Accentuate the Positive (part 1)

This is the first of two positive posts I will attempt. People have said that my blog is invariably negative and that I don’t have a good word for the Tories or the Literal Dimwits. This is untrue, I have several good words for them, most of which begin with f or c.

It has also been suggested to me that if there was another general election, it would simply result in the re-election of a further Tory government. I wonder, though, are we absolutely sure about this? Because I think if Cameron and Clegg did the honest thing, merged their two parties formally, acknowledging that the LibDims have been swallowed whole by the Orca of the conservative party, instead of riding it like Dolphin Boy or whatever he was called, as they naively hoped, and went to the country on their actual policy, as now revealed, which was not part of their platform last May, they would get decimated. And deservedly so.

I agree with their critics about the Labour party, though. When they were in power they did not do enough to keep the bankers, speculators and rentier capitalists in check, though to Brown’s credit, and this is something you won’t hear me say very often, to Brown’s credit, he was exactly the right person to have in place during the banking crisis of 2008, and he may also have displayed prescience and foresight in keeping us out of the damned Euro.

But yes, I agree, the present Labour party doesn’t have a clue what to do, as it showed recently by electing the wrong leader, a man with the killer instinct of Tim Henman. I did have high hopes that the Labour party would bounce back off the ropes, with Biffo at the helm, and start tearing into the Tory tissues of lies, contradictions and doublespeak.

God alone knows, there is plenty to go at, but it seems that Mr Ed the talking horse was too busy doing to his wife what he is now about to do to the party of the amalgamated wheeltappers and shunters. Very sad. It means that the poor and underprivileged, the ill, and those on benefits will be thrown to the Tory wolves unless someone else comes forward to stop it, and since democracy has failed in this respect, because none of the parties at the last election were willing to engage in the democratic process, then the next step may have to be one of those outbursts of extraparliamentary action which have marked the major advances in British social history from Corn Law Reform to the Peterloo Massacre to the Jarrow Crusade and the march against the Iraq war.

If Labour did win, so the theory goes, then the markets are going to take fright and cause even more unemployment and misery. Ah, well, here I do differ. “There is no alternative” is a mantra which we will hear from the Tories and their stooges again and again, but actually there are quite a lot of alternatives, starting from the doctrinaire Marxist approach of nationalising ALL the banks and financial institutions, down from there to more sensible proposals based on a mixed economy.

It comes down to who you think should run the country, ultimately, the markets or a democratically elected government. Paul Krugman, writing in his NY Times Blog (“The Beatings Will Continue Until Morale Improves”) points out that Argentina told the IMF where to get off, and then was able to negotiate a much better package, with fewer drastic implications for cuts, which they subsequently paid off. So it seems that even WITH Government from the IMF, which is often represented as the consequence of Labour’s “shallower cuts, less quickly” approach, you don’t have to take the first deal you’re given.

It is true that people are still using the banks as a convenient “whipping boy” in non-credible alternatives. It is first worth establishing some things on which we could probably agree.

The massive sovereign debts of the advanced capitalist countries are the result of governments converting private debt into public debt, having bailed out the banks and rescued the system. Worldwide, the cost of this unprecedented bail-out is estimated to be US$10.8 trillion (£7 trillion). Some estimates have been as high as US$14 trillion. So it is not merely a case of Gordon Brown alone being on a one-man mission to wreck the economy, in fact it may turn out in time that it was him who saved us from having to queue in the streets for loaves of bread thrown off the back of an army lorry, however useless he may have been as a politician in many ways (too stubborn, badly advised, and not media savvy) and ill-fitted to be Prime Minister.

In Britain, an eye-watering £1.5 trillion was thrown at the banks, equating to 94.4% of the Gross Domestic Product. Much of this money was for guarantees against banking losses, which have since been recovered. Into the bargain, the government was forced to nationalise Northern Rock and the Royal Bank of Scotland. However, the total cost to the taxpayer is estimated to be £815bn, or £31,000 per household.

Although these banks were formally nationalised, in reality, the bail-out meant the nationalisation of the debts and the privatisation of the profits; in Britain, ordinary people are being attacked in order to reduce a budget deficit of £149bn, while nobody can deny that bankers continue to receive millions in public subsidies and bonuses.

As I said before, if I were a Marxist (biddy biddy biddy biddy biddy biddy biddy boom) I would be calling for the nationalisation of the entire sector. I am not, but I don’t see why they shouldn’t share more of the burden than is presently the case, since they caused the problem in the first place, and it is unfair and unjust to expect poor people to pay for the mistakes of the rich – see below.

Classic Marxist theory holds that sooner or later, the market becomes too narrow for the continuous outpouring of commodities; everybody already has two mobile phones and a new sofa from DFS. The capitalist system faces a crisis of over-production. If you look at what happened in 2008, it is quite a compelling analysis.

The capitalists attempted to delay this crisis, the Marxists say, by creating the greatest credit bubble in history. At bottom, the restricted consumption of the masses prepares the way for crisis under capitalism. The market is therefore restricted by the amount of money that people have in their pockets to spend on goods and services, as well as the excess capacity that has built up throughout the economy. Today, the world is awash with excess capacity. The market is saturated and the capitalists have had to cut back on production. Their attempt to overcome the crisis by credit has reached its limits. The productive forces have outgrown the limits of the capitalist system.

There are figures to illustrate how far credit was used to put off the crisis. A recent report on debt in The Economist stated that, “average total debt (private and public sector combined) in ten mature economies rose from 200% of GDP in 1995 to 300% in 2008. There were even more startling rises in Iceland and Ireland, where debt-to-GDP ratios reached 1,200% and 700% respectively” (26th July 2010).

In relation to consumer credit, The Economist reports that:

“At the end of the Second World War in 1945, consumer credit in America totalled just under $5.7 billion; ten years later it had already grown to nearly $43 billion and the party was just getting started. It reached $100 billion in 1966, $500 billion in 1984 and $1 trillion in 1994, or around $4,000 for every man, woman and child. The peak, so far, was almost $2.6 trillion in July 2008. Household debt approached 100% of GDP in 2007, a level seen only once before, rather ominously in 1929. America was not alone in embarking on a debt spree. In Britain, household debt rose from 105% of disposable income in 2000 to 160% in 2008” (ibid).

This huge expansion of credit was made possible by banks and governments (which is where Brown could be held to be culpable, with lax regulation, though the problem goes back much further, over several administrations) encouraging people to take out cheap loans, mortgages, and credit cards; hence the growth of “sub-prime mortgages”. However, this debt-fuelled party could not last forever. In the United States in 2006, people started to default on their loans. Consumer demand dropped. Producers could no longer find any consumers to sell their commodities to, and capitalism was faced with a classic crisis of over-production.

I have resisted the temptation to precis this analysis because again it shows that, in terms of the credit crunch itself, what Broon claimed was largely true, that it was a global problem and not simply something home-grown coming home to roost in our own back yard. Broon may have done some dumb things (eg selling off the gold reserves) but 2008 wasn’t one of them.

People speak about the current situation as if the ideas behind it were somehow new. The idea of governments running a deficit and accumulating sovereign debt is not unique to the current period. Even at its lowest point in the last 30 years, the UK debt was 26% of GDP, and before the current crisis, in September 2007, the UK debt stood at 36% of GDP. The government regularly borrows money to make up the deficit between public spending and money received from various sources of tax. In fact, the British government has only recorded a budget surplus in six of the last 36 years, generally overspending by between 2% and 5% of GDP.

Governments raise money for their deficit by auctioning government bonds, or “gilts.” The government pays interest on these bonds every six months, up to the “maturity date,” at which time the full value must be paid back. The majority of British debt bonds have a maturity of 15 years, and currently the government pays £42bn per year in interest payments, making interest payments the fourth biggest source of public spending after benefits and pensions, health, and education.

Greece was charged 40% interest on its gilts as the lenders (i.e. speculators) began to get worried about the possibility of sovereign default, as happened in Iceland in late 2008. Demands were made for public spending to be dramatically cut, and the EU and IMF came in, to outline the austerity measures that were to be imposed. Similar demands are being made of Britain. The Con-Dem coalition is now embarking on a merciless austerity package to slash public spending, pre-empting what it thinks the IMF wants to hear - a very different solution to public debt: draconian cuts. The programme of austerity in Britain (following on from Greece and Ireland) is seen by some as a test-bed, internationally. If the coalition can carry out such brutal attacks on the British working class, then governments elsewhere will have no qualms about carrying out equally severe cuts on theirs.

However: the UK Debt Management Office breaks the ownership of UK debt down as follows:

39.8% - Insurance companies and pension funds
35.1% - Overseas investors
17.8% - Other financial institutions
2.9% - Households
2.9% - Banks
1.5% - Others

From this, it is obvious that the overwhelming majority of the public debt in Britain is owned by financial speculators (insurance companies, overseas investors, and “other financial institutions”, e.g. hedge funds, etc.) who are looking to make a profit out of Britain’s debt crisis – a crisis that was created by bailing out the very same bankers and speculators in the first place – another reason why they should shoulder more of the burden.

Keynesian economists, such as Paul Krugman, rightly warn that the effect of such deep cuts will be to reduce demand and usher in a “double-dip” recession. They are correct; the cuts will exacerbate excess capacity and over-production. However, simply increasing government expenditure is also not viable. Continuing government stimulus to maintain the economy would just inflate public debt, driving up interest rates on the debt and would end up pushing national economies further towards default. That is why I am calling for a completely new sector of the economy, the social enterprise section, to sit in between the private and the public sector, to employ people so that they earn money on which they pay tax, increasing the tax take, and some of which they spend, stimulating the economy, and producing a public good for all of us – in my example, increasing the social housing stock, as opposed to paying the brickies, sparkies and joiners to stay at home on the dole.

The Keynesians also point out (again correctly) that governments have had much larger debts in the past. This is true; the UK’s public debt was above 100% of GDP for most of the inter-war period, and peaked at over 250% after WWII. However, the reduction of the national debt after the Second World War was achieved on the basis of economic growth, which in turn was possible owing to the destruction of capital during the war and growing world trade, and investment in the profitable new technologies that had developed as a result of wartime research and development. In some ways we have similar conditions today with the fight against climate change. I think we should be treating that as a “war” and developing new British technologies which we can lead the world in, and export to every corner of the globe (not that a globe has corners, before anyone who has got this far without the mogadon kicking in points this out).

Many within the trade unions and the Labour Party, support Keynesian “alternatives” to the programme of Coalition austerity. They argue that the working class did not cause the crisis, therefore they should not pay for it. This is what I have said all along. They argue however that the £149bn deficit can be plugged by taxing the rich and cutting spending elsewhere.

• £25bn is lost through tax avoidance, in which the rich find legal loopholes in order to avoid taxes.
• £70bn is lost through tax evasion, where the rich just don’t declare certain income.
• Replacing Trident (nuclear missile submarines) will cost between £15bn-20bn.
• The UK budget for defence spending is currently £37bn per year.

Their proposals, therefore, are to eliminate tax evasion and avoidance, scrap Trident, and reduce “defence” spending. Adding up the money from these measures results in a potential £152bn that could be raised. Personally, I do not agree with the latter two premises, but -along with a higher rate of income tax for those on high incomes, a tax on financial transactions (also known as the “Tobin tax” or “Robin Hood tax”) and greater corporation tax, it seems that we should have no problem in finding ways to plug at least £95bn of the deficit.

The government has a choice – it can either cut spending, and/or raise taxes, and, for ideological reasons, Cameron has decided that it shall be by cutting, and by targeting those cuts largely on those least able to bear them, that the deficit shall be reduced. I would be more convinced that it wasn’t purely evil ideological spite if they had announced some plans for restoring levels of public spending once the deficit has been tackled, but they haven’t!

So: as I said elsewhere, SOMEBODY has got to challenge the spurious “mandate” of this shower, and I am not happy with the concept of them going unchallenged and people dying as a result. Normally, one would look to the Labour Party for this, but they are feeble, useless, supine, and leaderless. I leave the last word, therefore, to my hon. friends, the Marxists.

A mass movement must not only challenge the Con-Dem government but must challenge the system itself. Open the books! Let ordinary people see how much of their money is wasted on outsourcing services to private companies and on fees for management consultants! Let workers see how much profit the giant monopolies make! Let us see how many millions are spent on bankers’ bonuses! If the books are opened, then we can really see the rottenness of capitalism. Drastic times call for drastic solutions.

Under the current conditions, the demand should be for the trade unions to call for a public sector strike, followed by a 24-hour general strike. After the long period of low activity in the class struggle in Britain, a day-long general strike would act as a demonstration of strength and could help to give the working class a sense of their power, thus raising consciousness.