On the day the Royal Bank of Scotland reported the biggest annual loss in UK corporate history - a mind-boggling £24 billion - and news emerged of former chief executive Sir Fred Goodwin’s £700,000 a year pension, New Labour announced its third rescue package for the stricken bank.
This was timed to prevent a further decline in the bank’s share price which had fallen by 90% in the last year. The plan worked. Shares rose. How so?
The deal stops short of total state ownership, limiting the state’s interest in the bank to a potential 95%. But the government’s, and hence the taxpayers’ non-voting share-holding leaves control and any future profits to the current shareholders. The details of the deal are complex, involving a tax-funded insurance scheme under which the state guarantees to buy up the bank’s toxic assets.
Since October, the major capitalist countries have pledged not to allow systemically important banks to fail. What is being protected by this conspiracy of the world’s most important governments is of course the system of social relationships in which private capital owned by shareholders underpins billions of employment contracts. The contract guarantees that part of the value generated by the labour of people who work for a living ends up as profit in the shareholders’ bank accounts.
But the economy is in freefall, and the profit system is broken. Japan’s exports have fallen by 50% in a few months and its industrial output plunged 10% in January - the biggest monthly drop since records began more than half a century ago, the government said today. Key industries like car manufacturing which have been the engine of growth are, like the banks, bankrupt, too important to be allowed to fail, too big to save.
This contradiction is real. It can be resolved in one of two ways. The competitive logic of capital insists on the destruction of overcapacity and the loss to humanity of much that it has produced. The 90% drop in RBS’s share value provides a measure of the shrinkage the system needs before growth can restart.
Another way is possible. A different kind of government and political system would greatly simplify the rescue by taking the banks – all of them – into full social ownership. Has anyone trodden this path in history? Well, yes actually. Just a few weeks before the Russian Revolution of 1917, Lenin wrote how capitalism had made a new society possible by creating an “accounting apparatus in the shape of the banks”, which revolutionaries “take ready-made from capitalism; our task here is merely to lop off what capitalistically mutilates”.
He added: “ We can ‘lay hold of’ and ‘set in motion’ this ‘state apparatus’ ...because the actual work of book-keeping, control, registering, accounting and counting is performed by employees, the majority of whom themselves lead a proletarian or semi-proletarian existence.” [emphasis in original]. A few weeks later the transfer of Russia’s private banks into public ownership was achieved.
RBS has vast resources and assets worth a nominal £2.2 trillion. It has been at the heart of the world’s financial system since the earliest days of capitalist production. It grew to become one of the world's top 10 financial services groups which operate in every country around the world.
The services they provide over global networks enable people and organisations throughout the world to account for the products they produce and exchange.
In common with most of the big banks, RBS provides insurance services. It is the second largest general insurer in the UK, and the biggest provider of motor insurance. It develops and maintains the infrastructure and technology that support its branches and cash machines, internet and telephone banking services, mortgage processing and money transmission.
The work of the bank is carried out by the more than 140,000 people it employs worldwide. Under their control the bank can continue without the need for shareholders. From their own ranks they could elect a new system of democratically-accountable management. Who needs the owners or executives like Goodwin? No one! It's time to seize what belongs to us in any case.