Monday, October 04, 2010

Capitalism's crisis dictates the cuts

As the coalition begins to unveil its public spending cuts, the muddle-headed idea that they are simply “ideologically driven” remains fashionable, especially among those who think protest will produce a government U-turn.

It was the central theme of yesterday’s Right to Work march against the cuts in Birmingham, where the Tory Party conference is taking place. The notion is also at the heart of November’s Coalition of Resistance conference planned for London. Even trade union leaders like the RMT’s Bob Crow – a rarity as someone who puts his money where his mouth is when it comes to actually fighting back – holds this point of view.

The Labourites hedge their bets as they would surely be making cuts themselves if they had been re-elected. They accuse the Lib-Con coalition of wanting to “shrink the state” to benefit big business. (This is a bit rich coming from a party that created £90 billion in contracts for the private sector when in power in “partnership” projects).

There is an inconvenient truth that’s missing from all these viewpoints. It’s summed up just two words – capitalist crisis. The budget deficit crisis which is affecting every major economy, has its origins in the end of the speculative boom in 2007.

The recession that followed the global financial collapse exploded the myth that government deficits could be repaid out of the proceeds of a continuously growing economy. A sharp decline in private and corporate tax revenues ensued, whilst demands for social support like unemployment pay, housing benefits and pensions have grown.

In Britain, the budget deficit reached £162 billion in 2009-10. At 11% of national income (GDP), it is the highest of the group of 20 leading capitalist economies. The national debt - all the previous budget deficits added together - has reached £1 trillion (or £1,000 billion – three times the level of 2001) – equivalent to almost two-thirds of GDP.

Interest payments on the loans that fund the debt are expected to rise to £70 billion a year and could reach £100 billion a year. An estimated £110 billion of the national debt is the result of buying up Northern Rock and other failing banks. A report by the New Economics Foundation suggests further bail-outs are on the way.

Budget deficits are a global phenomenon which are themselves part of a wider financial and economic crisis. In the United States, total national debt is about $13 trillion dollars and rising and is over 92% of the country’s annual income. It is forecast to soar by another $10 trillion between 2011 and 2020. Those who call for “investment not cuts” should be aware that Obama’s administration has failed to revive the US economy with just such a programme.

The global capitalist economy is heading for a depression, according to the International Monetary Fund while others show that the "recovery”, such as it was, is over.

The coalition like all capitalist governments is caught in a vice. They have to cut the deficit to appease the financial markets and prevent state bankruptcy. Yet every cut takes money out of the economy and deepens the crisis. This is a graphic example of capitalism at its most self-destructive.

Rather than capitalist governments being in control and having an “ideological” choice, their actions are severely limited by circumstances. As Steve Barrow, Standard Bank, quoted in the Financial Times (June 28, 2010) said: "It might seem that these things [elections/strikes] don't matter too much as it's the financial markets that have the power to dictate to governments and so bring about change, not the unions and the electorate.''

General strikes in Spain, Greece, France and Italy have failed to halt the cuts because it’s the system itself that’s in crisis. Suggesting otherwise is to let the coalition and capitalism off the hook when we should be preparing a strategy to bring the government down and lay the foundations for a transfer of economic, financial and political power away from the ruling classes.

Paul Feldman
Communications editor

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