There they were on a warm spring weekend in Horsham, West Sussex, with a simple agenda: agree a plan to prevent the global economy from slipping from recession to deep slump, or at least suggest an outline of a strategy that their bosses could sign up to at the G20 summit in London next month.
In the end, the communiqué issued by finance ministers and central bank governors was blandness itself. They pledged to “take whatever action is necessary until growth is restored” and ensure that “all systemically important financial institutions, markets and instruments are subject to an appropriate degree of regulation and oversight”.
Meanwhile, the United States is going its own sweet way with more plans to try and rescue American banks together with implementing its “stimulus” package while berating the Europeans for not doing the same. No commitments were offered in Horsham about keeping trade and markets open to prevent the spread of protectionist measures.
Should we have expected anything more from this gathering? I think not. It’s important to restate that the capitalist economic system, at national and global levels, is not some logical, controllable process which finance ministers and central bank governors can manipulate as and when they please.
Setting aside for a moment the anarchic nature of a market, profit-driven system, economic and financial structures have historically developed according to their own inner logic. The state and the economy are relatively independent. One cannot substitute for the other, even though they are interdependent and bound together historically. The state has responded to different circumstances, falling in line to either catch up with what’s happened or to facilitate new forms of activity.
To blame Thatcher and Reagan, for example, for today’s financial crisis because they promoted deregulation during the 1980s is to confuse cause with effect. Deregulation proved necessary to summon up the finance for a new expansion of capital that corporations embarked on following the break-down of the old economic order in the early 1970s which had been based on fixed exchange rates and capital controls. Further deregulation in the 21st century, which saw bank repackaging and selling off assets and loans, created space for them to lend to consumers as the only way they could buy goods (and houses) in order to sustain "growth".
Governments and central banks were happy to join in this new “golden age”, as Gordon Brown so wonderfully described it in June 2007 in a speech to the City when he was still chancellor of the exchequer. In fact they cheered the whole process on. That’s ended in calamity and the same politicians are struggling to understand let alone control the forces at work. No one, for example, knows the real scale (and certainly not the value) of “toxic” debt in the system.
Meanwhile, the impact of the crisis in Britain is mounting. Ten people are chasing each job centre vacancy and the dole queue is expected to reach over three million next year. Unemployment among 16-to-24-year-olds is already running at more than 15%.
Today, the Bank of England warns of a 1930s-style depression, saying that households are displaying early symptoms of being caught in a “debt deflation trap” where debts become harder to repay as prices and wages fall. The amount owed on mortgages, loans and credit cards has risen by 165% since 1997.
Some, of course, are trying to talk capitalism back to health. US federal reserve chairman Ben Bernanke, claims to have seen the “green shoots of recovery”. How should we estimate this prognosis? Perhaps he’s recently watched Being There, where Peter Sellers, a humble gardener, metamorphoses into Chauncey Gardiner and is mistaken for a financial expert. Chauncey’s remarks about how the garden changes with the seasons are interpreted by the president as sound economic and political advice. Say no more.
AWTW communications editor