King's speech wins Oscar for half-truths

As everyone who buys their own food and fuel knows, price rises are accelerating. Even in the unlikely event that the revolutionary uprisings in the Middle East and North Africa don’t push oil prices even higher, inflation in the UK is shooting past 4% and heading towards double that by the middle of the year.

The supermarkets which control 75% of groceries, have already doubled the inflation coming through the commodity markets. They’ve pushed the price of processed food up by as much as 6.5% as they try to protect their profits from falling demand.

As the world has seen, when rising prices push food beyond reach even the most autocratic governments feel the anger of the people.

Inflation is just one side of the global crisis. It is the direct and inevitable result of desperate attempts by governments and central banks to reverse the implosion of the global financial system in 2007-8. They poured in trillions of dollars, pounds, yen, and yuan, hoping to restart lending through commercial banks that they had rescued with money borrowed in advance – without asking – from billions of ordinary people, their children and grandchildren.

It was clear from the outset – at least to some – that the growth needed to repay the debt will never materialise. But they had to try. So another solution to the worsening debt crisis is now in play – higher taxes and cuts in government spending which have already provoked social upheaval throughout Europe.

Now the reality is hitting home. Mervyn King, governor of the Bank of England, told MPs yesterday:

The research makes it clear that the impact of these crises lasts for many years. It is not like an ordinary recession, where you lose output and get it back quickly. We may not get the lost output back for very many years, if ever.

And, he added something that should strike fear into the parliamentarians:

The price of this financial crisis is being borne by people who absolutely did not cause it. Now is the period when the cost is being paid, I'm surprised that the degree of public anger has not been greater than it has.

Maybe King is thinking of joining the national demonstration called by the TUC for March 26, which looks like turning into the Britain’s very own Day of Rage. King told the Treasury select committee that the billions spent bailing out the banks and the need for public spending cuts were the fault of the financial services sector. And so he’s now proposing that rather than rescuing ailing banks, ways should be found to allow them to fail, albeit gracefully.

But the bankers’ banker is only telling half the story, or at best one side of it, to shield the real villain in all this – the capitalist system of production for profit. This is the elephant in the room that few people want to speak of. Certainly not the TUC nor Ed Milband and his let's-build-a “prosperous capitalism”-party which we wrote about yesterday.

For decades, global growth of the capitalist economy was only made possible by an expansion of credit many times greater than the new value generated. It couldn’t last. When the limit was reached, meltdown took over. Then everything that was done to try and solve the crisis by treating its symptoms only made it worse.

Growth has been replaced by recession, and everything and anything that is done to try and deal with it just inflames the people affected most. King wonders why people are not angrier and out on the streets like the workers of North Africa. Don’t worry Mervyn. The rage is building and when it blows it needs to be directed not just against a few bankers but at the crazy capitalist system as a whole. At that point, you will be out of a job!

Gerry Gold
Economics editor
www.aworldtowin.net

Bad news and more bad news?

Hugo Radice on the UK's latest GDP figures, and how they relate to the global economic context.

On the face of it, the fall in UK national output (GDP) reported on Tuesday just adds to the mounting bad news for everyone, not least Chancellor George Osborne. Fears about a ‘double-dip’ recession, which would officially arrive if a further decline takes place in the first quarter of 2011, now look considerably more likely. Not surprisingly, most Red Pepper readers will now be concentrating their energies on the fight against the cuts. But for us as much as for employers and the Tory government, it’s important to keep a close eye on current developments in the economy. So what exactly does all the bad news add up to?

First of all, we live in a world in which the financial markets pretty much dictate the government’s policies, or at least their room for manoeuvre. Osborne’s attempt to blame the fall in GDP on the bad weather seemed to cut no ice in the City. There, the pundits and the speculators mostly concluded that the recovery had now stalled, and that the Bank of England would therefore delay the long-expected increase in its official lending rate of 0.5%.

Looking back on the growth recorded for July-September 2010, it now seems all too clear that the sudden boost to construction activity in that period owed more to a rush to complete current contracts before the spending cuts hit local authorities and government departments alike; so the sharp fall in the last quarter was as much a case of back to normal as the result of the big freeze.

In any case, last week’s unemployment figures made grim reading, back above 2½ million, with a particularly big rise in youth unemployment - and this well before the public sector cuts start hitting home in April. What is more a host of recent attitude surveys, among households as well as businesses, have suggested growing pessimism about our economic prospects and therefore a reluctance to make any big spending commitments. Add in the unexpected attack on the coalition’s lack of a growth strategy from the outgoing CBI chief Richard Lambert, and Osborne surely couldn’t maintain for much longer that shiny smile and confident air.

But although there obviously is a Plan B somewhere on his desk – to slow down the spending cuts and encourage the Bank of England to pump more cash into the banking system – the Chancellor is terrified that a change of direction would be seen by his masters (that’s the financial markets, remember, not us) as a sign of ‘weakness’.

Osborne himself has cited the International Monetary Fund’s latest update to its World Economic Outlook, issued on January 25, in support of his policies. The IMF, he said, approved of a robust approach to restoring the public finances. Well, yes, but only up to a point. The IMF update didn’t actually discuss the UK as such, and they qualified their approval of spending cuts by putting them in a wider context:

“A host of measures are needed in different countries to reduce vulnerabilities and rebalance growth in order to strengthen and sustain global growth in the years to come. In the advanced economies, the most pressing needs are to alleviate financial stress in the euro area and to push forward with needed repairs and reforms of the financial system as well as with medium-term fiscal consolidation. Such growth-enhancing policies would help address persistently high unemployment, a key challenge for these economies.” (Update, p.7)

Now the Eurozone governments have, with a lot of delays and haggling, begun to sort out the debt problems afflicting their ‘periphery’ (that is, Greece, Ireland, Portugal and Spain). They have created a Financial Stability Facility which has just successfully issued the first zone-wide Euro bond. The Chinese government in particular is keen on this development, because they want to diversify their own bond purchases away from the USA. But the markets, which as always in an uncertain recovery are particularly prone to rumours, fads and panics, are still worrying away at this issue. Oddly enough this is good news for Osborne, since problems in the Eurozone make British government bonds more attractive to investors.

However, there are two other global issues which we need to keep an eye on. The first is the one raised by the IMF, namely ‘reforms’ of the financial system. Last week (22 January) the chair of the Independent (sic) Banking Commission, Sir John Vickers, gave a lecture on the progress that the Commission is making on this. Given the often-stated views of the Governor of the Bank of England – and most academic commentators – it was hardly surprising that he highlighted the need to segregate the risky activities of ‘investment’ banking (issuing and trading financial assets of all kinds) from the activities of ‘commercial’ banking (dealing with payments and routine borrowing by households and firms).

The British Bankers’ Association spokesperson, Angela Knight, immediately announced that if new regulations were brought in that were too tough on the banks, they would up sticks and relocate abroad. Short of revolution (not a bad idea?) the way to head off this threat is to make sure that pretty much the same regulations are brought in everywhere, and especially in the USA, UK and the Eurozone. In the more than two years since the collapse of Lehman Brothers, progress on this has been painfully slow. In the USA, legislation was finally passed in July 2010 (the Dodd-Frank Act), but implementation is still being delayed, making because the banking lobby made sure that the proposals were incredibly cumbersome and riddled with contradictions. In the Eurozone, progress is also slow, partly because so many banks are massive holders of those dodgy Irish, Greek, Portuguese and Spanish government debt; so any financial squeeze on the banks threatens efforts to calm down the bond markets.

The second big issue is the tensions between China and the USA. Basically, for years there has been a dollar merry-go-round:

• ..... the US runs a big trade deficit with China, paying for the imports in dollars;
• the Chinese government then lends the dollars back to the US – mostly through buying US government bonds;
• the US government uses this money to keep taxes low, leaving households and businesses with more money to spend;
• and they spend it on Chinese imports.....

For years, US pundits have pointed out the irony of the richest and most powerful country in the world becoming financially dependent on what remains one of the poorer countries. But the vast majority of US citizens either don’t pay any attention to international affairs at all, or they just blithely assume that what Uncle Sam wants, he is entitled to get.

However, Chinese President Hu’s state visit to Washington last week brought the issue forcefully to a head. Treasury Secretary Geithner yet again called for an increase in the dollar exchange rate of the renminbi, to try to correct the trade imbalance. But the global context has changed dramatically since 2007. While the USA, as well as other major rich economies, have suffered sharp recessions and then slow jobless recoveries, China and other so-called emerging economies like India, Brazil and Russia took a smaller hit from the financial crisis, and rebounded quickly. Even Africa has in recent years experienced much faster growth than the rich countries.

This is a truly world-shaking shift. Back in the 1970s, the newly-confident post-colonial states of the Third World proposed, in the UN and other fora, a New International Economic Order. The idea was to place their development agenda at the heart of the international economic and financial order, using the leverage of their control over the supply of oil and other raw materials. At first the rich states tried to ignore these demands, so when oil prices were indeed raised sharply, they were plunged into inflation and stagnation. But from 1979, led by the UK and the USA, they took their revenge.

New economic policies of ruthless financial stringency plunged the Third World into a massive debt crisis and the ‘lost decade’ of the 1980s. Neoliberalism was unleashed across the globe, forcing debtor states to adopt policies that favoured capital (including foreign capital) over labour and private profit over state initiatives. And after the collapse of the Soviet bloc and the USSR in 1979-81, this leaner, meaner sort of capitalism became the universal norm.

The great irony is that the success of this strategy – from a capitalist point of view, that is – turned out to create formidable competitors. The Chinese and other new capitalist powers are rapidly increasing their share, not only of world consumer markets, but also of available raw materials. New Chinese, Indian and Brazilian transnationals are displacing the tired old US, Japanese and European firms. China has in recent years outstripped the World Bank as a source of so-called ‘development aid’ to Africa (as always, the ‘aid’ comes straight back to the donor in the form of orders for their goods).

In these circumstances, the power structures of global capitalism have become more and more outdated. The role of the dollar; the permanent seats on the UN security council; the inter-state bureaucracies in Geneva and New York; the voting systems in the IMF; these and countless other practices are being called into question.

For the American people, it is especially hard: that famous ‘city on a hill’ is bankrupt and crumbling, unable to be a beacon for anything except xenophobia and lax gun law. With the Tea Party Republicans on the rise, threatening everything from bombing Iran to hanging Julian Assange, there are plenty of reasons to be fearful.

Fortunately, help is at hand. For the great irony is that America’s real rulers – the corporate rich – have invested massively in the new capitalism of the East and the South. Knowing full well that the newly-confident ruling classes of those regions fully share their own ideology and objectives, they will ensure that the new American nationalism remains a matter of rhetoric alone. The dollar-go-round will not be abruptly halted.

How does all this impact upon working people in Britain? Well, it makes the outlook a bit better for exports and unemployment. But under the government’s present policies, Mervyn King told us on 25th January what to expect: declining living standards for years to come. As he said, such a long period of decline hasn’t been seen in Britain since the 1920s. As he must surely know, but didn’t say, this strikes at the heart of the political love affair of the so-called middle classes with consumerism and free-market individualism, a key element in the post-1945 political settlement.

What can the left do about it? Well, obviously fight every redundancy and every pay cut. But also, please, this time round, recognise that workers all over the world are in exactly the same situation. We are being urged to accept pay cuts so that we remain ‘competitive’, that is, put workers abroad out of a job instead. And they in turn are being told just the same thing by their own rulers. Time for an old, old slogan: workers of the world unite!

This article first appeared on the Red Pepper website

Government of the banks, by the banks and for the banks

Nothing quite explains the current crisis like this graph of the rate of US delinquencies - households in serious arrears (over 3 months) with their mortgage payments.

The graph covers the period between from 1985 to 2009. Until 2006, the delinquency rates never passed 1% of all households. Now it is 4.5% of US households who are at serious risk of losing their homes - and this excludes all those who have already been repossessed. As Graham Turner notes in his new book 'No Way to Run an Economy', more than 1 million US households received foreclosure notices between March and May 2009 alone.

This demonstrates how the economic growth of the latest period of neoliberal capitalism was achieved by the loading of excessive debt onto households - the story is not dissimilar in the UK.

The latest US delinquency figures, which came out last week, show that the Obama Administration's 'Making Home Affordable Program' (MHAP) has been a woeful failure. Serious delinquencies are still rising. This is a structural problem since MHAP does not offer a bailout to those at risk of losing their homes (after all bailouts are for banks with $billion turnovers) simply refinancing.

Just as in the UK, banks and their shareholders are bailed out while hard-pressed people get tea and not much sympathy. Welcome to capitalism, the system that redistributes wealth from poor to rich.

If you think it's bad here . . .

The consumer comfort index in the US has declined to -53, which compares with what we call consumer confidence at -25 in the UK for June. Of course such measures are subjective, but such measures of collective subjectivity are often valid.

Data will soon be published for how the US economy performed in the second quarter of 2009, and it is expected to show another contraction. If confirmed this would be the first four quarter contraction in US post-war history.

And the signs don't look good. US manufacturing production declined in May to its lowest level since 1998.

It was confirmed on Thursday that US job losses were again high, with 467,000 people losing their jobs in June. This means 7.2 million US citizens have lost their jobs since December 2007. US Unemployment is now at 9.5%. As if to prove the old adage 'if the US sneezes, Europe catches a cold', Eurozone unemployment hit 9.5%, Eurostat announced this week.

On Friday it was reported that US salaries have dropped 2.3% in the year to May 2009. With rising job losses and pay contracting it is hardly surprising that mortgage foreclosures are rising - hitting a record high in the three months to May.

This in turn explains the low level of 'consumer comfort', despite Obama's much heralded $787bn fiscal stimulus. As the world's major power in the global capitalist economy, what happens in the US ultimately affects us all.

The economy: it's even worse than we thought

Three weeks ago we reported that GDP had contracted by 2.2% instead of the 1.9% originally reported.

Today the ONS has updated its estimate to a -2.4% drop in GDP in the first three months of 2009. The ONS also now says the recession began during the second quarter (Apr-Jun) of 2008 rather than during July to September, so that the recession has now been running for a whole year. This means GDP in March 2009 was -4.9% lower than it was in March 2008.

This is how the GDP figure for the first quarter of 2009 broke down across the different sectors:

• Construction: down 6.9%
• Service sector: down 1.6%
• Banking and finance: down 2.5%
• Manufacturing: down 5.5%

The recently published CBI Industrial Trends survey saw export orders fall sharply in June as the rest of our major trading partners continue to languish in recession too.

US turns to socialism?

OK, apologies for the sensationalist title, but a recent US poll shows a marked increase in US citizens questioning the capitalist system. Only 53% favour capitalism over socialism.

Young Americans (under 30) are the most socialistic. The pollsters say they are "essentially evenly divided", 37% prefer capitalism, 33% socialism, and 30% are undecided.

It is perhaps unsurprising that people are questioning the capitalist system at a time when its caused the biggest crisis for a generation (and possibly much longer). However, the point is to offer a coherent alternative.

Like in the US, the mainstream political parties are all embedded with neoliberal capitalism - and because of that the mainstream media rarely reports anything that counters that world viewpoint.

It is therefore necessary for those of us who don't want capitalism to articulate a coherent vision for a socialist society. That cannot be wrenched from ancient Marxist tomes, but has to be developed in the contemporary context. That is what LEAP has been seeking to do the last few years - and what our conference on Saturday 25th April will continue.

What would a similar poll in the UK reveal?

Sat 18 Apr update: And now there's even pictorial evidence of the shift to the left in the US - Obama and Chavez warmly embrace. Roll on to the United Socialist States of the Americas!

Time to cut the losses

In the last week, stock markets the world over have been showing the classic signs of bipolar disorder, but in the most concentrated form. Euphoric, manic, hysterical highs followed by the deepest depression. Much of it, say some of the commentators, is internally generated, the result of speculators feeding off each other’s panic.

But as everyone else knows, there are clear external causes. The soaring highs are the direct result of a renewed series of injections, by governments and central banks, of credit – the same stuff that the world’s financial system became addicted to and wholly dependent on during the “long boom”. It doesn’t help. Yesterday, the two largest Swiss banks UBS and Credit Suisse were obliged to seek new capital in a further attempt to prevent them turning into non-banks, ceasing to exist, becoming, as Monty Python had it, dead parrots. When the Swiss banks fall, there’s nowhere safe left for your money.

The stock market lows – a five-year retreat reached in the UK and back to the 1980s in Japan – are the result of an avalanche of indications that the recession is not only with us, but will last for years. Giant corporations are bankrupt, jobs falling off a cliff, house prices dropping like a stone. Even the price of oil has fallen back, as the speculators move their money elsewhere. China, which has powered the global economy, is cutting back and shutting down factories.

The Brown-led government, which has taken on the role of street-level pushers, are looking to raise the money that they are guaranteeing to the banks by issuing more debt to the investment markets. But there’s a limit to what can be raised. The rest will come from an assault on government spending, public services, the elimination of the legal guarantee for public sector pensions, and last but not least, any measures to deal with climate change – irrespective of Miliband the Younger’s pronouncement on an 80% emissions reduction by 2050.

Early signs of the brutal reality that will result came from the news that under Brown and Darling’s control, Northern Rock has been foreclosing, repossessing and evicting at double the rate of the rest of the industry, as detailed in Andrew's post on Wednesday. So much for the benefits of “nationalisation”.

Brown knows that the bankers’ bail-out won’t stop the rot, so he’s promoting a restructuring of the world’s economy, along the lines of the Bretton Woods arrangements that laid the basis for the post-war recovery and the boom years. The Financial Times says this is premature, adding:“Lest we forget, Mr Brown himself was in charge of the IMF’s ministerial steering committee for a large part of the past decade and yet signally failed to implement the ideas he is parading. During this time, it was repeatedly explained to him that every early warning system devised by the finest minds in international economics, including those at the fund, either predicts crises that never arrive or misses those that do.”

The paper of business is correct. The basis for restoring stability after a decade and a half of the Great Depression wasn’t Keynes’s proposals, but the massive destruction of surplus productive capacity and human lives during the second world war.

A much easier, less destructive way out of the mess would be to cut the losses, admit the capitalist system is bankrupt and make the transition to a new kind of economy altogether. One based on not-for-profit production, social ownership, self-management, planned production for need, distributed via an intelligent market informed by democratic processes and expressed preferences. That’s what we will be discussing tomorrow at the Stand Up for Your Rights festival. Be there!


adapted from www.aworldtowin.net

People's Programme underestimates crisis

The People’s Programme for the Crisis, distributed in the name of LEAP as the world’s stock markets went into free-fall, is in danger of underestimating the nature of the unprecedented economic, social and political conditions we are living through. The fear of outright financial collapse and economic slump is evident in every newspaper. Ruling political elites on both sides of the Atlantic are preparing for the worst while in public hoping for the best.

There were persistent reports that members of the House of Representatives were warned that failure to pass the $700 billion bail-out package could lead to martial law and the deployment of troops on the streets. In Germany, mindful of the consequences of economic collapse from history, the government legalised the domestic military operations of the Bundeswehr while it tried to rescue Hypo Real and other banks. In Britain, the consensus growing around New Labour smacks of coalition government.

The recall of Peter Mandelson, a key advocate and exponent of the neo-liberal agenda, and the inclusion of financier Paul Myners as minister for the City as part of the economic “war cabinet” strengthens the capitalist outlook of New Labour. One cabinet minister reportedly said: “British business will be thinking, actually, Peter Mandelson's a good person to be in charge of our interests in government."

For those in the labour movement who seriously want to confront the issues, the global credit crisis provides unparalleled opportunities to expose not just the failure of capitalism as an economic and financial system but also to expose New Labour. Ordinary people in financial difficulties as a result of losing their jobs, rising loan charges or lack of credit are left to their own devices. They are at the mercy of the very same banks that are being lined up for a massive government hand-out. Increasing numbers of people’s homes are being repossessed while the bankers form a queue for state aid.

The financial meltdown thus has the merit of clearing the air in a political sense. Who can deny now that the New Labour government is a corporate and bankers’ regime, which is deploying the power and resources of the capitalist state to try and save the system from itself? Where are the differences in outlook between New Labour and other capitalist parties like the Tories or Liberal Democrats? You can use a microscope if you want, but you won’t discover anything significant.

In these circumstances, there is absolutely no point in focusing protest and pressure on the New Labour government in the hope that it may somehow, in some miraculous, semi-religious fashion, undergo a conversion and become anti-capitalist. New Labour is what it is and has been since the Blair/Brown/Mandelson counter-revolution that began in the early 1990s.

Under these conditions, LEAP’s appeal to the New Labour government “to act urgently to protect the British people against the economic turmoil that was not of their making” is at best even-handedly misguided, and is in danger of lending credibility to the government at a time when it is rapidly losing the plot.

The policy proposals are themselves somewhat unrealistic, irrespective of who they are addressed to. Nationalising the banks is a challenging prospect given that Barclays PLC for example, ranked as the 25th largest company in the world, is a major global financial services provider operating in Europe, North America, the Middle East, Latin America, Australia, Asia and Africa.

Cutting interest rates can have little effect on the global crisis and risks a further inflationary surge to add to the close to 50% hike in electricity bills, and 15+% rise in grocery bills already experienced this year. Reducing the influence of the Bank of England is advocated at a time when it has already been greatly diminished by the globalisation of the financial system. Converting repossessions to social rentals is progressive but leaves the majority trapped into repaying vastly inflated mortgage debt. Strengthening rights and representation at work will not answer mass unemployment as long as the system of private ownership of global corporations is left in place.

A new line of attack is required. LEAP should seize the chance created by the crisis to campaign in the labour and trade union movement against the government, in the spirit that workers fought the Callaghan government in 1978-9, whose policies opened the door for Thatcherism (and later, Blairism).

Such a campaign could easily show how the crash of 2008 arises from a system based on the ruthless pursuit of profit and that alternatives are urgently needed from a practical point of view. Policies developed in opposition to a bankers’ bail-out would raise the possibility of reorganising the economy along not-for-profit lines. This could best be done by revisiting some well-established principles in the light of conditions transformed by corporate-driven globalisation.

They could, for example, incorporate new forms of democratic power. Democracy could and should be extended through co-operative forms of ownership and workplace control of major corporations, enterprises and services. Restoring the right to strike and freedom for trade unions along with new social rights in areas such as housing, education, transport and care would be essential. LEAP should use its connections to seize the initiative and urge supportive trade union leaders to adopt this strategy and mobilise their members around a programme of action.

As to who is to implement such a democratic socialist programme – given that New Labour can’t and won’t - this question of questions will need to be raised, discussed, debated and resolved in the course of building an independent movement to defend jobs and living standards at the expense of capitalism itself.