The coming year is certain to be one of the most turbulent for a generation in terms of economic, social and political instability, particularly in Britain. While they undoubtedly present themselves as dangers and threats to people’s jobs and livelihoods, the new conditions also open up the possibility of shaping the future in a way that reflects the aspirations of the powerless majority.
At the heart of the matter is, of course, the crisis in the global capitalist financial system and its growing impact on the economy in general. We are witnessing the early moments of the unravelling of a period of economic growth constructed like a house of cards, with debt as its less-than-solid foundations.
The collapse of Northern Rock in Britain is only one example of what is to come in 2008. In the United States, several banks including Merrill Lynch, are in serious difficulties. Executives gave up their Christmas turkey to spend the holidays desperately trying to raise new capital for the ailing bank. John Thain, the new chief executive held talks with Chinese and Middle Eastern state-controlled sovereign wealth funds that could lead to the sale of another big stake in the bank.
Reports are mounting that Merrill Lynch will be forced to write down between $10bn and $15bn worth of assets related to CDOs - so called collateralised debt obligations - when it reports financial results next month. But the value of these assets is falling day by day – if buyers can be found at all – as the financial system remains log jammed by the so-called credit crunch. What Merrill Lynch is facing – just like banks around the world - therefore, is a solvency crisis. That’s why attempts by the world’s central banks to increase liquidity have had no real impact.
An economic system founded on credit and its twin brother debt, must plunge towards slump as lending is cut back and loans called in. No wonder then that New Labour prime minister Gordon Brown fears for the worst. Already wounded by his opponents, Brown insisted that "with unbending determination, in 2008, we will steer a course of stability through global financial turbulence" just as “we withstood the Asia crisis, the American recession, the end of the IT bubble and the trebling of oil prices”.
This is more of the same wishful thinking that led his government to ignore the warning signs at Northern Rock. It is also a distinctly rosy view of history. The trebling of oil prices in 1973 led to a period of social instability that lasted until the late 1980s. Two governments – Heath’s in 1974 and Callaghan’s in 1979 – were brought down by resistance to the impact of the economic slump and renegade MI5 and army officers seriously plotted a coup.
Furthermore, the British economy has lived beyond its means on a greater scale than anyone has previously understood. Figures released just before Christmas show that the gap between imports and exports is now a staggering 5.7% of gross domestic product – just as big as America’s and twice the level earlier estimates suggested. Stephen King, managing director of economics at HSBC, noted in The Independent (December 24): “And just like the US, the UK economy has motored along on a diet of debt and ever-rising house prices. To claim, then, that the sub-prime and credit crisis was born in the United States along is nonsense.”
Brown may want to portray himself as the politician who can guide the country through the crisis. But the truth is that events are largely out of his control. The same market forces that he encouraged as chancellor now dominate and will decide the fate of his government as well as the economy in general. The evolving crisis offers real opportunities to campaign for and create a new chapter in history, based on sustainable economic and political, democratic alternatives to the madness of the capitalist market economy and the corporate state. Building the membership and influence of A World to Win will be crucial in ensuring this project’s successful outcome.
AWTW communications editor