Britain: Government bailouts – Measures to prop up capitalism

Crushing condemnation of neo-liberal agenda

“We’re all socialists now, comrade.” Not a headline from a previous issue of The Socialist, but carried last week in the ultra-conservative Daily Telegraph. For added colour it was over a picture of Gordon Brown dressed in the cap and uniform of a Russian general, not today, but in pre-1989 ‘Soviet’ times!

This, of course, is a wild exaggeration. The measures which the Brown government have been compelled to take, and which will probably be emulated in some form or other by the major countries of Europe and the US itself, are not of a socialist character. Socialism means the end of the rule of the gang of billionaires who have held a financial sword of Damocles over the heads of the people of Britain and the world in the last few weeks. Unless we stuff their mouths with gold, not just the banks but industries, indeed whole countries, will collapse with calamitous consequences. These measures are meant to prop up, not end capitalism.

Yet, “It is the right thing to do,” intones Alistair Darling, Yvette Cooper and Gordon Brown in every statement and interview in a manner that brooks no objection. But is it ‘right’ to hand out public resources after the damage that the greedy speculators at the head of the financial institutions have inflicted? Last week “witnessed the destruction of wealth unprecedented in human history; some $25 trillion was wiped from the value of the world’s stock markets so far this year; and $4.7 trillion (£2.7 trillion) of that in the past week alone” (The Independent).

Whatever happens next, the financial meltdown of the banks and stock markets is already equivalent to 1929. The measures of the capitalists and their governments are aimed at preventing the consequences that flowed from the Wall Street crash of 1929. However, the working class will still be expected to swallow the bitter pill of mass redundancies and cuts in living standards as the ‘real economy’ is inevitably affected. The recession will be deep and prolonged.

But, are the financial moguls grateful to the government for this bailout? Not a bit of it. Jeremy Warner reported in The Independent that “in the City there is fury over what one banker described as ‘sequestration’. Said one angry adviser: ‘They won’t give us the funding we need to survive unless we dilute our shareholders out of existence’.” The government rescues these creatures – repeat, at our expense – mildly trimming the fingernails of the big banks, and they repay this with whingeing and ingratitude. Rather than threatening ‘sequestration’, the measures of the government aim to save them.

Iceland’s economic black hole

Who has produced this mess if not the capitalists and financiers? In Iceland, which is now in an economic black hole, it has only just been revealed that it was ‘leveraged’ – its total indebtedness – by nine times the national income of the country! No wonder Icelandic workers mobilised in Reykjavik – with red flags and singing the Internationale – demanding that the country’s rulers be called to account.

This is the approach that should inform the British labour movement. Equity regulations and mass anger at the bankers’ bailout have forced the government to go further than it wanted to at first. Initially, its intervention was to be restricted to massive injections of cash but the acquisition only of ‘preferential shares’ which do not carry votes or a say in the affairs of the bank. Now, a mixture of ordinary and preference shares, acquired by the government, could lead to existing shareholders holding a minority position, hence the screams in the City. But, unless they received this dosh – a government life support machine – they risked going bust.

Brown and Darling have made it clear they wish to hand the banks back at the first available opportunity – when, they hope, financial health will be restored. But they may have to wait some time for this. These measures may temporarily ‘put a floor’ under the system, leading to a partial recovery in equities – shares – as has happened as we go to press.

However, the leaky financial lifeboat which has been launched could yet be shipwrecked by the huge obstacles – open and hidden – that lie in wait for the capitalists. There is the $55 trillion market in the arcane ‘credit derivatives’ and ‘credit default swaps’, used to insure banks against losses or risky investments, which is in ‘difficulties’. Unbelievably, this market is more than twice the size of the combined gross domestic product of the US, Japan and EU.

In answer to the economic crisis, Brown, it was reported in The Times, is moving the ‘nerve centre’ of government away from Number 10, and is choosing between different types of ‘open plan’ office space. No matter where he is located, it is impossible for him to ‘plan’ capitalism. Rather than the government dictating to the market, as events have graphically demonstrated in Britain and worldwide, it is held to ransom by the financial cabal that rule the system.

The trade unions and organisations of the working class in Britain and worldwide, as a minimum, must demand nationalisation of all the financial institutions. This should be just a first step towards the unification of all the banks into one democratically controlled system. The proposed government ‘representation’ on the boards of the four banks that will be recapitalised will come from bankers or high state officials – in other words, drawn from the same social circle as those who have ruined these institutions.

Labour movement

The labour movement must demand majority representation at all levels of these banks, drawn from workers and unions in the banking industry, from the wider working class and labour movement, with the government also represented. There should be a complete opening of the books and a rejection of ‘business secrets’, which the bosses say should be kept hidden in order to maintain ‘competition’ and to ‘not frighten the market’. The BBC’s Robert Peston has even been blamed for the crisis, because he usually accurately reports what has been going on; a case of shooting the messenger because you don’t like the message.

But even the latest measures – part-nationalisation of the financial institutions – will still leave the levers of power in the hands of uncontrolled and irresponsible big business. Peter Hain, in The Observer, warned that so parlous is the present situation that rail, water and power companies could also now go bust. Also, it has been reported that Bob Crow, on his way back from the England football match, ran into Geoff Hoon – New Labour transport secretary – and asked him when his government was going to ‘nationalise the railways’ after their action against the ‘stars’! This may be the subject of mirth in government circles, but Bob Crow was expressing the overwhelming view of rail workers and passengers.

The measures of the government do not fit into the ‘nightmare scenario’, painted in the Daily Telegraph. Nevertheless, the fact that the capitalist state has been compelled to step into this crisis is a crushing condemnation of the Thatcher-Reagan neoliberal agenda of the last 20 to 30 years, which New Labour signed up to. ‘The appetite grows with eating’. Faced with factories being closed, the repossession of homes and a worsening of living conditions, there will be demands for similar action to that taken with the banks, partial though it is.

In 1983, the Labour Party – then a workers’ party at bottom – proposed the nationalisation of parts of the banking system. This was condemned by the Labour right wing, and particularly by Gerald Kaufman, a right-wing MP who still sits in the Commons. He called it “the longest suicide note in history”. His compatriot, the equally right-wing Labour MP, Stephen Pound, now claims: “We [New Labour] have managed to do more than Lenin…”. Even Peter Lilley, a right-wing Conservative and an outrider for Thatcherism in the 1980s, has declared: “I support… partial nationalisation of the banks”. A real measure of the scale of the crisis.

‘Support’ from such quarters shows that the government’s measures are a massive crutch for an ailing system. What is required is not just palliatives but an end to the nightmare of capitalism through serious socialist measures of nationalisation under workers’ control and management.

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October 2008