Tuesday, October 07, 2008


I am not going to be the one to gainsay any idea that the Bush administration, in acting the way that it has, has decisively undermined three decades of neoliberal doctrine. There are reasons to take heart in this - or, rather, to see an opportunity in terms of winning the ideological battle and therefore increasing our traction in the organised working class and the population at large. Further, one agrees with left-liberals and social democrats that it is a good idea for the state to try and attenuate the force of the crisis, since we will be the victims of the crisis. Yet today, we have an announcement from New Labour of a mini-bail-out, starting with £50bn to purchase major stakes in a number of big banks that are floundering (Lloyds TSB, HBOS, RBS etc). That's roughly the sum they threw at Northern Rock before nationalising it. And this follows the partial nationalisation of Bradford & Bingley (while selling off its better assets to Santander, with the promise to wind down the publicly owned component of the business). And somehow, we on the Left aren't grateful for this intervention? Similarly, as the US government tries to prevent inter-bank lending from drying up while putting some much needed capital into the system, we somehow find ourselves objecting to this? This is state intervention, for heavens' sake! That should be enough to call it communism, surely?

Well, if our starting point is just to help capital ride out a crisis, then - as someone may have once said - capitalism can always survive its crises by making the working class pay for them. Such a starting point is contrary to our interests, which is to ensure that we are not made to pay for a crisis that we did nothing to create. And the trouble with these interventions is that they do, all too often, come down to making us pay for their crisis. For example: contrary to what this nitwit claims, the US isn't just 'lending' some money to the nice bankers so that they can get our economy working again. Not even the establishment US newspapers try to sell that line. The US has bought up a lot of toxic debt, and - even on optimistic assumptions about future US economic growth (not shared by the better pro-capitalist economists) - American taxpayers are unlikely to see a lot of that money again. It is indeed just bailing out the banks, with no reciprocity and only minimal accountability. When critics, many of them well-placed to comment on the topic, pointed out the many flaws in the proposals, they were told that there would be a severe systemic meltdown and that there was no time for all this partisan squabbling - it was a lie, but then urgency is the currency of all ransom notes. Pay up, or else. Similarly, most of the money given to Northern Rock will never be seen again. The government may make a small profit compared to the much-diminished purchase price, (again, this depends on one being bullish about the prospects for the UK and global economy), but it won't make up for the lost billions. And what the government actually retained from Bradford and Bingley consisted of risky buy-to-let mortgages, so it is possible that the treasury will make a loss on this. It has effectively privatised the solid branch banking and savings infrastructure that Santander was eager to have and socialised the component that relates to a contracting market (buy-to-let).

This - the fact that we are in fact being made to pay for a capitalist crisis, and this is only the beginning - arguably loses some of its significance if you think that the alternative is economic catastrophe. However, so far the evidence is that these policies are having precious little impact on the crisis. In this connection, I am glad to see that Socialist Worker makes a point this week of stating that this isn't just a crisis of the global financial markets (you would think this would be obvious, but...). The truth is that the fundamentals of the problem are not in the financial system, whose bubbles are symptomatic of a deeper malaise. This is something we ought to be particularly senstitive to, since it is a mainstay of the right-wing media that the crisis resulted from poor people over-reaching, taking out irresponsible loans etc., when in fact there would have been a crisis much earlier had they not done so. In the most liberalised economies, governments have attempted to stall or reverse a chronic decline in the rate of return on investment by breaking union power, driving up currency values and relying on the strength of the financial sector. But the effect of driving down wages is to reduce effective demand unless someone offers people loans they can't pay back. So, as Ann Pettifor pointed out in her prescient 2006 book The Coming First World Debt Crisis (2006, you might remember, is the year I started warning you all of impending doom), the result has been to produce both a massive expansion in corporate and household debt (I provide some stats here; and also a very large national debt, since there is a smaller manufacturing base to produce and export goods (at considerable disadvantage due to the strong currency). And in case you were wondering why Iceland is so much in the news, the reason is that until recently it was lauded as a major success story because of its liberalisation measures. In the course of this success, it built up corporate and household debt equal to 300% of GDP. And it replicated the macro-economic patterns of all the liberalising societies: property bubble, increased consumption with decreased savings, massive credit expansion, soaring current account deficits and a big national debt. Why did they do that? For the same reason everyone else did: it was the prescribed method for restoring profitability and dynamism to a failing economy. Throwing money at this failing system, while leaving its essentials intact, is manifestly not the solution that we need.

By the way, here is a thought - A Modest Proposal, if you will - if we really want to bring 'stability' to the system at all costs, there is one thing I can absolutely ascertain will do it: bring back slavery. That would restore profitability in a jiffy. Contrary to what your economics text books may tell you, 'free labour' is by no means a better bet for capital. 'Free labour' can argue about the terms of its exploitation, and may quit any particular assignation more or less as it chooses (notwithstanding the obvious economic compulsion). Slave labour just is the perfect human commodity, since it does exactly what it says on the tin without being permitted to argue back or withdraw cooperation. Historically, (and contrary to some accounts), it has been far more profitable than 'free labour'. And if you're worried that it will offend the sanctity of free markets and free trade, think again: provided you're willing to understand slaves as a unique kind of commodity, you will understand that their price is set by market forces and that their trade can provide the basis for a whole dynamic sector of the world economy on its own. Imagine the speculative bubbles that would grow on the back of that sucker: trillions of dollars. The system would be in rude health in no time. Oh, there are downsides, of course, but focusing on those is exactly the kind of purism that makes people turn off politics. Frankly, some of us are trying to offer positive solutions, and some people just want to carp from the sidelines. It's very disheartening. Etc.