Britain: Brown bounce back

How long can it last?

From Socialism Today, magazine of the Socialist Party, cwi in England and Wales

Brown bounce back

The severity of the crisis has thrown the programmes of all the major capitalist parties into disarray. Temporarily, however, it has resuscitated New Labour’s dying government. At the time of writing, the Tories’ lead over New Labour has narrowed to less than five points, compared to 20 just three months ago. Superficially, it seems incredible that the party which has been in government for eleven years is now reviving, however moderately, in the polls. Having been in denial, initially, about the scale of the crisis, the representatives of capitalism have been forced to recognise reality and are united in gloom, although their new forecasts could still prove optimistic.

The Confederation of British Industry (CBI) is predicting that Britain will, at best, suffer the worst economic crisis since 1980. It expects that UK gross domestic product will fall by 1.7% in 2009. Average house prices have fallen by 15% over the last year so far, and the fall is accelerating. Unemployment is expected to hit three million by the end of next year. Huge swathes of manufacturing industry are already on short time. Unlike previous recessions, job losses are affecting every sector of the economy – from Rolls Royce to Woolworths – and every region of the country, with young people being particularly hard hit.

Gordon Brown and New Labour have responded to the crisis by leading the worldwide charge to disinter John Maynard Keynes. Keynesianism has been a dirty word amongst capitalist politicians throughout the neo-liberal era. Just months ago it was unthinkable that a New Labour chancellor, whether Brown or Alistair Darling, would be hailing Keynes as a saviour. This does not represent a shift left, however. On the contrary, Keynesian measures – increasing state spending to try and stimulate demand – now have widespread support amongst the world’s capitalists, including the CBI, as they empirically search for a means to try and restore their profit rates as quickly as possible.

Initially, New Labour limited its state intervention to bailing out the banking system in order to prevent its collapse. In doing so it had the full backing of the capitalist class. As the Financial Times, voice of the City, put it an editorial, called Nationalise to Save the Free Market: "Brown came to save capitalism, not to bury it". (13 October) Of course, this has not prevented sections of the City squealing about the measures that have been taken. Inevitably, the moment the immediate crisis seemed to have passed, individual financiers have reverted from worrying about the system as a whole to their normal modus operandi of scrapping for the maximum share of the spoils for themselves.

Nonetheless, the government may soften the terms of the bank bailout to try and get the banks lending to one another more normally. This may have some effect, but will not solve the problems. While the immediate crisis has been staved off, the banking system remains in dire straits. Will Hutton explained that "…the Bank of England showed they [UK banks] have loans which exceed their UK deposit base by Ł700 billion, and are bridging the gap with savings from abroad. Over the last two months foreign investors have withdrawn more than Ł200 billion from Britain. So, on top of the caution created by property markets collapse and recession, the banks are being forced to recalibrate their balance sheets very quickly. Inevitably, they are lending only on the most onerous terms". (The Guardian, 14 November) Hutton went on to declare accurately that this is "a calamity" for British capitalism.

At the same time the government is resisting with all its might using the bail out to demand any ‘softening’ of the banks’ treatment of the working class and middle class. When Dai Davies, Blaenau Gwent People’s Voice MP, asked whether the government had considered letting out repossessed homes as affordable, social housing for those in need, he was told firmly: "Northern Rock and Bradford & Bingley are run at arm’s length from the government, on commercial principles". Northern Rock alone has been responsible for one in ten of all repossessions in the last year. Repossessions have jumped from 18,900 in the first half of the year to the Council of Mortgage Lenders’ estimate of 45,000 for the year as a whole. Nonetheless, this is just the beginning of what is to come. In the recession of the early 1990s, half a million people had their homes repossessed. As the numbers grow to this level or beyond, the pressure on New Labour to act will be immense.

The government is already indicating it will grant some tax cuts for the low paid and increase state expenditure, although it seems this would be mainly by bringing forward already planned public works. Having abandoned the mantra of the untrammelled free market, the government is now facing increasing demands for state intervention in order to assist the working class. It is, for example, coming under growing pressure to provide assistance to carmakers and dealers, in the same way as it did for the banks.

The scale of the measures New Labour will be prepared to take remains unclear. However, it is certain that it will not mean the abandonment of a neo-liberal approach. Instead, privatisation and cuts in public services will run in parallel with Keynesian measures. Peter Mandelson’s u-turn on privatisation of the Post Office Card Account, which distributes benefits and pensions, is one indication of this. Having spent Ł37 billion bailing out the banks, plus nationalising Northern Rock and Bradford & Bingley, it was very difficult for the government to justify handing this service over to the private sector, given the mass opposition to post office closures. However, this u-turn – while it destroys the argument that privatisation cannot be retreated from once the tendering process has begun – does not mean that the 2,500 post offices already threatened with closure will be saved. Only a small number of those threatened with closure have been kept open, almost always where local campaigns have taken place. This shows that the government can be forced to retreat from cuts, but only where a struggle is conducted.

Darling is also claiming that some of the extra public expenditure he is promising will be recouped by further cuts in other aspects of public spending, including further cuts in the civil service, in addition to the Ł30 billion that have already been made over the last three years. The civil service is responsible for administering the unemployment, pensions and benefits system. Any government serious about preventing a massive increase in poverty during the recession would be expanding it, not making further cuts. To meet the pay demands of every public-sector worker would cost less than Ł5 billion. Yet New Labour, for all its talk of increasing public spending, is not prepared to countenance abandoning its policy of public-sector pay restraint.

Nonetheless, the fact that New Labour is seen to have proposed some measures, however feeble, in the face of the crisis, and the complete failure of the Tories to do so, is mainly responsible for its increased support in the polls. At least compared to the Tories, New Labour is probably seen as ‘a safe pair of hands’ by a layer of workers. The question is, will the measures New Labour is taking solve the crisis? The answer is no. While workers will welcome any policies which improve their living conditions, those implemented by New Labour will be chicken feed in the face of mass unemployment and widespread house repossessions.

The historical comparison being drawn most commonly is between the Keynesian measures now being taken and the New Deal implemented by Franklin D Roosevelt in the US in response to the Great Depression of the 1930s. Then, US government spending increased by 80% but this was against the background of the beginning of a revival in the economy. Today, the economy is at an earlier stage in the crisis. Even if capitalist governments implement a more or less coordinated stimulus package, it will have a limited, short-term effect, partially cushioning the impact of the downturn. Keynesian spending packages will not overcome the underlying problems of capitalism. Even the New Deal, although it did have some effect, could not solve the scourge of mass unemployment. Only the onset of the second world war brought about close to full employment, with increased call-ups to the armed forces and men and women pulled into the war economy.

What is more, the increased state spending will have to be paid for. Even without ‘financial stimulus’ packages the recession will mean a sharp increase in government debt. In the last recession from 1989-92 the then Tory government’s budget plummeted from a 3% surplus to a 7% deficit.

The larger the ‘financial stimulus’ packages implemented, the higher the national debt will become. This is potentially a much bigger problem for a third-rate power like Britain than for the US, whether in the 1930s or today. In Britain, the government deficit for 2009/10 is likely to reach Ł100 billion. The danger exists of a rapid run on the pound if the market judges that Britain will have difficulty paying its debts. Sterling, as shadow chancellor George Osborne pointed out, has already fallen 30% (against the US dollar) over the last six months. This is not due to profligate spending by New Labour over the last few years (as the Tories suggested), but is rather a judgement on the particular weakness of the British capitalism – its super-reliance on the finance and housing markets – as a result of the neo-liberal policies pursued by both Labour and the Tories over the last three decades.

The Tories, trying to differentiate themselves from New Labour, have responded to the economic crisis by moving in a ‘monetarist’ direction, a return to ‘classical’ Thatcherism. Monetarism – especially, a commitment to balanced budgets, in reality, a driving down of the living standards of the working class – exacerbated and worsened the 1979-81 recession enormously. At this stage, the Tories’ policy shift does not have the support of a majority of the capitalists. Nor is it going to be a vote winner over the coming months. However, sooner or later it is the working class that will have to pay for any financial stimulus introduced by the government, through increased taxation and future cuts in public expenditure. The Tories are hoping, probably correctly, that as the crisis bites harder, and New Labour’s measures fail to prevent it, the government’s poll ratings will plunge once more. However, if the Tories do win a general election and attempt to implement a monetarist policy, they will face a revolt from the working class.

Whatever their divisions, the capitalist parties are united in trying to make sure it is the working class that pays for the crisis. The immediate task facing the trade union movement is to defend the working class against the onslaught it is facing. Victories are possible – as has been shown by the government’s u-turn on the Post Office. However, to win will require a serious struggle around a fighting programme. Unfortunately, the majority of the national trade union leaders have used the looming crisis as cover to abandon the struggle on public-sector pay, whilst simultaneously failing to lead a fight on job losses. The left-led civil servants’ union, PCS, is now alone in continuing to conduct a struggle over this year’s pay deal. At the same time, the GMB general workers’ union at JCB, for example, welcomed the workforce voting for pay cuts to try and prevent job losses. As one JCB worker explained, they were offered a choice between ‘death by hanging or firing squad’. Having opted for hanging, the firing squad have arrived as well, as jobs are still going despite the workforce accepting a Ł50 a week pay cut.

Over the last 20 years the majority of the national trade union leadership has accepted the ‘logic of the market’ and all that comes with it – including ‘partnership’ with business, ‘concession bargaining’ and the rest. This crisis will bring home to millions of workers that this approach leaves them utterly defenceless against the ravages of global capitalism.

The unofficial walkout of Southampton Ford Transit workers, in the face of opposition from their trade union leaders, shows the potential for militant struggles in defence of workers’ jobs and living conditions in the coming months and years. Demands that the companies threatening cuts open their books to the scrutiny of the workforce will once again come to the fore. This will be linked increasingly to calls for nationalisation. This should be nationalisation under workers’ control and management, with compensation paid only on the basis of proven need, as a step towards a socialist planned economy.

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December 2008