK run such a
deficit”, stated Martin Wolf, economic strategist at the ‘Financial
Times’.
“A
financial implosion can do fiscal damage comparable to that of a
sizeable war”, continues Wolf. “Indeed, this is quite likely to
prove the fourth most adverse fiscal event since 1800, after the
second world war, the first world war and the Napoleonic wars.”
(FT, 5/6/09).
These
debts will have to be repaid. This will mean massive cuts in public
expenditure, tax increases and higher interest rates. Given the
precariousness of the recovery, such measures could push the economy
back into recession. British capitalism – and the working class who
will be asked to pay the bill – will be caught between a rock and a
hard place.
The
situation has become even more disastrous with the British economy’s
reliance on banking, financial services and the City of London. There
is much talk of the need to rebalance the economy, but it is much too
late to recreate a vibrant manufacturing sector. British capitalism
through the short-term interests of the ruling class has become
completely dominated by finance capital. Between 2005 and 2007, the
financial and housing sectors made up 60% of the growth of the UK
economy. This was a consequence of myopic Thatcherism and the dash
for quick profits. This is the main reason for the long-term decay of
British capitalism.
New
Labour continued this worship of the City of London. Lack of
regulation was regarded as a virtue that would guarantee London as
the financial capital of the world. Despite the financial crisis and
the role of the banks, the City will have an even greater sway over a
new Tory government. Already Cameron
(Conservative
Party Leader) has appointed two powerful City figures as the party’s
co-treasurers.
Decline
of Consumer Spending
As
the banks were bailed out because they were “too big to fall”,
manufacturing industry was left to its own fate. However, there can
be no sustainable recovery without massive investment. But with a
crisis of over-capacity and limited markets, there is no incentive to
invest. As a result, UK business has slashed investment by the
biggest amount since the 1960s. Business investment has fallen more
sharply over the course of the recession than in the downturns of the
1970s, 1980s or 1990s. “Unless this trend can be reversed, the …
productive capacity of the economy will be damaged, and the country
will lack the necessary capital stock to sustain a recovery,”
stated David Kern, chief economist at the British Chamber of
Commerce. Manufacturing was already back in recession in August.
With
the decline of consumer spending, due largely to high levels of debt,
falling house prices and the threat of unemployment, together with
the collapse of private investment, demand over the past period has
come mainly from government spending. But this is about to go into
reverse, which will serve to intensify the crisis.
There
has been a hue and cry in the media over the “excess” spending of
the bloated public sector. All the main political parties have joined
the affray. Cameron has said the actions of a new Tory government
will make it the most unpopular government since the war. Nick Clegg,
leader of the Liberal Democrats, has talked of the need for “savage”
cuts as well as a long-term freeze in the pay of public sector
workers. While, Gordon Brown (Labour PM) spelt out to the TUC
“cutting costs where we can, ensuring efficiency where it is
needed, agreeing realistic public sector pay settlements throughout,
selling off the unproductive assets we don’t need to pay for the
services we do need.” This was followed by Ed Balls, the minister
for children, schools and families, who announced £2bn cuts from the
school’s budget and Andy Burnham, the health secretary, promised
that the NHS would find “efficiency savings” of £15-20bn.
Whoever wins, this is a clear sign of what lies in store for public
services and public sector workers.
Austerity
has become the battle-cry of the ruling class. This is no fine tuning
exercise but the use of the axe. British capitalism can no longer
afford the reforms of the past. Any temporary gains that have been
made will be swept away. Top civil servants have been sent on courses
to study the austerity programmes of the 1920s. In particular, they
are studying the Geddes Committee which recommended cuts of 25%. In
the 1920s, under the pressure of the crisis, stern austerity measures
were taken to balance the books. This led to massive cuts in public
spending and reductions in pay. “All the workers of this country
have got to take reductions in wages to help put industry on its
feet,” stated Stanley Baldwin, the Tory Prime Minister. It was this
that provoked the General Strike of 1926.
Whoever
wins the election – and however strong their reforming zeal – the
next government will be remembered as a cutter,” explains the
editorial in the ‘Financial Times’ (19/8/09). “No reforms can
save the British state from its coming re-sculpting.”
The
Tories are preparing for power. They will be the faithful government
of finance capital, ready to do its bidding. Cameron has already
stated he wishes to model his government on Tesco and J. Sainsbury,
the supermarket conglomerates. Britain would then truly have a
government of millionaire shopkeepers, a suitable epitaph to its
ignominious decline. However, they are already sharpening the knives
for the massive cull of public services in this “age of austerity.”
“There
is a wing of Conservative thinking that has never gone away but which
has been suppressed by the Blairite-Cameron view of the world. The
public spending crunch will give them wind in their sails and give
them the opportunity to be more radical”, said Tony Travers, expert
in London governance at the London School of Economics (LSE). By
“more radical”, read “more counter-revolutionary.”
The
National Institute for Economic and Social Research in response to
the crisis has called for the government to raise the pension age to
70.
The
alternative to a pension-age rise, it said, was a combination of
extreme measures such as freezing public sector pay for five years,
the loss of about 120,000 government jobs each year for the next five
years, a 7p increase in basic tax rates and an expansion of the value
added tax base to everything but food and children’s clothing.
Even
making two of these painful choices, said Mr Barrell of the NIESR,
would not bring public spending back to a sustainable level. Clearly
an even more vicious programme of attacks will be needed.
No
Alternative but to Fight
The
outlook for the working class is extremely bleak on the basis of
capitalism. Half of all workers have already faced cuts in pay or
hours of work during the recession. They were told that this was a
necessary temporary sacrifice to save their jobs. This, however, is
the lull before the storm with fears of a double-dip recession ahead.
Brendan
Barber, general secretary of the TUC, warned that cuts could push the
economy into such a recession and drive up unemployment. “The last
time we suffered slash and burn economics,” he warned, “we had
riots on the streets here in Liverpool.” Nevertheless, this warning
will fall on deaf ears. The ruling class is not moved by such
considerations, only by material class interests, namely, urgent
measures that will rescue capitalism and restore its profitability.
The capitalists are preparing a showdown with the working class, as
Baldwin did in 1926. That is the meaning of the Geddes’ lessons.
The
working class will have no alternative but to fight, as their
forefathers did. They will come to realise that in the harsh school
of Cameron there is no solution to their problems under capitalism.
However, the struggle to defeat the Tories, if they manage to gain
power, must go hand in hand with the transformation of the labour and
trade union movement. The present right wing in the Labour Party –
who will be blamed for the defeat – will be spewed out. The task will
be to forge a party that will not capitulate to big business, but
will carry through the socialist transformation of society. Only in
this way can the ills of capitalist crisis – unemployment, cuts,
homelessness and poverty – be eliminated forever. The only choice
facing working class today is, in the words of Rosa Luxemburg,
“Socialism or Barbarism.”