Britain: 2008 world capitalist crisis – “Goodbye and good riddance to all that” – Financial Times

2009 – Revolt is brewing in British society

2008 world capitalist crisis – “Goodbye and good riddance to all that” – Financial Times

“Goodbye and good riddance to all that,” declared the Financial Times, the mouthpiece of big business as it said farewell to 2008. Its despondency, along with all the other soothsayers of capitalism, is well merited given the economic meltdown which, as it confessed, it had not foreseen: “The profession [economists] failed to put together the pieces of the puzzle to see the magnitude of the looming crisis.”

Yet Marxists, particularly The Socialist weekly paper and monthly journal Socialism Today, and the Committee for a Workers’ International (CWI), did foresee this situation. We wrote in April 2008: “The present world situation is characterised by the worst economic scenario for capitalism since the Great Depression of the 1930s. In turn, this has aggravated the already weakened position of the dominant world power, US imperialism. Together with the fall-out from the Iraq war, this has laid the basis for political convulsions and a fundamental change in geo-politics in the next period” (‘The consequences for workers’ struggles in Europe’, CWI Thesis, March 2008).

This was at a time when the majority of capitalist economists were completely discounting such a development. In March, even Alistair Darling, British Chancellor of the Exchequer and seemingly in full possession of the facts, predicted a budget deficit of £35 billion for 2008-09, which is actually likely to be almost three and half times larger at £118 billion! The FT again wailed: “We are flying blind.” What is this if not a complete admission of the analysis of the Socialist Party of capitalism – that it is an anarchic system with the blind play of the productive forces which periodically plunges into crises with devastating consequences, which this present one is likely to be?

The past chief ‘pilot’ of world capitalism, Alan Greenspan, the former chairman of the US Federal Reserve, now admits before the US Congress that, because of this crisis, he was in a “state of shock to disbelief… I still do not fully understand why it happened.” Even the appropriately-named Bernard Madoff, who was allowed to perpetrate the greatest financial fraud in history, an estimated $50 billion, claimed before he was found out that “in today’s regulatory environment, it is virtually impossible to violate the rules”!

Juddering end to freebooting capitalism

It is not just one or two ‘bad apples’ who have been found out but the capitalists, as a whole, who have swindled the working class and the poor in the free market, freebooting era of capitalism which has now come to a juddering end. During these 30 years of neo-liberalism, wages have been held down in a ‘silent recession’ while profits have been sky-high. Now that some of the capitalists have been ‘burnt’ by Madoff, they are wailing. One of his rich ‘victims’ complained that she will now have to fire her maid and will, therefore, have nobody to “iron 40 white shirts”. (The Observer)

But not everybody amongst the super-rich is affected. In Covent Garden, London, there is a recession-proof thriving business for £8,000 handmade cashmere and chinchilla coats. Also, books – not to be found in WH Smith – weighing about 35kg have been sold for £1.1 million at a recent auction in Dubai. Most scandalously, some of the authors of the present dire financial situation – the ‘masters of the universe’ – are still rewarded with obscene bonuses. Goldman Sachs, for instance, will dole out a total of $2.6 billion in bonuses despite a fourth quarter loss of almost the same amount! At the same time, the working class of Britain and the world will reap a terrible price for the economic mess created by capitalism.

The vogue phrase of the capitalists is that the economy, whole industries and even countries, as Iceland indicates, have gone or are about to go ‘over the cliff’. The crisis is not restricted to the ‘financial sector’ but has, as we predicted, spread to the so-called ‘real economy’, leaping in the US from ‘Wall Street to Main Street’ – in Britain from the banks to the High Street – and now to virtually the entire world. What is this but the shattering of the capitalist theory of ‘decoupling’? The so-called ‘emerging’ markets in the neo-colonial world are likely to be ‘submerged’ under the economic wave emanating from the ‘rich’ world. The Economist Intelligence Unit, a think tank, in its forecast for 2009, predicted that no fewer than 29 countries would see their economies contract.

‘Deregulated’, unrestrained capitalism threatens an ‘unrestrained’ slump and despite all the best efforts of capitalist governments, they may not succeed in avoiding this catastrophe. They are desperately trying to shore up the system with state economic intervention in order to put a ‘floor’ under the crisis to cushion its effects and to avoid a complete slump or depression. Ben Bernanke, the Chair of the US Federal Reserve – a student of the 1930s Depression – has completely ruled out a repetition of that event in the US or the world today. Not so others, such as Larry Elliott, economics editor of the Guardian, who openly writes of the prospect of a ‘slump’, particularly in relation to Britain.

The fear of this has been reinforced by the rapid deterioration in the US economy and its repercussions worldwide. In the month of November 2008 alone, US unemployment increased by half a million. This is the biggest rise in job losses in a single month since 1974; if part-time workers looking for a job are included, these are the worst figures since 1940! Two thirds of these workers lost their jobs between September and November 2008; in just three months! This underlines the speed and the depth of this crisis. What is even worse is that recent estimates allow for more than one million workers a month losing their jobs in the US until the middle of 2009, making an increase of four to seven million unemployed possible.

President-elect Obama – who now admits he “doesn’t know where to start when he gets up in the morning” – says that the US government will not be able to stop this economic catastrophe. All the ‘levers’ of economic control have so far failed to work. The financial system – the arteries of capitalism – remains frozen, particularly in the crucial ‘interbank’ lending’ sector. The‘re-capitalisation’ of the banks does not alter the reluctance of the banks to lend to big or even ‘small’ businesses because they correctly fear that they will not receive their money back. As one European bank executive remarked: “If GDP is shrinking, how can lending grow?”

Gross Domestic Product in the US economy will shrink in the fourth quarter of 2008 by 4%-5%, with a continued decline predicted for the whole of 2009. Capitalist economists predict that this year there will be a real decline in the world economy for the first time since the 1930s. A desperate situation requires emergency measures. Consequently, capitalist governments are reaching out for ‘Weapons of Mass Desperation’. Led by the Brown government in Britain, eagerly supported by Obama, and even ‘Helicopter’ Ben Bernanke, when all else fails, they will be forced to resort to “quantitative easing, a fancy name, in reality a disguise, for the government’s use of the printing press, to print pound notes or dollars in a desperate attempt to stimulate demand” [The Independent].

Brown sumersault

Even cutting interest rates to almost zero may not work. That is why Mervyn King, trying on Fidel Castro’s battle fatigues and Che Guevara’s beret, threatens to nationalise British banks if they do not ‘do their job’. The head of Merrill Lynch, himself a banker, has urged the government to create its “own bank” to get lending moving!

Gordon Brown, together with Blair and Mandelson, were renowned spear carriers for freebooting, neo-liberal capitalism. In a complete somersault, Brown now denounces this in his New Year message as “dogma”. With Blair, he jettisoned Labour’s Clause 4 from its constitution in 1995, which stood for nationalisation of the commanding heights of the economy and converted Labour into a capitalist party.

His support for nationalisation today is for the same reasons as he supported neo-liberalism yesterday; to rescue not just the bankers but the capitalist system itself. These are seen as ‘temporary’ measures until the banks are renovated and handed back to the capitalists when they have been ‘rescued’ by the taxpayers, the working and middle classes. Brown still frowns upon anything but an ‘arm’s length’ relationship with the nationalised banks and completely rules out ‘popular control’ or workers’ control, which the Socialist Party demands.

But so dire is the situation that Keynesianism, the idea of deficit financing and Franklin Roosevelt’s ‘New Deal’ in the 1930s, are all invoked. All the previous economic ‘principles’ have gone out of the window, with government deficits now the order of the day. Britain could therefore face a deficit of 6%, 8% or even 10% of GDP. Obama has already admitted that there will be a US government deficit of $1 trillion in 2009, 9%-10% of GDP. Such is the panic in the US ruling class that $7 trillion has been earmarked – not all of it yet spent – in order to shore up their system. This amounts to almost half the GDP of the US.

Yet despite these measures, it is not at all guaranteed that capitalism will prevent its descent into a depression and/or a deflationary trap, as was the case of Japan in the 1990s. The New Deal of Roosevelt in the 1930s in the US, while it introduced some reforms, did not fundamentally end the US depression. In fact, the US was on the verge of another devastating crisis in the late 1930s but was saved from it by the onset of war. It was massive government intervention during the Second World War rather than the New Deal that temporarily saved capitalism. We have “war finance without the war itself,” (Niall Ferguson, Financial Times).

An economic crisis of capitalism – particularly as serious as this one promises to be – is like a war in the ‘slaughtering’ of capital, including the lives and conditions of the working class, before the seeds of a new upswing are created. There are no ‘final crises’ of capitalism, as Lenin pointed out. The system will always find a way out if the working class and the poor fail to seize the opportunity to effect socialist change in society. This is the decisive question facing the working class in 2009 and the years to come, if a new, prolonged era of suffering for the majority is to be avoided.

“Sympathy with the Bolsheviks”

This crisis has already had a profound effect in reshaping the outlook of the working class. Iceland, before the onset of this crisis, was the sixth richest country and, allegedly, the ‘happiest’ in the world six months ago. Plunged into an economic abyss, it gives a picture of what a 1929-type situation would represent: one third of the population wants to leave the country and bankers are booed wherever they go. Reflecting the change which has taken place, one worker commented to the FT: “For the first time in my life I have sympathy with the Bolsheviks; with the French revolutionaries who put up the guillotine.”

Seeking to capture the popular mood, even Tory leader Cameron demagogically denounced the ‘crimes’ of the bankers and made a thinly-veiled demand that they be put on trial, thereby invoking the image of tumbrels full of financiers being drawn through the streets of London to incarceration in the Tower of London! It is a little difficult, however, for him to carry this off, given his Eton [elite private school] and ‘Bollinger’ roots, along with the rest of his shadow cabinet. The sheer hypocrisy of Cameron and the Tories was shown by their rejection of the suggestion that they should give up ‘outside interests’ to concentrate on their parliamentary jobs. William Hague, the shadow foreign secretary, last year ‘earned’ more than £230,000 on top of undisclosed fees for his two directorships. Michael Gove, another shadow cabinet member, earns at least £100,000 ‘on the side’.

This is matched by the Labour right, whose ranks must now include former Labour leader Neil Kinnock and his entourage. Kinnock, infamously the ‘hammer of the left’, paving the way for Blair and Brown – gets £63,900 a year pension from the EU, his wife Glenys earns £57,000 as a Welsh MEP and, on top of that, his daughter works for Brown and his son Stephen is a director of the World Economic Forum. This is a reminder, if one were needed, of how far removed from its Labour and socialist roots is the current New Labour leadership. It is tied hand and foot to capitalism, with Brown refusing to take emergency socialist measures, preferring to remain within the framework of diseased British capitalism, now facing probably its worst crisis in its history.

According to latest forecasts, the British economy faces the third highest economic decline in the advanced capitalist world, with a drop of 3% in 2009, outranked only by the US and Ireland. Government ministers are no longer prepared to pretend, as Brown and Darling in the past did, that Britain will escape the worst effects of the economic tsunami. Olympics minister Tessa Jowell has admitted that the government would probably not have bid to stage the Games if the decision had come in the midst of the current economics downturn.

The plight of Greece is a big warning to British workers. In place of the celebrations of the Athens Olympics, just four years ago, the city’s streets, and those of the rest of Greece, are filled with protestors, with the police running out of tear gas and were reported as trying to import further stocks from Israel, before the latter was itself engulfed in its present military conflict.

Like Greece, Britain is more exposed than ever. A massive number of educated unemployed youth – the ‘€700 generation’, the average monthly salary – co-exists alongside impoverished workers, many of whom at 40 and 50 years old are on the same poverty-stricken wages.

Reliant on service industries that have now collapsed, the cushions of the British economy of the past have gone. The banking meltdown means that 370,000 jobs – one in 12 of the labour force – could be lost by 2010 in London, largely from the finance sector. Income from North Sea oil will have dropped by 40% in 2008. The housing sector – the bedrock of the so-called ‘post-wealth effect’ – faces house price falls of 40%-50%. Optimists say that the prices of houses in 2007 in Britain could be reached again by 2023!

In its wake, estate agents, surveyors and builders face a dismal future. Excluding the Second World War, when few houses were constructed, the number of houses built is at its lowest since 1924. Office construction is likely to plunge by over 20% and the consequence of all this will greatly hit the 250,000 workers jobs linked to the building industry. Bankers have been bailed out but home owners will not receive the same help.

Nationalisation with workers’ control and management

We demand an end to all evictions of workers from their homes because they have been plunged into economic circumstances not of their making. This is only possible by nationalising the banking sector, not in the manner of Northern Rock but with workers’ control and management. Cheap mortgages and, in some cases, voluntarily substituting mortgages for rent are the ways out, rather than the prospect of ‘tent cities’ on the outskirts of British cities, which are a real possibility if the housing meltdown continues.

It was not for nothing that a commentator recently warned that if the financial system was not ‘bailed out’ then “London could look like Mogadishu”. In reality, swathes of London and other cities in Britain have elements of ‘Mogadishu’ present already. The whirlpool of social decay – inevitable on the basis of economic downturn – this time will draw in sections of the middle class, particularly in the south, East Anglia and the south-west.

The most devastating consequence of this crisis confronting the working class will be the dramatic rise in unemployment. This is estimated to climb to 3 million within 12 months. We reject the dead end of unemployment. We demand a job for a living income with the right to proper training. The process of substituting high-paid industrial jobs for low-paid employment, part-time work in place of full-time employment, must be rejected. Most Rover car workers at the Longbridge plant made redundant in 2005, who managed to get new jobs, were mainly paid lower wages, with only one third ‘better off’.

We also reject the pernicious approach of ‘benefits minister’ Purnell, of scape-goating the poor and his proposals to slash benefits. Those on welfare state benefits will be compelled to face lie-detector tests and go out to work if their children are just one year old. This represents an attempt to completely eliminate the welfare state, as the PCS union pointed out. Together with the attempt to part-privatise the Post Office, it also shows that while the current crisis compelled New Labour to nationalise some industries, its anti-working class, neo-liberal policies continue apace.

We stand for socialist planning, which has become more crucial now in the teeth of this crisis. Capitalism ‘reallocates’ resources through the forcible eviction of workers from industries which are no longer ‘profitable’ and , in the present situation, only some will be gradually absorbed into the growth sectors of capitalist production. However, under a planned economy, as Marx argued, this change would assume mainly an ‘administrative’ shift of workers and production without the horrors of mass unemployment characterised by capitalism. Marx pointed out that the capitalists actually do plan, to the last detail, in the individual factories. A planned economy is, in essence, this example taken onto a national and international scale, with the added vital factor of democratic workers’ control and management. This, however, is only possible through the establishment of a socialist planned economy.

Decisive period of change

Britain and the world have entered a decisive period of change. The Socialist Party will be to the fore in all the battles that loom in the next period. Many workers, shocked by the scale and the speed of this crisis, may be reluctant to go into battle on pay, for instance. But a decisive struggle for jobs is now posed, above all to save young people from a return to the 1930s.

Crucial in this development is the idea of a new mass workers’ party. The trade union tops are unlikely to fight for this, as they cling to the trouser leg of Brown and his government. Brendan Barber, TUC general secretary, in a woeful interview on the BBC News Channel on New Year’s Day, gave not one ounce of encouragement to workers to struggle against the brutal attacks which the bosses and their system are attempting to impose on working people.

We are against do-nothing fatalism, which sees no alternative beyond the framework of this discredited system. Open the books to the inspection of trade unions, particularly rank-and-file organisations in the factories like shop stewards committees! We stand for the nationalisation, not ‘compensation’ to the discredited bosses in the form of ‘state aid’, of the car industry. We support a programme of alternative, useful production if, as is argued, there is a glut of vehicles at the present time. The newly-formed National Shop Stewards Network is giving a lead in this situation.

A revolt is brewing in British society. It finds a visible expression in the opposition to the third runway at Heathrow, to the part-privatisation of the Post Office – against which Labour MPs are even threatening to defy Mandelson and Brown – and on the crucial question of jobs. A general election – whenever it is called – with three parties rooted in capitalism offers no real alternative unless there is the voice of socialism. Working people must push discredited New Labour aside and create a new, mass, fighting alternative.

We must redouble our efforts to take the case for socialism to wider and wider layers of the working class. From a world point of view, capitalism has made a mess. It maintains unacceptable poverty, perpetuates endless wars, like the present carnage in Gaza shows, and plunges millions into even greater misery. This year can open a new chapter where socialism will come roaring back onto the agenda.

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January 2009