In 1997, New Labour’s election theme tune was Things Can Only Get Better. If Gordon Brown is thinking of calling a snap general election it is because the government knows that severe economic and political turbulence lies ahead and that things can only get worse. For the New Labour government faces a growing financial crisis, demands for a referendum on the new European Treaty and a rising tide of trade union militancy. Of prime concern to the Brown government is the state of global financial markets. The hurricane blowing through the markets will touch most of the population in one form or another in the next period. While Brown and his ministers repeat that the “fundamentals of the economy” are sound, as if the financial maelstrom was taking place on another planet, quite the reverse is true. The fact that a bank like Barclays is in difficulties is just one indication of how serious the situation is.
The entire financial system is now overwhelmed by a Mount Everest of debt that is increasingly “non-performing” – borrowers are unable to repay the interest, let alone the capital. Because the sums involved are astronomical, as well as the fact that the financial system is largely uncontrolled, unregulated and out of sight, central bank intervention makes little difference. As debt unravels, the impact on the “real” economy is palpable. Because capitalism requires credit and debt to oil the system of production for profit, as this lubricant dries up, so too does economic activity and we enter a period of recession. And because the global economy is deeply integrated and interconnected, the impact of an economic decline will be felt worldwide and in quick order.
At the personal, consumer level, the debt crisis is already taking its toll in Britain. The rise in interest rates has caught out people who borrowed five, six or even seven times their income to buy a home. Repossessions are rising at a rate not seen since the early 1990s. It may not yet have reached the levels of the United States, where over one million households face losing their homes because of mortgage default, but the signs are ominous. House prices are already falling outside London and the shake-out of City jobs forecast for later this year will take the heat out of prices in the capital too. So 2008 looks like being a year of negative equity – for bankers and ordinary people alike. In addition to all this, the Brown government is having to face down trade union wage demands, which produced the unprecedented and illegal walk-out by prison officers last week. Now even the police want the right to strike, something they lost in 1919 after laying down their truncheons for the first and last time.
Brown is presenting himself as a politician who speaks for all classes in society in a bid to woo Tory voters. In today’s Daily Telegraph, he says that people “are fed up with confrontational politics” and that his role is to reach “out to those who might not be thought of as our supporters or identified with us”. This is Brown the corporatist speaking, the politician who has done most to restructure the state so that it more directly serves big business and financial interests. These same interests are now in deep crisis and major shocks lie ahead. Whether he likes it or not, Brown will have to face up to “confrontation” as people fight to defend their own interests – their jobs, pensions, houses and standards of living.
AWTW communications editor