Return of state intervention
"Every day this week there will be a picture of misery for the UK economy" said Citigroup economist Michael Saunders at the start of last week. The grim pictures are in the form of rising unemployment, falling retail sales, reduced business confidence, falling house prices, and many other symptoms of recession. Over 60,000 homeowners a month are now falling into negative equity.
Stock market share values recovered partially, after nose-diving due to fear of a complete financial meltdown. But following the huge bank bail outs, which were designed to prevent a ’worst case’ scenario, economic forecasts remain bleak and there is a general realisation that the recession could be long and severe.
U-turn has come after U-turn. First came bank nationalisations by the leading proponents of neo-liberalism. Now these same privatisers and worshippers of the market are singing the praises of Keynesian measures – the spending of public money on services, infrastructure etc to try to stimulate the economy.
Gordon Brown, chancellor Alistair Darling, and new business secretary Peter Mandelson, are chorusing that future expenditure on schools, hospitals and large infrastructure projects should be brought forward. Darling even went so far as to say: "Much of what Keynes wrote still makes sense. You will see us switching our spending priorities to areas that make a difference".
Their expediently-adopted guru, John Maynard Keynes, advocated increased state borrowing in times of recession, to pump-prime the economy. But while feeling compelled to accept the need for this, it is extremely problematic for the government to implement, as the national debt is escalating. It has gone up to around 50% of national income following the latest bank bail outs, and is estimated by the Centre for Policy Studies to be 103% of GDP if all the public sector pension liabilities, Private Finance Initiative contracts and Northern Rock liabilities are included.
This record debt level was built up during a long period of economic growth, because successive governments cut taxes for big business and the rich, and spent huge sums on weapons and wars. Going into a severe recession with such a debt level is a massive burden. Even without decisions in favour of additional spending, the state debt will increase as a result of lower tax receipts and higher unemployment benefits. So, at present, rather than promising new money, the government is trying to limit itself to ’bringing forward’ future spending. This is being combined with some insufficient special measures, like funding more Housing Association housing and buying thousands of newly built houses for councils to rent out.
Also, the increased spending on some types of public services and needs is likely to be combined with cuts in others. The treasury has already clawed back over £5 billion of unspent NHS funding, to spend in other areas, and the NHS management board is presently waiting for further funding cuts and raids.
Nevertheless, such is the seriousness of the overall economic crisis and prognosis, that further Keynesian type measures are likely – some of which could be new departures compared to those taken in the past, and could be much further reaching than those announced so far. But the resulting increase in the public debt ultimately has to paid for, either through increased taxes on big business and the rich, or increased taxes on working class and middle class people, or through the government printing more money – which would fuel inflation.
The Socialist calls for a massive programme of public works, to satisfy people’s needs for housing, schools etc, and to provide jobs. But this should not be paid for by ordinary people suffering increased taxes or price rises. The capitalist class however would howl with rage at being asked to pay through their taxes and would take measures to avoid this; which shows the need for the major companies to be taken out of their hands, and placed in public ownership.
Keynes also advocated lowering interest rates during a recession, and this is now the expected direction. Larry Elliot commented in the Guardian: "Although inflation currently stands at 5.2%, it is going to fall like a stone over the coming months… the impact of this on monetary policy is obvious. Rates will be cut, and cut aggressively, in an attempt to shock the economy back into life". But ’attempt’ is the right word, as low interest rates are no panacea – they are only useful if the banks actually pass the lower rates on to borrowers and if people feel in a position to borrow money.
Greed and blame
The effects of the uncontrolled speculation that has been carried out by finance industry chiefs, backed up by most of the leading western politicians, is being brought down on the heads of many millions of people. A thin layer of super wealthy ’investors’ on the globe have enriched themselves hugely, not through any useful development of production or society, but through financial gimmicks involving fictitious capital.
Gordon Brown and David Cameron not so long ago were singing the praises of these parasites who have contributed greatly to the misery now being inflicted on ordinary people. Brown worshipped their "unique innovative skills", their "ingenuity and aspiration" and the "invaluable contribution…to the prosperity of Britain". Cameron declared: "Our hugely sophisticated financial markets match funds with ideas better than ever before".
Last year, Barclays president, Bob Diamond, received total pay and bonuses totalling a staggering £36 million. Since the onset of the banking crisis, the top bankers and chief executives of most of the major companies are continuing to pay themselves indefensible salaries and bonuses; this year alone, the pay of FTSE 100 chief executives has gone up by 11.5% on average.
Ordinary working-class and middle-class people are furious about the greed and catastrophic management of the leading financiers. A FT/Harris poll found that most people are blaming the bankers for the economic crisis. But substantial minorities – as high as 30% in Germany – are blaming the failure of capitalism itself. They are right to do so. The bankers have indulged in huge excesses, making the credit crunch much worse than it would otherwise have been. But capitalism is a system that will always have cycles of boom and slump, as Karl Marx explained over 150 years ago. He also explained that it is a class based system that develops its own gravediggers – the working class – who have the common interest and potential power to build a socialist alternative.