“Floundering - SS Corporate Globalisation taking on heavy water – pumps failing.” That was the essence of the emergency message relayed to the world yesterday by chancellor Alistair Darling as he announced public ownership of failed bank Northern Rock following failure to strike a deal with venture capitalists led by Sir Richard Branson. His was the equivalent of announcing "don't panic" to passengers on the Titanic.
So a government that promoted with gusto the virtues of the deregulated market-driven global capitalist economy has now taken on responsibility for the bank’s mortgages, arrears and repossessions and the fate of several thousand Northern Rock employees. Or rather Ron Sandler, the bank’s new executive chairman who at a mere £90,000 a month will be making the decisions on behalf of New Labour.
Darling says that the intention is to return the bank to the private sector when “market conditions improve”. His grey hair may have all fallen out if and when that ever happens. For Northern Rock’s demise is only the most public face of a growing global financial crisis, one which is having the greatest impact in the United States and Britain where “economic growth” has been based on astronomical levels of debt. The government is, of course, taking over Northern Rock just as the bottom falls out of the housing market.
The panic, Sunday morning decision to nationalise Northern Rock rather than let it go into administration means that the British state – or, more precisely, taxpayers – have been saddled with mountainous debts with uncertain prospects of them ever being repaid. Taxpayers are already subsidising Northern Rock in loans and guarantees to other lenders to the tune of about £55 billion. Under the new plans this will jump to a staggering £110bn, a cost of £3,500 per taxpayer and getting on for a quarter of annual government spending.
What the Northern Rock fiasco also shows is that it is far easier for governments to promote and facilitate market-driven globalisation than it is to rescue parts of the system when the wheels come off. The globalised economic system is transnational in character, with an objective existence and presence that is far more powerful (and uncontrollable) than nation states. The evolving financial crisis is essentially beyond the reach of central bankers and governments. The fictitious nature of much of the financial system is exposed on a daily basis now that the real economy is slipping into recession.
Nationalising Northern Rock won’t stop other banks, particularly those heavily committed on the mortgage front, from going the same way. In fact, it might encourage a few more to declare themselves insolvent on the basis that the government will rush to the rescue.
New Labour clearly dithered over Northern Rock as it contemplated an autumn election. Now its actions are seen as damaging to the City of London, which is one the most powerful – and vulnerable - sectors of the global financial system. Prime minister Brown personally set up the regulatory system that so clearly failed in the case of Northern Rock.
Roger Bootle, the managing director of Capital Economics and a former adviser to the Treasury, said: "This is an iconic representation of the collapse of all the ideas over the past few years about the quality of our economic management.” He added: "This is clearly political dynamite.”
We have entered a slash and burn crisis phase of corporate-driven globalisation. That means jobs, homes, pensions and incomes are under threat in every country. At the same time, the political system is clearly incapable of dealing with the crisis. The challenge immediately ahead is to promote political and economic solutions that take us beyond the limitations and dangers of the capitalist market economy.
AWTW communications editor