At the LRC Conference two weeks ago, there was a decent debate on the economic crisis and what the left should do about it.
The three platform speeches from the session on the economic crisis are now uploaded (see panel on the left) - and I've embedded John McDonnell's speech below, but you can also watch the speeches of Icelandic MP Ogmundur Jonassen (leader of the VG Party), and Jeremy Dear (NUJ General Secretary).
The conference also passed three resolutions relating to the economic crisis.
Saturday, 29 November 2008
Friday, 28 November 2008
New Labour's borrowing bombshell
When the government borrows, who does it borrow off? This question from a reader of A World to Win's blog arose in response to Monday’s crisis budget, when chancellor Darling announced record sums of borrowing. It’s an arrow that gets straight to the heart of the problem.
The straightforward, short-term answer is that the government offers to borrow money from anyone who wants to lend it. In exchange, it offers “government bonds” or gilts, the original form of securities which, in the old days, were considered relatively low risk, because they were guaranteed by the state. And, so the theory went, governments can’t go bankrupt, because they control the issue of money – one of the many forms of credit.
In the longer term, there’s the question of paying the loans back, with interest. Governments raise the money to repay borrowing by taxing the creation of value, and value is created when people work, by the people who do the work.
But the historically unprecedented scale of the expansion of credit over the last 30 years has changed things out of all recognition. Now Martin Wolf, chief economics commentator at the Financial Times, says “the horrific numbers” in the pre-budget report might well lead to a questioning of the creditworthiness of the UK government.
“A creditworthy government”, Wolf says, can shift excess debt from the private sector on to the backs of taxpayers. An uncreditworthy government cannot. If the cost of debt becomes too high, the latter will be forced into default, either openly or via inflation. In the UK’s case, inflation would be triggered by a flight from sterling.”
In other words, if the government is unable to raise the money through taxes to repay the “horrific” level of borrowing it will be in default, be bankrupt, become a failed state. A bit like Zimbabwe. In fact, the markets are already beginning to consider this possibility. The cost of insuring against the British government defaulting on its gilts in the next five years surged this week.
Darling makes assumptions about the future trajectory of the economy that don’t impress anyone. Wolf says “…the Treasury surely remains too optimistic: despite the scale of the shock to the world economy and the financial system, it assumes an annual peak to trough decline in GDP of a mere 1 per cent; an economic recovery in the second half of next year; and then a return to trend growth at 2¾ per cent a year, despite the need to shift output into capital-intensive, export-oriented manufactures. This is not plausible.”
That’s putting it mildly. The effects of the crisis have already erupted onto the high streets with big names Woolworth’s and MFI in administration, Curry’s and PC World making big losses. In and around Llantrisant, the home of the Royal Mint in Wales, hundreds of jobs have been blown away in a few hours, in Bosch car components, Oreal and Budelpack cosmetics, Hoover, the Serious Food Company and Ferrari’s – a chain of bakery shops.
Yesterday, representatives from the building industry and car manufacturers got to the head of the queue of those trying to persuade the government to help them stave off bankruptcy. They went away empty-handed, apparently. The government’s tax income is destined to fall off sharply for years to come.
There’s a bit more to this excellent question.
Earlier attempts to raise impossible levels of taxes have produced social unrest and political change. In 1381, the most extreme and widespread insurrection in English history, the Peasant’s Revolt, was triggered by the poll tax. It was the beginning of the end for a society based on exploitation through landownership. Attempts by Charles I to raise money without recourse to Parliament contributed to the English Civil War and his execution in 1649. On March 31 1990, there were riots in London against the Community Charge, commonly known as the poll tax. Watch this space.
Gerry Gold
Economics editor
A WORLD TO WIN www.aworldtowin.net
The straightforward, short-term answer is that the government offers to borrow money from anyone who wants to lend it. In exchange, it offers “government bonds” or gilts, the original form of securities which, in the old days, were considered relatively low risk, because they were guaranteed by the state. And, so the theory went, governments can’t go bankrupt, because they control the issue of money – one of the many forms of credit.
In the longer term, there’s the question of paying the loans back, with interest. Governments raise the money to repay borrowing by taxing the creation of value, and value is created when people work, by the people who do the work.
But the historically unprecedented scale of the expansion of credit over the last 30 years has changed things out of all recognition. Now Martin Wolf, chief economics commentator at the Financial Times, says “the horrific numbers” in the pre-budget report might well lead to a questioning of the creditworthiness of the UK government.
“A creditworthy government”, Wolf says, can shift excess debt from the private sector on to the backs of taxpayers. An uncreditworthy government cannot. If the cost of debt becomes too high, the latter will be forced into default, either openly or via inflation. In the UK’s case, inflation would be triggered by a flight from sterling.”
In other words, if the government is unable to raise the money through taxes to repay the “horrific” level of borrowing it will be in default, be bankrupt, become a failed state. A bit like Zimbabwe. In fact, the markets are already beginning to consider this possibility. The cost of insuring against the British government defaulting on its gilts in the next five years surged this week.
Darling makes assumptions about the future trajectory of the economy that don’t impress anyone. Wolf says “…the Treasury surely remains too optimistic: despite the scale of the shock to the world economy and the financial system, it assumes an annual peak to trough decline in GDP of a mere 1 per cent; an economic recovery in the second half of next year; and then a return to trend growth at 2¾ per cent a year, despite the need to shift output into capital-intensive, export-oriented manufactures. This is not plausible.”
That’s putting it mildly. The effects of the crisis have already erupted onto the high streets with big names Woolworth’s and MFI in administration, Curry’s and PC World making big losses. In and around Llantrisant, the home of the Royal Mint in Wales, hundreds of jobs have been blown away in a few hours, in Bosch car components, Oreal and Budelpack cosmetics, Hoover, the Serious Food Company and Ferrari’s – a chain of bakery shops.
Yesterday, representatives from the building industry and car manufacturers got to the head of the queue of those trying to persuade the government to help them stave off bankruptcy. They went away empty-handed, apparently. The government’s tax income is destined to fall off sharply for years to come.
There’s a bit more to this excellent question.
Earlier attempts to raise impossible levels of taxes have produced social unrest and political change. In 1381, the most extreme and widespread insurrection in English history, the Peasant’s Revolt, was triggered by the poll tax. It was the beginning of the end for a society based on exploitation through landownership. Attempts by Charles I to raise money without recourse to Parliament contributed to the English Civil War and his execution in 1649. On March 31 1990, there were riots in London against the Community Charge, commonly known as the poll tax. Watch this space.
Gerry Gold
Economics editor
A WORLD TO WIN www.aworldtowin.net
Tuesday, 25 November 2008
This slump will overwhelm Brown
Graham Turner
The tax cuts unveiled by chancellor Alistair Darling on Monday were cheered by the Labour Party faithful. But one only has to cast a glance at the recent shocking turn of events in the US to see why these tax cuts will fail to rescue the economy.
The US Federal Reserve has slashed interest rates to around 0.5 percent. It can hardly go any lower. Yet the slide in the US housing market shows every sign of accelerating. Banks are losing so much money that they will not cut the cost of mortgages.
The most prescient indicator for the US housing market is a monthly survey by the National Association of Home Builders. Its November report shows housing demand falling faster than ever.
The weekly report from the Mortgage Bankers Association, another US organisation, reinforces the point. It shows that demand for mortgage loans has also tumbled since last month's stock market collapse.
The October crash on Wall Street was a belated response to downturn in the US housing market that started three years ago. But now the slide in share prices has in turn undermined confidence in the housing market.
It's a vicious circle that the Federal Reserve seems powerless to stop it. And it means that the losses on mortgage-backed bonds — losses that precipitated the failure of Bear Stearns and Lehman Brothers — are now multiplying.
These losses have now come close to bringing down Citigroup, one of the US's largest retail banking groups. The US administration had to step in with a $300 billion bailout to save it.
The biggest falls in these mortgage bonds are now being seen in the “triple A” sector of the market—supposedly the safest possible form of debt. This crisis has moved far beyond its roots in the subprime mortgage market and is migrating up the chain.
As unemployment rises, more homeowners are falling behind on their mortgage payments. Repossessions are already running at over three times the peak of the last housing recession in the early 1990s.
Corporate borrowing costs have also soared. Many companies are unable to borrow except at penal rates. This is making it difficult for them refinance their already onerous debt burdens.
General Motors now has to pay interest rates of over 50 percent to refinance existing loans and may soon collapse. One of the most vital cogs in the capital markets has utterly broken down.
Ben Bernanke, the hopelessly inadequate chief of the Federal Reserve, claimed last week that the liquidity crisis had eased. And the Libor rate — the rate that banks lend to each other at — has indeed fallen.
The problem is that ordinary companies cannot borrow at Libor rates. Many of them finance their balance sheets through the corporate bond market. And the collapse in stocks and mortgage bonds means that investors are too frightened to lend.
That is why corporate bond yields — which measure the borrowing costs for corporations—have risen. And as existing loans come up for renewal, companies will default—unless they can somehow slash costs.
That means job losses. And we should now be very worried. Monthly job losses in the US may reach 700,000 next year. That compares with to a September loss of 240,000. The current post-war record monthly loss is 602,000 jobs, set in December 1974.
The US unemployment rate could surpass the 1982 high of 10.8 percent by the end of next year. And it will carry on climbing, possibly reaching 15 percent or more by 2010.
The resulting social upheaval will pose a grave challenge for Barack Obama's incoming administration. But the paucity of his economic strategy should concern us too.
Obama's current plan is heavily influenced by Lawrence Summers, the former US treasury secretary. It amounts to little more than a rehash of the post-war "Keynesian" consensus that failed to resuscitate Japan's economy in the 1990s.
Increases in public spending or tax giveaways will not solve the core problem, which is how to stop borrowers from defaulting.
In 1932 the Federal Reserve drove interest rates down aggressively, which helped turn the tide. Corporate borrowing costs fell. It was still
not enough — but it was more proactive than the botched policies of today.
By the time the Obama camp realises the error of its ways, even the more radical policies of the 1930s may well be insufficient. Interest rate controls, unparalleled intervention and a state of emergency may eventually be the belated response to stem the slide into depression.
A deep and prolonged contraction in the US will hurt the rest of the world. Britain's top heavy financial sector will be hit even harder. The FTSE 100 stock index may slump to levels not seen since the early 1990s, tumbling 2,000 points.
Financial institutions will be forced to shed even more workers. The impact on consumer demand will be immense, leading to more layoffs across the manufacturing and service sectors. And that will utterly overwhelm the short term benefits of this week's tax cuts.
Graham Turner, Author of "The Credit Crunch", published by Pluto Press and available from Bookmarks for £12.99
Darling deludes no-one except himself
The measures set out in the New Labour government’s emergency budget yesterday were designed to set pulses racing and induce a collective sigh of relief across the country. Instead, the record amounts of borrowing required will not only reinforce the economic and financial crisis but also point towards the possibility of state bankruptcy in the not too distant future.
At any other moment, the unprecedented scale of government borrowing, mostly aimed at stimulating consumption, would have seemed beyond imagination. But, even with £20 billion more now and £118 billion by end of next year, the best that Chancellor Darling said he could hope for was to lessen the severity of the downturn!
To put it bluntly, the emergency budget will not stop the avalanche of company failures, job and pension losses, personal bankruptcies and house repossessions. Initial reactions from the high streets and businesses to a 2.5% cut in VAT were dismissive and rightly so.
As Jeremy Warner, business editor of The Independent put it:
“The … reduction in VAT, which accounts for the bulk of the giveaway, will make no difference at all to low and moderately earning households, virtually all of whose disposable income is being eaten up by essentials unaffected by the VAT tax changes. Even on petrol, alcohol and cigarettes, the VAT concession is all clawed back again through a compensating rise in excise duty.”
The real problem that New Labour is incapable of tackling is that the global production overcapacity induced by 30 years of credit-led investment generated tsunamis of consumer goods which overwhelmed the market. Inevitably, consumers reached the limits of their ability to repay the debts they’d amassed under intense pressure to buy. Consumers eventually had to stop buying ever more products. Under capitalism, if people don’t buy, companies can’t sell. So the global corporations that were the result of the growth hysteria needed to sustain profits are tumbling one by one. And with the promise of future profits disappearing over the horizon, the whole house of cards is crashing to the ground. Neither Darling’s emergency measures, nor US President-elect Barack Obama’s massive stimulus package to be financed by very large deficit spending announced virtually simultaneously, can put Humpty back together again. The previous packages have failed and so must these. Remember those bank bail-outs that were supposed to get lending going again?
There is worse, far worse to come. In a research report published last week, the International Monetary Fund warned that the failure of a single major financial institution could result in losses to the derivatives market of $300-$400 billion. “What’s more, since such a failure would likely cause cascading failures of other institutions, the total global financial system losses could exceed $1,500 billion." That’s a big number by anyone’s standards.
Darling is predicting – gambling is a better word – that the record borrowing can be repaid in seven years through higher taxes derived from an economy that has returned to buoyant growth. This is delusional behaviour because a) there is a global recession in place and b) the future tax increases and public expenditure cuts needed to repay the borrowing will stop any hint of recovery dead.
The Financial Times was dismissive: “The UK consumer is now too stunned by the housing crash, stagnant wages and fears of unemployment to be coaxed into resuming the insane credit-fuelled binge of yesteryear. The government’s belief that output will contract by just 0.75-1.25 per cent next year will, therefore, prove too optimistic.”
What the paper doesn’t say is that restarting the economy after every previous crash has required the destruction of productive capacity – factories, offices, transport infrastructure, employees. It’s in the nature of the capitalist system. It’s what “boom” and “bust” means. But this time the scale and severity of the crash will be far greater than at any previous time in history. New Labour’s policies of promoting free-for-all, corporate driven globalisation and the fantasy financiers of the City have made certain of that.
Gerry Gold
Economics editor
A WORLD TO WIN
At any other moment, the unprecedented scale of government borrowing, mostly aimed at stimulating consumption, would have seemed beyond imagination. But, even with £20 billion more now and £118 billion by end of next year, the best that Chancellor Darling said he could hope for was to lessen the severity of the downturn!
To put it bluntly, the emergency budget will not stop the avalanche of company failures, job and pension losses, personal bankruptcies and house repossessions. Initial reactions from the high streets and businesses to a 2.5% cut in VAT were dismissive and rightly so.
As Jeremy Warner, business editor of The Independent put it:
“The … reduction in VAT, which accounts for the bulk of the giveaway, will make no difference at all to low and moderately earning households, virtually all of whose disposable income is being eaten up by essentials unaffected by the VAT tax changes. Even on petrol, alcohol and cigarettes, the VAT concession is all clawed back again through a compensating rise in excise duty.”
The real problem that New Labour is incapable of tackling is that the global production overcapacity induced by 30 years of credit-led investment generated tsunamis of consumer goods which overwhelmed the market. Inevitably, consumers reached the limits of their ability to repay the debts they’d amassed under intense pressure to buy. Consumers eventually had to stop buying ever more products. Under capitalism, if people don’t buy, companies can’t sell. So the global corporations that were the result of the growth hysteria needed to sustain profits are tumbling one by one. And with the promise of future profits disappearing over the horizon, the whole house of cards is crashing to the ground. Neither Darling’s emergency measures, nor US President-elect Barack Obama’s massive stimulus package to be financed by very large deficit spending announced virtually simultaneously, can put Humpty back together again. The previous packages have failed and so must these. Remember those bank bail-outs that were supposed to get lending going again?
There is worse, far worse to come. In a research report published last week, the International Monetary Fund warned that the failure of a single major financial institution could result in losses to the derivatives market of $300-$400 billion. “What’s more, since such a failure would likely cause cascading failures of other institutions, the total global financial system losses could exceed $1,500 billion." That’s a big number by anyone’s standards.
Darling is predicting – gambling is a better word – that the record borrowing can be repaid in seven years through higher taxes derived from an economy that has returned to buoyant growth. This is delusional behaviour because a) there is a global recession in place and b) the future tax increases and public expenditure cuts needed to repay the borrowing will stop any hint of recovery dead.
The Financial Times was dismissive: “The UK consumer is now too stunned by the housing crash, stagnant wages and fears of unemployment to be coaxed into resuming the insane credit-fuelled binge of yesteryear. The government’s belief that output will contract by just 0.75-1.25 per cent next year will, therefore, prove too optimistic.”
What the paper doesn’t say is that restarting the economy after every previous crash has required the destruction of productive capacity – factories, offices, transport infrastructure, employees. It’s in the nature of the capitalist system. It’s what “boom” and “bust” means. But this time the scale and severity of the crash will be far greater than at any previous time in history. New Labour’s policies of promoting free-for-all, corporate driven globalisation and the fantasy financiers of the City have made certain of that.
Gerry Gold
Economics editor
A WORLD TO WIN
Monday, 24 November 2008
Verdict on the Pre-Budget Report
The Chancellor today delivered his much awaited Pre-Budget Report, designed to act as a fiscal stimulus to mitigate against the looming recession. You can download the full Pre-Budget Report.
The key points of the Pre-Budget Statement were:
As PCS points out each tax compliance staff member has a tax yield of £640,000 after employment costs. Why does the Government keep reducing staffing at HMRC when £21.5bn goes uncollected and £25bn avoided? If the Government serious about clamping down on tax abuse, we should look forward to the Crown Dependency Review. Richard Murphy is optimistic and maybe the pressure from Obama has finally made the Government act.
The new 45p tax rate is welcome, but as John McDonnell said is "hardly revolutionary" and "not enough". Why not 50% on £100,000? However, taken with plans to increase National Insurance and removing personal allowances for high earners, it looks like the Government is keen to fight the next election on making the case for tax rises!
However, the urgent question is will the fiscal stimulus work? This is doubtful. Despite some minor redistributive moves, the package is nowhere near enough to tackle this recession. Compare the scale with the bailout of the banks (when £50bn was handed over), how much is this package? £20bn, and £12.5bn of it is wasted in VAT cuts.
As John McDonnell concludes, "This is an expensive package which is not particularly well-directed, and is unlikely to have sufficient impact. It certainly will not recession-proof those hardest hit."
However, as McDonnell adds, "The Tories' response is woeful - they have no answers. Their plan to 'let the recesssion to run its course' would be a disaster."
Our job is to keep the pressure up on the Government to ensure they do not row back from these moderately redistributive steps, and that the Crown Dependency Review results in a clampdown on tax havens. Then there are the welfare cuts to campaign against, council housing (still off the agenda) to campaign for (get to the DCH conference tomorrow if you can), and bank nationalisation too . . .
The key points of the Pre-Budget Statement were:
- reducing temporarily the VAT rate to 15% with effect from 1 December 2008 to 31 December 2009;
- introducing a new additional higher rate of income tax of 45% for those with incomes above £150,000 from April 2011;
- increasing the employee, employer and self-employed rates of national insurance contributions by 0.5 per cent from April 2011;
- increasing alcohol and tobacco duties, to offset the effects of the temporary reduction in VAT, maintaining these increases after December 2009 to support fiscal consolidation; and following a fall in pump prices of over 20 pence per litre from their summer peaks, a two pence per litre increase in fuel duty from 1 December 2008;
- an additional £5 billion value for money target for 2010-11 and setting assumptions for spending growth from 2011-12 onwards;
- making permanent the £600 increase in the income tax personal allowance announced in May 2008 with a further increase of £130;
- bringing forward April's increase in Child Benefit to January, increases of the Child Tax Credit and a payment of £60 to all pensioners equivalent to bringing forward the April increase in the basic state pension;
As PCS points out each tax compliance staff member has a tax yield of £640,000 after employment costs. Why does the Government keep reducing staffing at HMRC when £21.5bn goes uncollected and £25bn avoided? If the Government serious about clamping down on tax abuse, we should look forward to the Crown Dependency Review. Richard Murphy is optimistic and maybe the pressure from Obama has finally made the Government act.
The new 45p tax rate is welcome, but as John McDonnell said is "hardly revolutionary" and "not enough". Why not 50% on £100,000? However, taken with plans to increase National Insurance and removing personal allowances for high earners, it looks like the Government is keen to fight the next election on making the case for tax rises!
However, the urgent question is will the fiscal stimulus work? This is doubtful. Despite some minor redistributive moves, the package is nowhere near enough to tackle this recession. Compare the scale with the bailout of the banks (when £50bn was handed over), how much is this package? £20bn, and £12.5bn of it is wasted in VAT cuts.
As John McDonnell concludes, "This is an expensive package which is not particularly well-directed, and is unlikely to have sufficient impact. It certainly will not recession-proof those hardest hit."
However, as McDonnell adds, "The Tories' response is woeful - they have no answers. Their plan to 'let the recesssion to run its course' would be a disaster."
Our job is to keep the pressure up on the Government to ensure they do not row back from these moderately redistributive steps, and that the Crown Dependency Review results in a clampdown on tax havens. Then there are the welfare cuts to campaign against, council housing (still off the agenda) to campaign for (get to the DCH conference tomorrow if you can), and bank nationalisation too . . .
Darling’s higher rate tax plan long overdue . . . but not enough
The Government will today announce the introduction of a new 45p top rate of tax on incomes over £150,000 - but not coming into effect until after the next General Election.
John McDonnell, LEAP Chair, said:
"The introduction of a higher rate of tax for high earners is long overdue but the Government's proposals are hardly a revolution, and delaying them until after the next election is pointless. The higher rate should be the start of creating a fair tax reform agenda, redistributing wealth from the super rich in order to take the low paid out of taxation altogether.
"The Government should also move immediately to tackle the large scale tax avoidance by the corporate sector, introducing legislation to outlaw tax havens, mirroring the Obama bill in Congress. The public revulsion over City bonuses and bank executive salaries has opened the way for radical tax reform. Government must seize the moment."
Listen to John's reaction from BBC Radio 4 Westminster Hour
Read Prem Sikka's article 'Rebalancing the Books' on Guardian Comment is Free
Update: Excellent piece by Richard Murphy on why VAT cuts won't work.
Update 2: John McDonnell on Comment is Free says "This is no time for fearful half measures"
John McDonnell, LEAP Chair, said:
"The introduction of a higher rate of tax for high earners is long overdue but the Government's proposals are hardly a revolution, and delaying them until after the next election is pointless. The higher rate should be the start of creating a fair tax reform agenda, redistributing wealth from the super rich in order to take the low paid out of taxation altogether.
"The Government should also move immediately to tackle the large scale tax avoidance by the corporate sector, introducing legislation to outlaw tax havens, mirroring the Obama bill in Congress. The public revulsion over City bonuses and bank executive salaries has opened the way for radical tax reform. Government must seize the moment."
Listen to John's reaction from BBC Radio 4 Westminster Hour
Read Prem Sikka's article 'Rebalancing the Books' on Guardian Comment is Free
Update: Excellent piece by Richard Murphy on why VAT cuts won't work.
Update 2: John McDonnell on Comment is Free says "This is no time for fearful half measures"
Friday, 21 November 2008
Time to Nationalise the Banks Now
Government policy on banks branded "failure" . . . Bank of England "dithering"
The Government's policy towards the banks has been branded "a failure" today as more bad economic news floods the media - from falling stock markets to rising repossessions.
John McDonnell MP, LEAP Chair, said:
"Despite all Government attempts to stimulate the economy, all the evidence points to failure. The billions in bailouts have done little to increase lending, and we are witnessing a startling rise in home repossessions.
"The Government now needs to be more forthright and move towards the full nationalisation of the banking sector to be run in the interests of the British people.
"We can't afford any more dithering by the Bank of England. We need an immediate and substantial cut in interest rates. It is now time for the Government to take back control from the dithering Bank of England."
-Ends-
The Government's policy towards the banks has been branded "a failure" today as more bad economic news floods the media - from falling stock markets to rising repossessions.
John McDonnell MP, LEAP Chair, said:
"Despite all Government attempts to stimulate the economy, all the evidence points to failure. The billions in bailouts have done little to increase lending, and we are witnessing a startling rise in home repossessions.
"The Government now needs to be more forthright and move towards the full nationalisation of the banking sector to be run in the interests of the British people.
"We can't afford any more dithering by the Bank of England. We need an immediate and substantial cut in interest rates. It is now time for the Government to take back control from the dithering Bank of England."
-Ends-
Tuesday, 18 November 2008
There is another way
Trying to solve a global capitalist economic and financial crisis fuelled by credit and debt, which has driven consumers to the wall and left increasing numbers unemployed, with marginal (and temporary) tax cuts only shows how desperate the Brown government has become and is little more than PR exercise.
We are in the midst of the greatest destruction of capital since the 1930s, where the means of production are being wiped out on a vast scale in every country on every continent. There is a self-generated momentum to this process which waits for no one, including governments like New Labour. Yesterday Citibank announced another 50,000 job cuts and manufacturers like GKN have cut production by 20%.
As John Willman, business editor of the Financial Times acknowledges:
Nor is there much comfort in the hyperactivity of policymakers, recapitalising banks, bailing out insurers, cutting interest rates towards zero and turning on the public spending taps. This is pushing at a piece of string, with no certainty that enough will be moved at the far end to stem the decline. In the present mood of panic, much of any extra money pumped into the economy will be used to reduce debt or build up savings. A lot of the rest will be spent on imports that will benefit the economies of other countries, which may be less able to reciprocate.
The fact is that neither New Labour nor any other capitalist government has an answer to the first major world economic crisis for nearly 80 years. One of the reasons is that corporate-driven globalisation has created a beast that lives (and dies) beyond the reach of national states and governments. The transnational corporations and banks that are slashing jobs and production are not bound by borders or “national interest”. They form the interlocking aspects of a truly global economy that has supplanted the national-based economies that pre-dated the most recent period of capitalist globalisation.
Gone are the days when unemployment in Britain could be eased through better credit terms or higher wages. Decisions about jobs and production are, in most cases, being decided by global corporations like GlaxoSmithKline operating on a transnational scale with regard to only one thing – sustaining the bottom line and shareholder value on stock markets across the world through ruthless cost-cutting operations. The pharmaceutical conglomerate owes no allegiance whatsoever to the British state which, in turn, has no control over the corporation’s decisions.
Of course it’s possible to imagine some immediate decisions that could stem the jobs haemorrhage and keep people in their homes as a prelude to reorganising the economy on more rational lines. For example, it would make sense to take over the failing building developers and materials suppliers, along with available land, and use their resources to enable the 250,000 unemployed construction workers to return to work. They could build the new homes required to solve the housing crisis and these could be made available at a reasonable rent. Eliminating the needs of shareholders and the exorbitant price paid for land would mean that public investment would go a lot further than the same resources in private hands.
Empty offices and factories could be requisitioned and plans drawn up for the production of socially-useful services and products like solar panels or eco-friendly vehicles. Those without work could be paid the average wage to enable them to pay their bills and support their families until new jobs are available. Public transport (including the railways) could be made available at an affordable price so that no one is left isolated. Banks now wholly dependent on state finance could be taken into public ownership and run by boards of workers, consumers and elected officials as mutually-owned businesses.
Of course, the present capitalist state and proxy governments like New Labour have no intention of challenging the status quo in this way. Both the immediate and long-term answer to the present crisis lies, therefore, in creating a new political democracy that can act on behalf of the majority instead of the minority who have wrecked the economy and now threaten the futures of millions of people.
Paul Feldman
Communications editor
18 November 2008
We are in the midst of the greatest destruction of capital since the 1930s, where the means of production are being wiped out on a vast scale in every country on every continent. There is a self-generated momentum to this process which waits for no one, including governments like New Labour. Yesterday Citibank announced another 50,000 job cuts and manufacturers like GKN have cut production by 20%.
As John Willman, business editor of the Financial Times acknowledges:
Nor is there much comfort in the hyperactivity of policymakers, recapitalising banks, bailing out insurers, cutting interest rates towards zero and turning on the public spending taps. This is pushing at a piece of string, with no certainty that enough will be moved at the far end to stem the decline. In the present mood of panic, much of any extra money pumped into the economy will be used to reduce debt or build up savings. A lot of the rest will be spent on imports that will benefit the economies of other countries, which may be less able to reciprocate.
The fact is that neither New Labour nor any other capitalist government has an answer to the first major world economic crisis for nearly 80 years. One of the reasons is that corporate-driven globalisation has created a beast that lives (and dies) beyond the reach of national states and governments. The transnational corporations and banks that are slashing jobs and production are not bound by borders or “national interest”. They form the interlocking aspects of a truly global economy that has supplanted the national-based economies that pre-dated the most recent period of capitalist globalisation.
Gone are the days when unemployment in Britain could be eased through better credit terms or higher wages. Decisions about jobs and production are, in most cases, being decided by global corporations like GlaxoSmithKline operating on a transnational scale with regard to only one thing – sustaining the bottom line and shareholder value on stock markets across the world through ruthless cost-cutting operations. The pharmaceutical conglomerate owes no allegiance whatsoever to the British state which, in turn, has no control over the corporation’s decisions.
Of course it’s possible to imagine some immediate decisions that could stem the jobs haemorrhage and keep people in their homes as a prelude to reorganising the economy on more rational lines. For example, it would make sense to take over the failing building developers and materials suppliers, along with available land, and use their resources to enable the 250,000 unemployed construction workers to return to work. They could build the new homes required to solve the housing crisis and these could be made available at a reasonable rent. Eliminating the needs of shareholders and the exorbitant price paid for land would mean that public investment would go a lot further than the same resources in private hands.
Empty offices and factories could be requisitioned and plans drawn up for the production of socially-useful services and products like solar panels or eco-friendly vehicles. Those without work could be paid the average wage to enable them to pay their bills and support their families until new jobs are available. Public transport (including the railways) could be made available at an affordable price so that no one is left isolated. Banks now wholly dependent on state finance could be taken into public ownership and run by boards of workers, consumers and elected officials as mutually-owned businesses.
Of course, the present capitalist state and proxy governments like New Labour have no intention of challenging the status quo in this way. Both the immediate and long-term answer to the present crisis lies, therefore, in creating a new political democracy that can act on behalf of the majority instead of the minority who have wrecked the economy and now threaten the futures of millions of people.
Paul Feldman
Communications editor
18 November 2008
Monday, 17 November 2008
New LEAP Red Papers: 'The Economic Crisis'
This new set of Red Papers looks at 'the Economic Crisis' - no longer a credit crunch in the financial sector, but a full blown economic crisis, with global recession looming.
Contributions in this pamphlet include: Jerry Jones on the origins of the crisis, Graham Turner looking at the effect on pensions; Gerry Gold and Graham Turner looking at the revival and invocation of Keynesianian economics; Richard Murphy, Gordon Nardell and Jerry Jones looking at how to change the banking system; while Prem Sikka and John McDonnell look at how to change the system in the interests of people.
You can download the new Red Papers for free.
Sunday, 16 November 2008
We need a new world economic order
John McDonnell MP
(This article first appeared on Guardian Comment is Free on Friday)
Barack Obama has decided not to attend the G20 summit convened by George Bush and the lack of involvement by India, China and the developing world in the G7 means that the best we can hope for is that this Saturday's talks are a preparatory session for a more inclusive and wider ranging summit in the New Year.
The timing is just not right to secure anything more than limited agreement on coordinating measures to mitigate the recession – and to set an agenda for the post-inaugural economic summit it is hoped the new president will convene.
Brown and Sarkozy will vie with each other over the weekend for the title of saviour of the global economy, but the reality is that until Obama is installed in the White House and unless China and India are engaged, little will change.
In the meantime, millions of workers worldwide will lose their jobs and homes as the recession bites. Many more people in the developing world will be pushed over the edge of poverty into destitution, with starvation putting many lives at risk. The demand for change, which elected the first black president of the US, has the potential to grow into a demand for change in the system that produces such insecurity and suffering.
Civil society now has a part to play in this transitional period between the G20 meeting and what appears to be the inevitable emergence of a new global institutional settlement that reflects the new world economic order.
Since the post-war world's economic institutions (the World Bank, IMF and WTO) were captured by neo-liberals in the 1970s, they have proved themselves a major part of the problem, not the solution to global economic instability. The same policies that have brought individual national economies to their knees are the policies that these institutions have spread across the globe. They have produced the global crisis.
The globalisation of unrestrained free market, rapacious capitalism by this economic institutional structure has produced inequality and insecurity in the west, desperate poverty in the developing world and a sequence of brutal wars causing immense human suffering. The plundering for profit of the world's natural resources has threatened the very sustainability of the planet.
A new democratically accountable architecture of global economic co-operation is now needed – new institutions pursuing new policies.
Civil society organisations could help set this transformation agenda to focus the minds of the politicians in the same way the popular demand for change after the experience of the 1930s depression created the Bretton Woods settlement. In our own lifetime the Jubilee 2000 campaign forced third world debt onto the global agenda.
An agenda of basic demands from any new global civil society coalition could include:
• A new structure of global economic governance inclusive of China and India and a wider representation of the developing world.
• The establishment of a democratically elected global assembly to scrutinise the policies and operation of the new global economic institution.
• The tackling of destabilising market speculation, through the introduction of a Tobin tax on international currency speculation.
• An end to trade policies and the imposition of trade agreements which are tied to deregulation, liberalisation and the privatisation of public services.
• An end to the policy of global collusion in the operation of tax havens that allow rich individuals and transnational corporations to avoid fair taxation.
• A renewed commitment to achieving the Millennium Development Goals, recognising the productive stimulus this would give the world economy in recession.
• An agreement that every nation signs up to the International Labour Organisation (ILO) conventions on international labour standards so that workers have the basic protections needed as recession sweeps the globe.
With this type of programme we could wrest the process of globalisation from the control of the corporations. The risk of the individual country recessions slipping into a worldwide depression provides the stimulus and the opportunity to create a new world economic order.
Friday, 14 November 2008
Can we do it? Yes we must!
As the political leaders of 20 of the biggest economies gather in Washington to work out how to fix the global capitalist economy as, like a runaway train, it heads straight for the buffers, the range of "solutions" is piling up. None of them have a hope of taking off.
For outgoing US President George Bush, the oh-so-obvious answer is "sustained economic growth". He told a New York audience that "the answer is not to try to reinvent that system" but to "make the reforms we need, and move forward with the free-market principles that have delivered prosperity and hope to people around the world".
Others are into reinvention. Gordon Brown, who until recently thought globalised capitalism could not possibly be improved upon, is now for "creating a new global financial architecture" to replace the Bretton Woods monetary system (which actually collapsed 40 years ago!). The Germans want a "new balance between market and state" while the Canadian suggestion is that "dynamic new economic players ... must be full participants at the global table".
There’s another proposal aired by Bob Geldof. He is back banging the drum for Africa, which has been left out of the discussions. Bob wants to ensure that "900 million potential producers and consumers" are drawn into "the next round of globalisation". With the whole world diving into slump, Bob sees salvation for capitalism in Africa.
And on that he’s at one with Bush, who just yesterday received a major humanitarian award from Africare for his work in Africa. No really, it’s true.
According to Voice of America White House correspondent Paula Wolfson, Bush was honoured for his efforts throughout his administration to combat disease across the continent. Bush says America has an obligation to help the people of Africa. "It is in our national security interest that we defeat hopelessness. It is in our economic interest that we help economies grow."
The brutal truth is all these plans, pleas and proposals are non-starters. Why? Because they all look beyond the current disastrous disintegration of the global economy to a bright, newly refurbished, much more regulated, fairer, capitalist world. This is not how capitalist slumps work themselves out.
Fixing the real problem - an overhang of capacity as global production turns from recession to depression and slump - has only one solution as far as capitalism is concerned. In 1942 in the midst of the Second World War, economist Joseph Schumpeter, a critic of Keynes, but a big fan of credit-led investment, published his most famous work Capitalism, Socialism and Democracy. It was then, with the world at war, that he chose to develop his version of the concept of "creative destruction". That is already under way, with 10 million Americans already out of work and General Motors on the edge of bankruptcy.
Bush bemoaned the fact that critics were "equating the free enterprise system with greed, exploitation and failure" and objected to it. He is right to warn against the coming assault on the citadels of capitalism. There’ll be many demonstrations and protests against the G20 over the weekend and the election of Obama last week was itself a product of the anger millions of Americans who want action against bankers and corporations.
What is urgently needed is a concept of a society beyond the private ownership and control of capital, together with the leadership and organisation to make it a reality.
Can we do it? Yes we must!
Gerry Gold
Economics editor
A World to Win
http://www.aworldtowin.net
For outgoing US President George Bush, the oh-so-obvious answer is "sustained economic growth". He told a New York audience that "the answer is not to try to reinvent that system" but to "make the reforms we need, and move forward with the free-market principles that have delivered prosperity and hope to people around the world".
Others are into reinvention. Gordon Brown, who until recently thought globalised capitalism could not possibly be improved upon, is now for "creating a new global financial architecture" to replace the Bretton Woods monetary system (which actually collapsed 40 years ago!). The Germans want a "new balance between market and state" while the Canadian suggestion is that "dynamic new economic players ... must be full participants at the global table".
There’s another proposal aired by Bob Geldof. He is back banging the drum for Africa, which has been left out of the discussions. Bob wants to ensure that "900 million potential producers and consumers" are drawn into "the next round of globalisation". With the whole world diving into slump, Bob sees salvation for capitalism in Africa.
And on that he’s at one with Bush, who just yesterday received a major humanitarian award from Africare for his work in Africa. No really, it’s true.
According to Voice of America White House correspondent Paula Wolfson, Bush was honoured for his efforts throughout his administration to combat disease across the continent. Bush says America has an obligation to help the people of Africa. "It is in our national security interest that we defeat hopelessness. It is in our economic interest that we help economies grow."
The brutal truth is all these plans, pleas and proposals are non-starters. Why? Because they all look beyond the current disastrous disintegration of the global economy to a bright, newly refurbished, much more regulated, fairer, capitalist world. This is not how capitalist slumps work themselves out.
Fixing the real problem - an overhang of capacity as global production turns from recession to depression and slump - has only one solution as far as capitalism is concerned. In 1942 in the midst of the Second World War, economist Joseph Schumpeter, a critic of Keynes, but a big fan of credit-led investment, published his most famous work Capitalism, Socialism and Democracy. It was then, with the world at war, that he chose to develop his version of the concept of "creative destruction". That is already under way, with 10 million Americans already out of work and General Motors on the edge of bankruptcy.
Bush bemoaned the fact that critics were "equating the free enterprise system with greed, exploitation and failure" and objected to it. He is right to warn against the coming assault on the citadels of capitalism. There’ll be many demonstrations and protests against the G20 over the weekend and the election of Obama last week was itself a product of the anger millions of Americans who want action against bankers and corporations.
What is urgently needed is a concept of a society beyond the private ownership and control of capital, together with the leadership and organisation to make it a reality.
Can we do it? Yes we must!
Gerry Gold
Economics editor
A World to Win
http://www.aworldtowin.net
Tuesday, 11 November 2008
Ealing points the way
On Monday night John McDonnell and I spoke on behalf of LEAP at a packed meeting in Ealing on the financial crisis. The meeting 'The Real Issues of the World Financial Crash' was called by Ealing Trades Union Council and the Convention of the Left.
The meeting was everything that a good meeting should be: participatory, comradely, well-chaired, wide-ranging yet focused, and with the right balance between theoretical discussion and planning for action.
There was also a varied range of constructive contributions about what is happening in the crisis and what we can do about it. The discussion ranged from the paucity of the minimum wage (and Ed Balls' recent comments about the London living wage), through the effect of tumbling shares on pensions, the attacks on jobs (including the disgraceful actions of the Tory council in Hammersmith & Fulham), and how in Germany the privatisation of rail has been put off, while in Argentina pension funds have been nationalised.
One suggestion I particularly liked was to create spoof posters of the grotesque DWP campaign on 'benefit thieves'. What about 'tax thieves - we're closing in' with pictures of Branson, Green, et al?
Another concrete idea was to picket or occupy banks that were repossessing people's homes - or acting as human shields in people's homes against bailiffs. Such actions need to be replicated across the country - and it's no surprise that the Poll Tax campaign was invoked.
Another major task - discussion of which peppered the meeting - was how to get our unions to start fighting. There was agreement that this needed grassroots mobilisation to push the bureaucracies into action . . . or out.
If you would like a speaker from LEAP at your meeting, email leap@l-r-c.org.uk.
The meeting was everything that a good meeting should be: participatory, comradely, well-chaired, wide-ranging yet focused, and with the right balance between theoretical discussion and planning for action.
There was also a varied range of constructive contributions about what is happening in the crisis and what we can do about it. The discussion ranged from the paucity of the minimum wage (and Ed Balls' recent comments about the London living wage), through the effect of tumbling shares on pensions, the attacks on jobs (including the disgraceful actions of the Tory council in Hammersmith & Fulham), and how in Germany the privatisation of rail has been put off, while in Argentina pension funds have been nationalised.
One suggestion I particularly liked was to create spoof posters of the grotesque DWP campaign on 'benefit thieves'. What about 'tax thieves - we're closing in' with pictures of Branson, Green, et al?
Another concrete idea was to picket or occupy banks that were repossessing people's homes - or acting as human shields in people's homes against bailiffs. Such actions need to be replicated across the country - and it's no surprise that the Poll Tax campaign was invoked.
Another major task - discussion of which peppered the meeting - was how to get our unions to start fighting. There was agreement that this needed grassroots mobilisation to push the bureaucracies into action . . . or out.
If you would like a speaker from LEAP at your meeting, email leap@l-r-c.org.uk.
Wednesday, 5 November 2008
Events and Opportunities
Last night was a night of events and opportunities. LEAP hosted a meeting in the House of Commons, based around our publication Building the New Common Sense - social ownership for the 21st century. Speakers at the meeting 'The Economic Crisis - what role for social ownership?' included many of the contributors to the pamphlet: Gerry Gold, Rosamund Stock, Maria Exall and Professor Gregor Gall.
There was an excellent debate about the role of social ownership in the crisis - and a poignant warning from Gregor Gall, "an opportunity is only an opportunity if we have the resources to act. Otherwise it is just an event". While the crisis brings capitalism into sharp relief, and gives us the opportunity to explain its inherent weaknesses, the opportunity to change things relies on us mobilising around these issues and that requires resources.
One contributor to the pamphlet who could not make the meeting was LEAP Chair John McDonnell MP. John was locked in the House of Commons chamber attempting to convince a Labour government to repeal a few technical measures of Thatcher's anti-trade union laws. The amendments to the Employment Bill were derived from the Trade Union Freedom Bill which was passed as both TUC and Labour Party conference policy in 2005.
John forced the largest rebellion - 45 Labour MPs - since Gordon Brown became Prime Minister, but it also showed that even with every union in support and most actively campaigning in favour only 45 MPs from the party of Labour support strengthening trade union rights.
Over the pond, and the US was electing a Democrat President to great fanfare. This was an event - with great opportunities. However, it remains to be seen whether reality will match expectations.
LEAP's own Graham Turner said: "'Change We Need' was the popular slogan of the Obama campaign, and while it would be churlish to ignore the wider political significance of yesterday's election, there is a harsh reality. Unless the Democrats execute a major policy U-turn, there will be no change. A more expansionary fiscal policy, courtesy of a stronger grip on Congress, will not solve the crisis. It may make it worse. Paul Volcker is tipped by some to be the new Treasury Secretary, but that too provides real cause for concern. It is more of the same, ensuring that the US will slide towards a debt trap. Other candidates in the frame, including Lawrence Summers, offer little encouragement. Democrat policies to date have been contributing to the rise in mortgage rates, which has culminated in a plunge in mortgage demand. The point was underlined this morning by the steep decline in the MBA's purchase index to just 260.9, its lowest level since early January 2001. There is no chance of stabilising the housing market in 2009. Unemployment will soar. Choosing Volcker or Summers as the new Treasury Secretary will be a mistake. In the absence of a radical shift in monetary policy, Obama will not be the next Roosevelt."
Monday, 3 November 2008
Public meeting on Tuesday
The Economic Crisis – what role for social ownership?
Tuesday 4th November
7pm
Committee Room 5, House of Commons, London
Tuesday 4th November
7pm
Committee Room 5, House of Commons, London
Following the publication of the LEAP pamphlet Building the New Common Sense - social ownership for 21st century, LEAP leads a debate on what role for social ownership in the economic crisis.
Speakers include: Andrew Fisher (Chair), Gregor Gall, Gerry Gold, John McDonnell MP, Rosamund Stock
Also, you can download A Market Economy based on Common Ownership by Jerry Jones and download a copy of the presentation on social ownership Andrew Fisher gave to a meeting of the Commune. It is a much extended version of the preface to the new LEAP pamphlet, Building the new Common Sense - social ownership for the 21st century.
See you tomorrow – entry is free and everybody is welcome!
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