Wednesday, 27 October 2010

Race to the bottom

Ireland’s already severe economic troubles just got a whole lot worse.

Its plan to reduce its budget deficit to 3% of GDP in four years by cutting spending by €7.5bn has been undermined by lower growth prospects both at home and abroad and higher debt interest costs.

So, in a warning of what is to come elsewhere, Ireland’s Fianna Fail government has DOUBLED its programme of cuts to €15bn.

And this comes only days after the UK's Lib-Tory Coalition announced the latest details of its own savage assault on the public sector intended to hit a strikingly similar target.

You can almost feel the brutal threat contained within the official Irish statement:

'The Government realises that the expenditure adjustments and revenue raising measures that must now be introduced will have an impact on the living standards of citizens. But it is neither credible nor realistic to delay these measures.'

And you can almost see the baseball bats wielded by the bailiffs sent in by the money marketeers who’ve driven up the price of borrowing for Ireland, and a long list of other highly indebted countries.

'Our obligations are clear. We must demonstrate that we are bringing sustainability to our public finances. We must stabilise our debt to GDP ratio over the period of the Plan. And we must set out our strategy for returning our economy to growth.'

Things are getting rapidly worse for the millions of ordinary people already struggling to deal with the costs of debt repayments incurred when governments decided they had no option but to bail out the bankrupt banking sector in 2007 and 2008 and issued monstrous amounts of new credit in the hope that it would stimulate a ‘recovery’.

Despite better than expected growth figures for the UK in the last half year, its economy hasn’t even recovered half of the production it lost during the first part of the dive into its worst post war recession.

Meanwhile, the world economy is heading into a renewal of decline. Look at South Africa for example. Unemployment there is growing relentlessly beyond 25%. If the workers who’ve given up looking for a non-existent job are included the figure is over 36%. Whilst carmaker Ford has used its government bailout to slash production, sell off Volvo and cut its involvement with Mazda and returned to profit, parts of America have an official unemployment rate of 20%. And one person in five out of work is the official rate for the whole of Spain.

With profit-seeking capitalist society no longer able to offer jobs to so many people – and forcing governments to slash support for the unemployed – belief in the system is being undermined. It’s no wonder that the dream weavers are hard at work spreading the myth of a ‘return to growth and prosperity’. As increasing numbers begin to realise that the game is up, the need for a society that is based on need rather than shareholder returns becomes increasingly urgent.

Cameron has just delayed the details of the growth package that was expected to follow the biggest assault on public spending since the post war creation of the welfare state. Could this be an admission that there’s nothing he can do besides opening the way for a few thousand jobs in off-shore wind turbine manufacture?

It’s high time people – workers, students, farmers, pensioners, the unemployed, communities – formed new kinds of democratic forums and began to explore how to use them to take things into their own hands. As illusions that the system can provide for people’s needs are broken up, there is nothing to lose and everything to gain.

Gerry Gold
Economics editor
27 October 2010

Saturday, 23 October 2010

Confirmed: Cuts will hit poorest hardest

Working people, the unemployed and the sick will be hit 10 times harder by spending cuts than previous Con-Dem predictions, a new TUC analysis revealed on Friday.

TUC-commissioned economists shattered myths peddled by Chancellor George Osborne and Deputy Prime Minister Nick Clegg that the spending review was about "fairness."

They revealed that the poorest 10 per cent will be hit 15 times harder than the richest 10 per cent.

The new analysis stands in stark contrast to government claims that overall the cuts would hit the worst off only five times more than the richest in society.

The TUC originally predicted in its Where The Money Goes report that cuts of 25 per cent by 2012-13 would mean that the poorest 10 per cent of households would lose around 20 per cent of their income.

But using data from the Spending Review the TUC showed that overall cuts to public spending - excluding benefits and tax credits - of £48 billion by 2014-15 will be even more regressive, partly because of deep cuts to services which are disproportionately used by the poorest households, such as social housing and social care.

TUC commissioned economist Howard Reed pointed out that if the cuts were examined by their social "function" rather than by department, the picture looks even bleaker.

"Social care will be cut by 20 per cent, social housing 24 per cent, policing 20 per cent and higher and further education 27 per cent," he said.

TUC general secretary Brendan Barber said: "Even when the effects of benefit changes are taken out of the equation, cuts to services surgically target the poorest households and leave the rich relatively untouched."

And Haringey Council leader Claire Kober warned that cuts to local budgets, services and housing allowances will make it impossible for local authorities to cope with the influx.

"We are being set up to fail," she said.

Left Economics Advisory Project co-ordinator Andrew Fisher called on the TUC to co-ordinate resistance to the coalition's "obscene attacks."

He said: "The TUC analysis of Osborne's spending review is to be congratulated and confirms what the IFS said the day before and what our instincts told us all immediately: the CSR was all-out class war.

"At the June Budget and again this week, Osborne lied to us that his cuts would be fair.

"Within a matter of hours again his lies have been irrefutably exposed."

*This article appeared in the Morning Star on Sat 23 Oct

Friday, 22 October 2010

Time to end the profit system

The Lib-Con Coalition government’s Spending Review is an attempt to rescue an already bankrupt economy. With £81bn cuts in public spending, it is the biggest and most sustained assault on the public sector since the creation of the welfare state sixty years ago.

But the reality is that despite the ruthless measures announced yesterday, the cuts will hardly make a dent on Britain’s budget deficit, which at £162 billion is the largest of the world’s major economies.

The plan is to bring government borrowing down by £149 billion in four years. This is a 19% per cent cut in real terms, as opposed to New Labour’s proposed 12 per cent. But can this gamble succeed? The very measures intended to reduce the deficit will deepen the crisis.

The one million people who will be thrown out of work and those made homeless will need some kind of support. And whilst blighting the lives of countless citizens, especially the most vulnerable, government spending will continue to rise by an additional £38 billion over the coming four years. As Chancellor Osborne announced: “total public expenditure – capital and current – over the coming years will be £702 billion next year, then £713 billion, £724 billion and £740 billion in 2014-15.”

An additional £7 billion cut brings the total cut in the welfare budget to £18 billion so far. The poorest ten per cent of the population stand to lose the most. It is a monstrous bludgeon expected to achieve just a £5 billion reduction in the £43 billion per year interest payments.

The measures include:

  • a 30% cut in funding for local authorities
  • a 74% cut in the budget for house-building combined with a trebling of rents for new tenants in social housing
  • insecure tenancy of council house dwellers
  • the minimum possible increase for the NHS, that will leave health care struggling to keep up with an aging population and scientific advance
    ending the universal right to Child benefits
  • a 3.4% real cut in education
  • cancellation of major infrastructure projects, like the renewal energy from the Severn Barrage
  • a 10% increase in rail fares
  • a £7 billion cut in the welfare budget
  • Culture Department to be cut by 42% with almost 30% cut for Arts Council
  • up to 30% cuts in budgets for government departments
  • 20% cut in funding for the police
  • rapid acceleration in the process of adding a year to the working life of a man and six to that of a woman before they can claim a state pension
  • huge and damaging reductions in the settlements for Scotland, Wales and Northern Ireland.

    There is certain to be much more pain as the contraction of the global capitalist economy tightens its grip. The attempt to reduce repayments to the money markets will be undermined by tax revenues falling faster as the recession turns to slump. The populist gesture of £2 billion to be raised from a permanent levy on banks will surely be passed on in the form of higher costs of borrowing.

    Cuts in administration of around 30% over four years will lead to a loss of an estimated 490,000 public sector jobs, 8% of the total. The effects of the overall programme confirms consultancy PriceWaterhouseCooper’s estimate of a further 500,000 jobs evaporating in the private sector as spending is reduced and contracts are cancelled.

    The Coalition has issued a sinister threat with its promise that it will always be better to be in work than on benefits. It means that they’re hard at work on schemes to reduce wages across the board. No doubt employers will be rubbing their hands at the prospect of new sources of cheap labour from the enlarged European Union and beyond.

    This is only the beginning. The Spending Review spells out that the capitalist state can no longer afford to fund any of the rights or life-support benefits won by unions in a century of struggle.

    The intention to reduce the wide and complex range of benefits needed by millions of people suffering the effects of three decades of profit-chasing globalisation to an all-encompassing single payment, and a time-limit on the Employment and Support Allowance reflects a profound contempt for the individuals whose needs have been assessed by cohorts of public sector workers. Capitalism in crisis wants to reduce millions of people to bottom-line cyphers of cost before trying to eliminate them altogether.

    Calls outside Downing Street for “French-style” strikes are a welcome move from the total inaction of the Trade Union Congress. But even industrial action needs a political purpose. The desperate gamblers in No10 and 11 are driven by a real economic crisis of the capitalist system itself.

    The solution to the debt mountain comes in the shape of action by People's Assemblies, formed locally throughout the country with a view to defending services, livelihoods, jobs, and homes. Eventually a government formed from a network of people's assemblies will need to take control of the financial sector, cancel the debts and turn it into a not-for-profit service.

    The global capitalist classes are watching to see the results of Osborne’s cruel experiment. It’s time to realise that we too must enter new territory.

    Gerry Gold
    Economics editor, 21 October 2010
    reposted from

  • Thursday, 21 October 2010

    Why trade union rights matter

    Tomorrow morning (Fri 22 Oct), John McDonnell will be moving his Lawful Industrial Action Bill, which would tackle the increasing practice by employers of using minor technical errors in the balloting process - which have no material effect on the outcome - to take unions to court in order to prevent them from taking industrial action.

    It would mean the repeal of one of the most pernicious pieces of Thatcher's anti-union legislation, just one of many - but it would be a step forward. The Bill itself is sponsored by a dozen Labour MPs, and was unanimously backed at TUC Congress in September.

    When we look across the Channel to France, the importance of a fair legislative framework for trade unions is immediate. France has only 8% union membership in its workforce, compared with around 24% here yet their workers and unions are able to take effective action to resist attacks on their living standards.

    And it's not just France, in South Africa public sector workers have won a 7.5% pay rise after 3 weeks on strike, with an 800 rand housing allowance thrown in too.

    Gone are the days, as many will have seen in Made in Dagenham, when workplace votes could initiate strike action. In fact, it's fair to say the Equal Pay Act would not exist if Thatcher's anti-union laws had been in place.

    In the UK the effects of the anti-union laws are clear: the value of wages has declined from nearly 65% of GDP in the mid-1970s to 55% today. Over the same period, the rate of corporate profit has increased from 13% to 21%. A large part of the reason for the global economic crisis, argues Graham Turner in his book, is the global squeeze in wages which has sapped demand out of the economy.

    Whether or not John's Bill passes the first hurdle tomorrow - it needs 100 Labour MPs to attend to make sure - UK unions are going to have fight vigorously and innovatively despite the anti-union shackles around them. It's essential they do - people will suffer immensely, and the poorest most, if these cuts go through.

    John McDonnell will be presenting his Bill tomorrow in Parliament from 09:30 tomorrow (Fri 22 Oct). You can watch live on the BBC Parliament Channel.

    Update, Fri 22 Oct, 2:30pm: Unfortunately only 87 Labour MPs could be bothered to attend the debate and so the Lawful Industrial Action Bill fell. Very disappointing, but well done to all those who lobbied their MPs - and to those MPs who did attend and support the Bill.

    Wednesday, 20 October 2010

    Initial thoughts on the CSR announcement

    George Osborne announced his Comprehensive Spending Review - we'll do a more considered response in time, but a few initial thoughts:

    • We're told this CSR will be fair and hit the richest hardest ... he said that last time. It's not true this time either.

    • The Government will invest £900 million in HMRC can bring in £7 billion in tax evasion. Spending 90p gets you £7, that's a good return on investment. There's a £120 billion tax gap - maybe invest a bit more?

    • Raising the state pension age to 66 will have a disproportionate impact on the poorest who have shorter life expectancy and are less able to afford to retire early

    • Osborne implied that public sector pension costs are rising. In fact the costs are falling as the Hutton report showed

    • the new 'Work Programme' (workfare/welfare conditionality) will be entirely delivered by the private and voluntary sectors with payments by result (profiting from welfare) even though the DWP's own research shows Jobcentre Plus staff more effective and efficient

    • The extra £7 billion cuts in welfare, on top of £11 billion announced in June, is effectively taking £1000 from 18 million people

    • Another attack on housing benefit - this time people under-35 targeted, and their housing benefit will be effectively halved. Disgusting.

    • Further attacks on Working Tax Credits, including reducing childcare element

    • George Osborne said "the Spending Review has no measurable impact on child poverty over the next two years" as if that was something to be proud of?! Also the CSR period is 4 years so what about the last 2 years? There are over 3m children living in poverty ...

    • "By cutting business taxes we are giving business the freedom to compete" - what a load of nonsense

    • Administration budgets across departments will be cut by 34%, overall expenditure down 19% - 490,000 job cuts across public sector as Danny Alexander 'told' us yesterday

    • Train fares will rise 3% above RPI inflation for the next 3 years - RPI is currently 4.6% - FFS nationalise!!

    • He used "will be protected in cash terms" a lot - what that translates as is a real terms cut.

    Tuesday, 19 October 2010

    Osborne cuts 'will wreck economy'

    How the Morning Star covered the publication of LEAP's dossier on Osborne.

    by Roger Bagley in Parliament

    Left-wing economists stripped the facade today from Chancellor George Osborne's disastrous attack on public services and the poor.

    Mr Osborne's big lie that Con-Dem spending cuts are "fair" was also punctured when a bunch of 35 super-rich big business bosses signed a letter to the Daily Telegraph expressing their fulsome support for the Chancellor's policies.

    On the eve of tomorrow's Comprehensive Spending Review containing further huge cuts, the Left Economics Advisory Panel (Leap) issued a dossier highlighting Mr Osborne's flawed assertions, mistakes and U-turns since his June Budget.

    Leap chairman John McDonnell MP accused Mr Osborne of being "wrong time and time again."

    Mr McDonnell said: "Our community is now about to be devastated by four years of cuts in valuable public services with hundreds of thousands losing their jobs as a result of his faulty economic calculations and recklessly risky policies."

    The bosses of Marks and Spencer, Asda, Alliance Boots, BT, Diageo, Microsoft and GlaxoSmithKline were among 35 big business chiefs signing the Telegraph letter, which claimed it would be a "mistake" for the Chancellor to water down his cuts.

    "Addressing the debt problem in a decisive way will improve business and consumer confidence," they argued.

    But Leap co-ordinator Andrew Fisher accused Mr Osborne (pictured, left) of pursuing "a pessimistic strategy based on failed monetarist policies."

    He added: "Fundamentally, the Osborne economic strategy is simply a Thatcherite ideology that wishes to roll back the state. Today, the small government idea is the Big Society, which is not about strengthening society, but burdening it."

    The Leap dossier pointed out that cutting the public sector would not "make room" for the private sector, but would sap demand and weaken the private sector as well.

    A leaked document from the Office for Budget Responsibility had recognised this by estimating that cutting 600,000 public-sector jobs would lead to a knock-on loss of 700,000 jobs in the private sector.

    Leap also pointed out that, since the June Budget, leading economic forecasters had downgraded prospects for growth in the British economy.

    In addition to Mr Osborne's U-turn over withdrawing child benefit from households with a higher rate taxpayer, the overall three-year freeze on child benefit would mean a 10 per cent cut in real terms.

    Sunday, 17 October 2010

    LEAP publishes 'Ready Reckoner' on Osborne’s economic strategy

    Ahead of the Comprehensive Spending Review later this week, LEAP has published a dossier 'The Osborne Ready Reckoner' (free download) testing the statements the Chancellor of the Exchequer, George Osborne, made at the June Budget Statement.

    The dossier highlights the flawed assertions, mistakes and u-turns contained within that statement and puts the arguments against the coalition government's economic strategy.

    John McDonnell MP, LEAP Chair, said:

    "In the short space of time George Osborne has been Chancellor he has already been proved wrong time and time again.

    "Our community is now about to be devastated by four years of cuts in valuable public services with hundreds of thousands losing their jobs as a result of his faulty economic calculations and recklessly risky policies."

    Fundamentally, the Osborne economic strategy is simply a Thatcherite ideology that wishes to ‘roll back the state’. Today the small government idea is the ‘Big Society’. This is not about strengthening society, but burdening it.

    The same Party that tells us the Big Society will take on the role of the state in key areas, also tells us we are living in a ‘broken society’. The effect of the cuts planned on this scale would be, if implemented, to leave Britain with a legacy of a ‘broken government’ to match the Tories’ broken society.

    Government revenues have fallen due to the recession – there are more people out of work claiming benefit and paying taxes, because there are fewer jobs. Today there are 2.5 million people unemployed and less than 500,000 vacancies.

    The Tories have no strategy for job creation or economic growth – only for cutting spending down to the level of revenues from an underperforming economy. The only outcome of their pessimistic strategy is misery for millions of families.

    This dossier puts the economic arguments against the Osborne strategy. Download here.

    One Million Climate Jobs

    Earlier this week I went to the launch of the new and expanded 'One Million Climate Jobs' pamphlet, which sets out a strategy to solved both the economic and environmental crises.

    In 50 pages it sets out a comprehensive argument for funding one million climate jobs now. It argues that the jobs and investment can be funded by the reduced unemployment and extra tax revenue from getting one million people back into work, and from addressing the tax gap. The investment required is just £18 billion - a fraction of the £1.3 trillion that bailed out the banking system. As Jonathan Neale, the pamphlet's editor, said at the launch,
    "if the planet was a bank they would save it"

    It argues that the dangers of abrupt climate change require us to act now to reduce our polluting ways. It is estimated that the one million climate jobs, costing just £18 billion could cut UK emissions by 80% in just 20 years, but the pamphlet is realistic: "of course cuts in the UK on their own will make little difference to global climate change. But if we campaign for a million new jobs, and win them, people all over the world will see what we have done".

    The jobs themselves cover our electricity and energy production; refitting homes, public buildings and businesses, and building new homes to strict environmental regulations; building new transport infrastructure; as well as other industries. As Philip Pearson from the TUC pointed out, we have lost over one million manufacturing jobs in the last decade. This is the industrial strategy we need.

    The pamphlet concludes with a chapter on what you can do. As John McDonnell MP, speaking at the launch, said:
    "we need greens and trade unionists campaigning alongside each other, and to become one another"

    The pamphlet is produced by the Campaign against climate change trade union group and is sponsored by the CWU, PCS, TSSA and UCU trade unions. Free download here or order from Bookmarks (£2.50)

    Friday, 15 October 2010

    No cuts! Introduce a Wealth Tax instead

    LEAP met with Professor Greg Philo yesterday, who presented the case for a Wealth Tax to solve the deficit.

    It certainly put things in perspective. The UK has a national debt of £800 billion. By comparison, the total personal wealth in the UK is £9,000bn. It is mostly concentrated at the top, so the richest 10% own £4,000bn (by contrast, the poorest half have less than one-tenth of the total UK personal wealth).

    What Professor Philo proposes is a 20% wealth tax on the wealthiest 10%, which would pay off the national debt and dramatically reduce the deficit, since interest payments on the debt are a large part of government spending.

    The richest 10% have only to assume liability for their small part of the debt. They can pay a low rate of interest on it and if they wish make it a charge on their property when they die. It would be akin to a student loan for the rich.

    Polling suggests a Wealth Tax would be popular, a YouGov poll of over 2,000 people found very strong support, with 74% of the population approving (44% strongly approving). Only 10% did not approve.

    Footage of Professor Philo propounding a Wealth Tax on the Politics Show, to a rather bemused Tory MP and Labour's Yvette Cooper, is embedded below:

    You can also read more about the Wealth Tax on the Glasgow Media Group website.

    Wednesday, 13 October 2010

    Osbornomics unravels

    Look beyond the big society rhetoric and there's a very flawed theory at the heart of George Osborne's chancellorship. It was outlined in the June 2010 Budget, when Osborne advoacted:

    "An economy where the state does not take almost half of all our national income, crowding out private endeavour"

    This 'crowding out' theory managed to infiltrate the independent Office for Budget Responsibility which stated in June that although the government's cuts would cost 600,000 public sector jobs, with a knock-on loss of 700,000 in the private sector, the private sector would also create 1.6 million jobs over the same four year period (a net gain of 300,000 jobs).

    However, a report published by Pricewaterhousecoopers today shows in fact that the private sector will only create 1 million jobs over the four years, so that becomes a net loss of 0.3m jobs. It undermines Osborne's claim that cutting the public sector can be compensated by private sector growth (definitely not in a weak economy). I think the PWC report still might be a bit optimistic.

    Data released since the Budget seem to be proving the PWC right and Osborne wrong. Both the IMF and the Bank of England have downgraded UK growth prospects. As the Morning Star points out, both the British Chamber of Commerce and British Retail Consortium have warned that growth in the service sector had been "slow" and was showing no signs of picking up before the VAT rise in January next year.

    BCC chief economist David Kern said: "The dismal performance of the service sector is particularly disturbing since it occurs even before VAT is due to rise to 20 per cent."

    It goes to show cutting the public sector won't 'make room' for the private sector, but will sap demand and weaken the private sector too.

    For an excellent brief history and demolition of 'crowding out' theory see Aditya Chakrabortty's piece in the Guardian earlier this month.

    There's more on this story in the Morning Star, with quotes from Len McCluskey and Dave Prentis.

    Thursday, 7 October 2010

    Perpetuating the myths on public sector pensions

    There is no greater mythology than that surrounding public sector pensions. There second great mythology is that John Hutton (now Lord) was ever anything but a Tory - he was picked to write a report on public sector pensions (interim report published today) because he would write exactly what the Tories wanted to hear.

    The infamous and ubiquitous “gold-plated” public sector pension is of course largely a myth. The average local government pension resides at just under £4,000 per year. Excluding the upper echelons of the senior civil service, the average civil service pension is only slightly higher at £4,200 per year (a positively tin-plated £80 per week). For teachers the average is a more healthy – yet far from gold-plated – £9,000 per year. Overall, the TUC suggests the average public sector pension is £5,500 per year.

    Public sector pensions have already been attacked though by the indexation changes announced in George Osborne's Emergency Budget in June. According to TUC research, an eighty year old pensioner with an average public sector pension would be more than £650 a year worse off – equating to £12.50 per week.

    The net cost of paying public sector pensions in 2009/10 was a little under £4 billion. The cost of providing tax relief to the one per cent of those earning more than £150,000 is more than twice as much. The cost of providing tax relief to all higher rate taxpayers, on their private pensions, is more than five times as much.

    Ignoring all the facts, Hutton today said "This is a problem and we can't go on as we are."

    So he recommended higher employee contributions, raising the retirement age, and ending final salary schemes.

    Osborne will indicate government thinking on public sector pensions in the Comprehensive Spending Review on 20 October. When setting up the commission Osborne described public sector pensions as "unsustainable". Thing is they're not: the cost of public sector pensions today is 1.9% of GDP in 2010-11, but by 2060 that will have fallen to 1.4%.

    Of course, the other calculation to make is that if public sector pensions are reduced, it will simply result in more people being entitled to means-tested benefits such as Pension Credit.

    The final report will be published just prior to the March 2011 Budget - and then the attacks will start. Until then expect to hear lots more about 'gold-plated', 'unsustainable' public sector pensions. Just remember, it's bollocks.

    Update: great article in the Morning Star on unions' responses to the report

    Update 2: Great letter from Richard Murphy in today's Guardian: "in 2007-08, private pension funds in the UK received subsidies amounting to £37.6bn while paying pensions in that year of just £35bn to those in retirement. The result was that in that year every single penny of pensions paid in the UK were paid at direct cost to the UK taxpayer, and none in effect by anyone else. The question Hutton should therefore be asking is not whether pensions should be paid by taxpayers or not, but whether there is in fact any viable, working alternative to pensions being paid by taxpayers?"

    Wednesday, 6 October 2010

    International currency war under way

    The Bank of Japan’s decision yesterday to further reduce its close to zero interest rate looks suspiciously like one of the opening shots in an exchange rate war that will intensify the problems besieging the already weakened major economies.

    In dropping below its lower limit of 0.1%, and looking at a small programme of quantitative easing (QE) (aka printing more money), Japan managed to get the yen to fall on currency markets. This has the effect of making its exports cheaper.

    But Tokyo didn’t start it. They just followed Brazil’s finance minister who, on Monday, took measures to hold down the value of the real. Guido Mantega warned:

    'We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness.'

    Both Japan and Brazil pre-empted the widely expected “return to QE2” – a sequel to the fading effects of the previous programme of money creation by the now struggling Obama administration. Washington wants the lower dollar to fall to give its exports an edge.

    So the alarm bells are ringing at the International Monetary Fund, which is warning that the “recovery” has run out of steam. IMF head Dominique Strauss-Kahn told the Financial Times:

    'There is clearly the idea beginning to circulate that currencies can be used as a policy weapon. Translated into action, such an idea would represent a very serious risk to the global recovery.'

    It’s not long since world’s leaders in government, banking and finance came together to hammer out the agreements that enabled at least the semblance of a co-ordinated programme of measures designed to restart lending and bring about a return to growth.

    Whilst the previous concerted action is credited with averting a financial and economic Armageddon, its effects are best described as a phony recovery. And that is now over. The optimism induced by unprecedented measures couldn’t and didn’t overcome the uncontrollable logic of the capitalist system of production.

    The global crisis may have erupted in the financial system but its roots are elsewhere.

    Throughout its short period of existence on the planet, the capitalist system has been racked by contradictory forces. Competitive pressures have obliged companies to invest in productivity enhancements which, whilst giving the front runners a temporary advantage, inevitably reduce costs, prices and profits for all.

    To offset the tendency for profits to fall, greater volumes of every product have to be cranked out and sold, and the pressure for even more productivity accelerates and accentuates the growing economy.

    This irresistible objective logic created the globalising corporations that came to dominate the world. And when the surging millions of cars, computers and mobile phones overwhelmed the market, a house of (credit) cards and mountains of debt were created so that consumers could buy them up. At least until we, and the rest of the economy found ourselves drowning in that very same debt.

    Optimism is now being replaced with realism. Cuts in government spending to reduce the budget deficits they’ve accumulated over years of trying to keep growth on track are just one part of the story.

    The phony recovery allowed manufacturers to restock their warehouses and showrooms, but there’s still not, and won’t be enough buyers. So the factories that restarted production after the 2008 collapse will go back onto short time and no time.

    Competition for the remaining market will sharpen, and the intensification in the rate of exploitation will prove truly shocking, sparking social unrest to match. These are the objective laws which shape the decisions in the boardrooms and in government buildings.

    Successful resistance will depend on individuals and communities creating new forms of democracy – People’s Assemblies with the power to terminate the web of contracts and property relationships that tie workers to capitalist employers and ensnare us all in debt. The system of profit-chasing growth must be torn up at its roots. Let’s compost capitalism!

    Gerry Gold
    Economics editor
    A World to Win
    6 October 2010

    Monday, 4 October 2010

    Are the banks about to fail again?

    Last month the Irish government bailed out the banks again, forcing their budget deficit to balloon to an astonishing 32%. It was all too familiar, the banks have once again been bailed out with public money, yet remain in private control and with very little regulation or oversight. There was even the Irish Finance Minister, Brian Lenihan, popping up to say the biggest bank, Anglo Irish, was too big to fail.

    People of course said that about Lehman Brothers, but it failed and the world did not implode. What has vanished though is many Irish jobs, welfare rights and public services - all apparently necessary to avoid a crisis. Instead the collapsing demand in the economy caused credit rating agencies to downgrade Ireland back in July.

    And so to the UK, and today the New Economics Foundation (NEF) has published a report Where did our money go? Building a banking system fit for purpose, which warns "[UK] Banks set to demand fresh bail-out in 2011" and cites increased borrowing by them.

    It also highlights the a "shocking" lack of information on how banks had used the bail-out money. Like Ireland a lack of ownership and control accompanied the bailout - criticised with great foresight by LEAP Chair John McDonnell at the time - and now we may be on the brink of further collapse.

    Referring to the NEF report, LEAP's Graham Turner, from GFC Economics, said "the Bank of England also warned in its June Financial Stability Review that there will be a huge increase in refinancing requirements for UK banks in 2011. This remains a systemic threat."

    Like Ireland again, the UK is about to embark on unprecedented mass public spending cuts - which would sap demand from the economy, and could possibly simply be the precursor to funding another bailout for the bankers.

    If the UK banks do suffer a second round of collapse, then it is time to nationalise the assets as well as the losses and control the sector for public good not shareholder and speculator gain.

    There's an excellent piece in today's Morning Star on this, Banks on the brink yet again - well worth a read.

    Friday, 1 October 2010

    Is the cuts consensus crumbling?

    Since the story switched from 'bad banks' to 'bloated public sector', at some point in 2009, there has been a political consensus in the UK which included the three main political parties and the mainstream media. This consensus was that cuts on an unprecedented scale where necessary to avoid economic oblivion, caused primarily by lavish public spending.

    The consensus was economic nonsense, but ideological cover for attacking the last vestiges of public ownership (e.g. Royal Mail, the NHS and education) and the welfare state.

    Finally, this consensus seems to be crumbling. The TUC in September highlighted the unions' opposition to cuts, and the pamphlet published by the PCS union 'There is an Alternative' probably the most articulate destruction of the cuts consensus. Tens of thousands of copies have been distributed at the TUC and party conferences, to PCS activists, and to the wider movement. Tax justice campaigner Richard Murphy said of it "This is very good, from PCS. I know because people in the Treasury told me so."

    Following on from the TUC, the Labour Party's new leader Ed Miliband used his first speech to chart a different course from the Darling-Brown axis (which was championed by the defeated David Miliband). The excerpts are below - it's not quite earned him an invite to LEAP, but it does represent a shift in direction:

    Economics teaches us that at a time of recession governments run up deficits.

    We were too exposed to financial services as an economy so the impact of the crash on the public finances was deeper on us than on others.

    We should take responsibility for not building a more resilient economy.

    But what we should not do as a country is make a bad situation worse by embarking on deficit reduction at a pace and in a way that endangers our recovery.

    The starting point for a responsible plan is to halve the deficit over four years, but growth is our priority and we must remain vigilant against a downturn.

    You see, it's obvious really, when you cancel thousands of new school buildings at a stroke, it isn't just bad for our kids, it's bad for construction companies at a time when their order books are empty.

    It's not responsible, it's irresponsible.

    When you deprive Sheffield Forgemasters of a loan, a loan from which government would be paid back, you deprive Britain of the ability to lead the world in new technology.

    It's not responsible, it's irresponsible. And we should say so.

    And when you reduce your economic policy simply to deficit reduction alone, you leave Britain without a plan for growth, which is what this government has done.

    No plan for growth means no credible plan for deficit reduction.

    Ed Balls, who to be fair was heading in this direction earlier, used his speech to Labour Party conference to say we had to "put growth and jobs first" and he reminded delegates that Ramsay MacDonald had said there was no alternative to cuts (he didn't add that much of the previous new Labour government said that too and many of them have joined: Hutton, Milburn; and Mandelson offered to).

    This shift in Labour policy will also be bolstered by the Guardian/ICM poll published today, which shows that "43% now saying the cuts have gone too far compared with the 37% who think the balance is right. By contrast, in July 39% thought the balance right, and 38% said too far".

    Given the cuts have yet to be outlined in full until 20 October, and many of those announced have yet to impact, this should be a worrying trend for the coalition government.

    It's up to all of us to kill off this consensus, and build the opposition. Today, there are reasons for optimism.