Britain: An economic tsunami in 2005?

"Capitalism is the only system that works," pronounced Polly Toynbee, The Guardian columnist, as 2004 drew to a close.

Yet, a torrent of reports, factual comment and information in her own newspaper and the rest of the capitalist media indicate that the system she supports is working badly and potentially is on the verge of a catastrophic breakdown. A worldwide economic tsunami could now follow the disaster in Asia.

A banner headline for the Independent in mid-December read, "Poverty and despair of Britain’s lost generation". Across Britain, almost 20 per cent of children are in families receiving means-tested help because they are not working. One in four adults – many from ethnic minority backgrounds – cannot afford at least three items thought essential by the majority, up from one in seven in the early 1980s. A recent arrival from Bangladesh, an engineer, commented: "I was shocked, I thought I was coming to a leading world country."

The same newspaper a few months before stated: "Millions of the poorest people in Britain are facing a benefits increase of just 50p a week, the smallest rise in their payments for at least 30 years." Moreover, around 8 million are living on less than £10,400 a year and cannot afford essentials such as furniture. Two million cannot afford to heat their homes properly, which results in 50,000 deaths a year, while thousands have to choose between prescriptions for medicine or food.

It would be possible to fill the whole of this issue of The Socialist (newspaper of the Socialist Party) with facts, figures and personal incidents detailing the searing poverty which inexorably rises in spite of Tony Blair and Gordon Brown’s so-called "fairness agenda". The wealth of the super-rich has doubled since Blair came to power. But Polly Toynbee’s system is indeed working for some as inequality rose in Britain by 40 per cent between 1979 and 2001. The number of dollar millionaires in Britain rose by 28,000 to a staggering 383,000 in 2003.

Worldwide, the ranks of "high networking individuals" – those with more than $1 million (£547,000) in assets – increased by 500,000 to a total of 7.7 million. Their combined wealth rose by 8 per cent to $28.8 trillion. One money broker saw his ‘wages’ increase by $1.2 million in 2003. Bolstered by a colossal increase in profits – the surplus extracted from the labour of the working class in Britain and worldwide – the super-rich are creating "100-year plans" to hold on to their wealth.

This at a time when half the world’s 2.8 billion workers who actually have jobs are struggling to survive on less than $2 a day, while 550 million live on less than $1 a day. This is the grim reality of Polly Toynbee’s "best system" as we enter 2005, a year that promises the turning of the tide against what is seen as an increasingly discredited system.

Any economic and social system is ultimately judged on the basis of whether it can develop, maintain and increase the productive forces – science, technique and the organisation of labour, and with it the living standards of the majority. In the 1990s, given the collapse of the regimes of Eastern Europe and the Soviet Union, capitalism worldwide claimed that it was fulfilling this task through the 1990s boom. The underlying reality, however, was a colossal polarisation between rich and poor, between the capitalists and the working class, as the former ruthlessly applied neo-liberal policies which, in turn, generated an incipient revolt amongst young people and growing numbers of working-class people.

"Economic depression"

This could assume mass proportions if the present highly unstable economic situation tips over into what the Financial Times warns could be a severe "economic depression". The US economy, which is the Atlas of world capitalism, propping up the whole system, was mainly sustained after the economic shock of 1997 by huge inward investment by foreign capitalists, particularly from Asia, with the governments of Japan and China also plugging the US federal deficit by buying Treasury Bonds. They have done this because of their dependence on exports to the US market, without which they would plunge into an even worse crisis than in 1997.

The consequence has been a huge US balance of payments deficit of almost 6 per cent, almost double what it was in the 1980s, which in turn has now resulted in a big drop of about 30 per cent since 2002 in the exchange rate of the dollar against other major currencies. While proclaiming support for a "strong dollar" the US government of Bush has colluded in the devaluation of the dollar, which in turn cheapens US exports against the major competitors of Europe and Asia. In effect, the US has put the European capitalists on reduced ‘rations’, driving up the euro around $1.33 and the pound almost to the level of $2, which will savagely undermine even further the stagnant eurozone and could result in a spiralling of factory closures and unemployment.

At the same time, the holders of US dollars abroad having seen the dollar plunging and their holdings further devalued, can divest themselves of this currency for others, setting in train what the US economist Stephen Roche has told his clients may be an "economic Armageddon". However, not just the US but also the Asian capitalists and governments are terrified of jumping off this speeding economic merry-go-round for fear of collapsing the whole financial house of cards. This has been described by a former US Treasury secretary as a "balance of financial terror". When and just how the system will collapse is unpredictable but as the British economist Wynne Godley comments: "The crunch may be at hand."

The inexorable rise of the US deficit means that the Bush regime will have to savagely take the axe to public spending in the US and, at the same time, through a cheap dollar, seek to recapture markets from its European and Asian competitors. If this is successful, it will enormously aggravate the 10 per cent unemployment in France, for instance, with almost that figure existing in Germany.

China’s growing market

Moreover, there is no salvation to be found even in the growing market of China. Half of Britain’s exports go to Europe whereas only 1 per cent goes to China. True, the British capitalists are behind their US and European counterparts in exploiting this market but even US companies are currently earning greater profits in Australia, a market of 19 million people than in the potentially 1.2 billion market of China. At the same time, China is churning out huge amounts of manufactured exports that are pouring onto the world market, which is becoming saturated. The result could be massive ‘overheating’ and an economic crisis on the scale or worse than in Asia in 1997.

But, given poverty-stricken wages, China and, to a lesser extent India, still remain threats to the jobs of millions of British workers from "outsourcing", particularly in manufacturing, and is predicted to massively increase in the next period. The ‘patriotic’ British capitalists are like Dyson, who recently lectured on the BBC on Britain’s economic future while "relocating" abroad, that is sacking, hundreds of workers in his Malmesbury factory. The capitalists are ‘loyal’ to one aim, maximising their profits, no matter what the social consequences will be for workers here or abroad.

Despite this, Gordon Brown gives the impression that he is on economic cruise control, with promises that Britain under his stewardship will remain unaffected by the world economic storm clouds that are brewing. Nothing could be further from the truth. In many ways, the economic position of Britain is a replica, albeit on a smaller scale, of the chronically diseased US capitalist economy.

Its trade deficit in manufacturing is the worst for three centuries. Its first deficit was in 1983, a signal of British capitalism’s long-term decline but this has now burgeoned to almost £39 billion in 2003 and was almost that figure in the first ten months of 2004. It therefore has a similar "balance of payments crisis" as the US.

Unlike the US, however, Britain still has a surplus from the capitalists’ investments abroad and in ‘services’, which plugs, for the time being, this growing black hole. But the scale of the collapse is indicated by the fact that British capitalism, in the first ten months of 2004, had a £2.4 billion trade deficit with Belgium and Luxembourg, a £4.7 billion deficit with the Netherlands, a deficit over £10 billion with Germany, and a more than £3 billion gap even with Berlusconi’s ailing Italy!

Moreover this situation is destined to worsen as the price of the pound reaches towards $2. It was last at this level just before "Black Wednesday" in 1992. Whether it results in a similar crisis for the New Labour government is doubtful but the exports of British capitalism will suffer severely, factories will close and workers will be thrown out of jobs as a result of this.

Economic slowdown

At the same time, Brown despite his claim of further ‘record’ growth, faces a slowing down of the British economy this year and with it the shipwreck of his "golden rule" of only borrowing to finance investment over an entire economic cycle. There is already a growing gap between income and expenditure in the government accounts. Either Brown will be compelled to increase taxes, a virtual certainty which he hopes to delay until after the next election or savagely cut public spending or combine both.

Up to now, the British economy and, thereby, even the paltry spending on public services of the government, has been buoyed up by the growth in consumption which, as in the US and other ‘Anglo-Saxon’ countries has been a big factor in sustaining growth. The housing bubble has been a crucial element in this, allowing increased spending, second mortgages, etc. This, however, has led to a colossal household debt of 140 per cent of annual income, which is now clearly unsustainable.

Some capitalist experts hope that this will not mean a repetition of the housing market collapse of the early 1990s, with a drop in prices that resulted in repossessions and homelessness. Interest rates are lower now and they argue that householders may just hang on to property and wait for "better times". But this discounts the likelihood of a serious world economic crisis, which will severely impact on Britain as well as the underlying economic weakness of British capitalism: "[Britain’s] manufacturing base further erodes, with nothing on the horizon to take its place; the idea that we will be able to live forever on the retailing and wholesaling mark-ups from goods made in China is wishful thinking, a non-industrial strategy." [The Guardian]

The privatisation of education, particularly in the universities, is calculated by Brown and Blair to be one replacement for industry as a "foreign earner". It is true that Britain is second only to the US in its attraction of foreign students but this currently brings in less than £2 billion a year, hardly an economic lifeline. Moreover, the surplus from oil at £2 billion is now half of what it was a year ago. The consequences of all this are felt in the harrowing poverty in Britain’s major cities, with Glasgow, Liverpool and London accounting for half of the poor children in Britain, as well as the steady erosion and attacks on the past gains of the working class. The assault on pensions, particularly the raising of the retirement age from 60 to 65, is a major attack on the remnants of Britain’s once-famed welfare state.

The scandal of MRSA in hospitals, with 100,000 people catching infections and a horrifying 5,000 dying every year, is in itself an indictment of the capitalist system and, particularly, its neo-liberal phase of deregulation and privatisation. This killer bug has been allowed to take root because the NHS now employs half the cleaners it did 15 years ago, resulting in fewer than half of hospitals having a "good or excellent cleanliness rating", according to the government’s own health minister. Tory leader Michael Howard complains that his own mother-in-law was killed by this bug. It would be accurate to say, however, that he brought this on her and many other parents and mothers-in-law by the policy of privatisation initiated by the Thatcher government he served in and which is now pursued by her heir Tony Blair.

Privatisation discredited

Yet privatisation is utterly discredited for the con which it is. Witness the state of the railways, the hospitals, the huge profits cornered by private firms on the London Underground which will not be ploughed back into modernising this antiquated system. Or the collapse of Jarvis, which is quitting four PFI deals, leaving half-built student accommodation at Lancaster University and elsewhere. Despite this, Blair will press on regardless because he is organically linked to diseased British capitalism.

He has even allied himself with the ultra-right neo-conservatives in the Bush administration. On 5 November, he told The Times: "The [US] neo-conservatives are not a world away from the progressive left"! Not just in politics but in lifestyle and outlook he is a million miles removed, as is his Cabinet and now his party, from the mass of working people in Britain. He has recently acquired a £2.6 million house bought against projected future income of £20 million after he leaves 10 Downing Street!

This shameful fact alone indicates the character of New Labour, which is no longer a workers’ party at the bottom but is home to every careerist place seeker and toady who wishes to "climb the greasy pole", leaving in their wake mutilated public services and the broken lives of millions of working people. It is time to prepare a new mass alternative to break the grip of parties rooted in the failed system.

The Tories still bear the mark of Cain, of Thatcher, and are largely a rural and suburban rump, with no MPs in the big conurbations of Liverpool, Sheffield, Birmingham, Manchester, Derby, Leeds, Reading, Coventry, Luton and Leicester. It has no base in Scotland or Wales and only a residual presence in London. Its main political message is that Blair is "always stealing its clothes", which is true.

The Liberal Democrats, on the other hand, who give the impression of being different, are also located firmly within discredited capitalism. They are recent enthusiastic converts to privatisation and the neo-liberal agenda in general. The future does not lie with these parties and the profit system they represent.

A colleague of Polly Toynbee, Martin Kettle, sought to reinforce her message by proclaiming last year: "Socialism is dead. Long live liberalism and social justice." [The Guardian] Yet the past year has shown that his claim is false. Capitalism, even "liberal" capitalism, and "social justice" are not twins but polar opposites. What is "liberal" about Blair’s capitalist Britain? Lord Butler has revealed that Blair and a handful of cronies take all the decisions, with little or no reference to the rest of the government. The Cabinet meets for the same length of time as the TV programme "Ready, Steady, Cook"! In other words, a veiled personal "elected dictatorship" by Blair exists which has taken Britain into bloody, devastating wars and relentlessly attacks the working class here and internationally.

Where progress has been made, even on a limited scale, it has been precisely by those who adopt a socialist outlook and oppose the capitalist system. Roger Bannister, for instance, the left candidate for Unison general secretary, and not the national leadership of UNISON, successfully mobilised the workers in his authority and established a 35-hour week. The Raffarin government in France is trying to take away this important concession gained by French workers in the 1990s and even the French ‘Socialist’ Party officials now declare that it was a "mistake" to introduce it.

The attempt in education to impose city academies on an unwilling population was halted when Waltham Forest NUT, teachers and parents forced Jasper Conran to withdraw from his attempt to introduce the "benefits" of his "enterprise culture" to the grateful poor of that borough. It is also the socialists in the PCS and other unions who are leading the battle for action to defeat the attack on the pension rights of the British working class through a one-day public sector general strike. These are small examples, it is true, but events and the testing out of the official leadership of the trade unions, as well as the discrediting of New Labour, is preparing the ground for these ideas to be embraced by millions of British workers.

In projecting "liberalism" as the alternative, Martin Kettle imagines he is also "modern". So-called liberal capitalism and the Liberal Party which espoused these ideas predated the rise of the labour movement and of socialism. It was their failure in the nineteenth century and since that convinced working people to create mass organisations to challenge capitalism and change society in a socialist direction.

The legacy of Stalinism and its collapse in 1989 and, unfortunately, with it the example of planned economies, blighted the outlook of many workers in the struggle against capitalism. It was used as a scarecrow to frighten the working class from the ideas of socialist change in society. That has now gone, never to return. The process of rebuilding the trade union and labour movement is under way, in which the Socialist Party will play a key role.

Worldwide, moreover, a certain rebirth is under way. Two major international trade union federations are about to create a single body which, theoretically, will encompass 174 million members worldwide. These organisations, unfortunately, are presently under the control of right-wing officials but the potential for radical change, especially under socialist and Marxist leadership is indicated by the numbers who could be mobilised for workers’ rights and for a change in society. And such a fighting force is crucial given the worsening of the conditions of the working class and the poor internationally.

Consequences of war

A horrifying war also continues in Iraq, with the real prospect of the country breaking up – urged on by the neo-conservatives in the US – as a means of ensuring continued US and capitalist domination of Iraqi and Middle Eastern oil. That will provoke continued opposition in Iraq, throughout the Middle East and in the mass antiwar movement internationally. This will coalesce with the movement of the working class in Europe, in the US and in Japan in this convulsive period we are now entering.

The attempt, therefore, of those like Polly Toynbee to reconcile us to this, "the only alternative", is doomed to failure. The rich might have a 100-years plan to hold on to their wealth but the capitalist system is inherently unplanned, riddled with contradictions and incapable of satisfying human wants or interests.

One capitalist commentator expressed this succinctly, in relation to who really takes economic decisions in the US, when he wrote that the politicians are "servants of the economic cycle and second to the Federal Reserve. [They] might have some impact on jobs in the margins but Greenspan [chairman of the Federal Reserve] is more important than the President and the economic cycle is more important than Greenspan." [The Observer] Precisely! Capitalism is a society of chaos; it is a blind system, with the working out of economic processes taking place behind the backs of society.

We stand for a socialist, democratically-planned economy, which can replace the barbarity of capitalism with a society of human solidarity. 2005 will see an advance in the forces of socialism in Britain and worldwide which have this as their vision of what is possible. No amount of capitalist journalistic balm, extolling this discredited system, will deflect us and the working class from achieving this goal.

From The Socialist, paper of the Socialist Party, cwi in England and Wales

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