The capitalist system is both broke and broken – and neither New Labour nor the Tories can fix it. Banks can’t and won’t lend, the housing market has collapsed, job losses are piling up (Woolworths finally collapsed this morning) and the state itself is being pawned in the hope that there’ll be money in the future to redeem the pledge.
And where will this money to repay the billions in government borrowing come from? From ordinary working people of course, in the shape of higher VAT purchase tax at 18.5%, increased national insurance contribution and cuts in spending in education and health. As for the so-called increase in taxes for higher earnings, experts have shown they probably won’t raise an extra penny.
At least this is the plan, which is based on an economic “recovery” in 2010 that exists only in the imagination of chancellor Darling and prime minister Brown. Yesterday the OECD (Organisation for Economic Cooperation and Development) forecast that the recession would hit the British economy hardest of all the major economies. The OECD’s latest economic outlook cites the housing market bubble and the banking crisis for their assessment.
Mervyn King, the governor of the Bank of England, warned that the recession would be “steep” unless commercial banks started lending again. But why aren’t the banks lending? After all, a bank that doesn’t lend can hardly call itself a bank. King did not answer this question when he was questioned by MPs. For the governor’s information, the banks are not lending because they consider borrowers too high a risk and, most importantly, their capital base is as firm as jelly, despite huge government bail-outs.
The reality, which is admittedly difficult to comprehend, is that there are no capitalist-style policy fixes for an economic and financial crisis that is both global in scope and extremely deep. So the choices are stark: either sit back and let the crisis takes its course (Tories); bankrupt the country (New Labour) in a desperate bid to revive the economy; or put capitalism out of its misery, which is the most difficult option but would be the most rewarding.
How could this done? How can working people be organised and mobilised to take power out of the hands of an undemocratic capitalist state that cannot control the monster it helped create and transnational corporations that drove the credit-fuelled consumer binge that is ultimately responsible for the financial crash?
First, we have to take our case to every corner of the land and say: the economic and financial system isn’t working and can’t be fixed and the consequences for ordinary people are unacceptable in every regard. Secondly, we must show that the existing political system is dominated by the interests of the very people who have wrecked the economy. On this basis, we can mobilise people around the proposal to create a new political democracy that will enable ordinary people to take direct control of economic and financial resources along the lines proposed in Unmasking the State and our Charter for Democracy.
In place of bail-outs for the banks, a real democratic government would re-establish the banking system on a co-operative, mutually-owned basis. It would outlaw fantasy finance activities such as derivatives and “securitisation” of debt and other forms of speculation that have contributed to the crash. The economy would be reorganised too, developing production motivated by social and personal needs and not shareholders’ profits. These changes would allow for a substantial increase in workers’ income, alleviating the need to build up vast debts in order to buy goods and services. These are, of course, revolutionary proposals. But, as even chancellor Darling himself has admitted, we need extraordinary measures for extraordinary times!
Paul Feldman
AWTW communications editor
For revolutionary solutions to create a sustainable, not-for-profit economy in place of global capital alongside a real democracy based on People’s Assemblies. Visit our web site at www.aworldtowin.net
Showing posts with label Darling emergency budget. Show all posts
Showing posts with label Darling emergency budget. Show all posts
Wednesday, November 26, 2008
Tuesday, November 25, 2008
Darling deludes no-one except himself
The measures set out in the New Labour government’s emergency budget yesterday were designed to set pulses racing and induce a collective sigh of relief across the country. Instead, the record amounts of borrowing required will not only reinforce the economic and financial crisis but also point towards the possibility of state bankruptcy in the not too distant future.
At any other moment, the unprecedented scale of government borrowing, mostly aimed at stimulating consumption, would have seemed beyond imagination. But, even with £20 billion more now and £118 billion by end of next year, the best that Chancellor Darling said he could hope for was to lessen the severity of the downturn!
To put it bluntly, the emergency budget will not stop the avalanche of company failures, job and pension losses, personal bankruptcies and house repossessions. Initial reactions from the high streets and businesses to a 2.5% cut in VAT were dismissive and rightly so.
As Jeremy Warner, business editor of The Independent put it: “The … reduction in VAT, which accounts for the bulk of the giveaway, will make no difference at all to low and moderately earning households, virtually all of whose disposable income is being eaten up by essentials unaffected by the VAT tax changes. Even on petrol, alcohol and cigarettes, the VAT concession is all clawed back again through a compensating rise in excise duty.”
The real problem that New Labour is incapable of tackling is that the global production overcapacity induced by 30 years of credit-led investment generated tsunamis of consumer goods which overwhelmed the market. Inevitably, consumers reached the limits of their ability to repay the debts they’d amassed under intense pressure to buy.
Consumers eventually had to stop buying ever more products. Under capitalism, if people don’t buy, companies can’t sell. So the global corporations that were the result of the growth hysteria needed to sustain profits are tumbling one by one. And with the promise of future profits disappearing over the horizon, the whole house of cards is crashing to the ground.
Neither Darling’s emergency measures, nor US President-elect Barack Obama’s massive stimulus package to be financed by very large deficit spending announced virtually simultaneously, can put Humpty back together again. The previous packages have failed and so must these. Remember those bank bail-outs that were supposed to get lending going again?
There is worse, far worse to come. In a research report published last week, the International Monetary Fund warned that the failure of a single major financial institution could result in losses to the derivatives market of $300-$400 billion. “What’s more, since such a failure would likely cause cascading failures of other institutions, the total global financial system losses could exceed $1,500 billion,” the IMF warned. That’s a big number by anyone’s standards.
Darling is predicting – gambling is a better word – that the record borrowing can be repaid in seven years through higher taxes derived from an economy that has returned to buoyant growth. This is delusional behaviour because a) there is a global recession in place and b) the future tax increases and public expenditure cuts needed to repay the borrowing will stop any hint of recovery dead.
The Financial Times was dismissive: “The UK consumer is now too stunned by the housing crash, stagnant wages and fears of unemployment to be coaxed into resuming the insane credit-fuelled binge of yesteryear. The government’s belief that output will contract by just 0.75-1.25 per cent next year will, therefore, prove too optimistic.”
What the paper doesn’t say is that restarting the economy after every previous crash has required the destruction of productive capacity – factories, offices, transport infrastructure, employees. It’s in the nature of the capitalist system. It’s what “boom” and “bust” means. But this time the scale and severity of the crash will be far greater than at any previous time in history. New Labour’s policies of promoting free-for-all, corporate driven globalisation and the fantasy financiers of the City have made certain of that.
Gerry Gold
Economics editor
At any other moment, the unprecedented scale of government borrowing, mostly aimed at stimulating consumption, would have seemed beyond imagination. But, even with £20 billion more now and £118 billion by end of next year, the best that Chancellor Darling said he could hope for was to lessen the severity of the downturn!
To put it bluntly, the emergency budget will not stop the avalanche of company failures, job and pension losses, personal bankruptcies and house repossessions. Initial reactions from the high streets and businesses to a 2.5% cut in VAT were dismissive and rightly so.
As Jeremy Warner, business editor of The Independent put it: “The … reduction in VAT, which accounts for the bulk of the giveaway, will make no difference at all to low and moderately earning households, virtually all of whose disposable income is being eaten up by essentials unaffected by the VAT tax changes. Even on petrol, alcohol and cigarettes, the VAT concession is all clawed back again through a compensating rise in excise duty.”
The real problem that New Labour is incapable of tackling is that the global production overcapacity induced by 30 years of credit-led investment generated tsunamis of consumer goods which overwhelmed the market. Inevitably, consumers reached the limits of their ability to repay the debts they’d amassed under intense pressure to buy.
Consumers eventually had to stop buying ever more products. Under capitalism, if people don’t buy, companies can’t sell. So the global corporations that were the result of the growth hysteria needed to sustain profits are tumbling one by one. And with the promise of future profits disappearing over the horizon, the whole house of cards is crashing to the ground.
Neither Darling’s emergency measures, nor US President-elect Barack Obama’s massive stimulus package to be financed by very large deficit spending announced virtually simultaneously, can put Humpty back together again. The previous packages have failed and so must these. Remember those bank bail-outs that were supposed to get lending going again?
There is worse, far worse to come. In a research report published last week, the International Monetary Fund warned that the failure of a single major financial institution could result in losses to the derivatives market of $300-$400 billion. “What’s more, since such a failure would likely cause cascading failures of other institutions, the total global financial system losses could exceed $1,500 billion,” the IMF warned. That’s a big number by anyone’s standards.
Darling is predicting – gambling is a better word – that the record borrowing can be repaid in seven years through higher taxes derived from an economy that has returned to buoyant growth. This is delusional behaviour because a) there is a global recession in place and b) the future tax increases and public expenditure cuts needed to repay the borrowing will stop any hint of recovery dead.
The Financial Times was dismissive: “The UK consumer is now too stunned by the housing crash, stagnant wages and fears of unemployment to be coaxed into resuming the insane credit-fuelled binge of yesteryear. The government’s belief that output will contract by just 0.75-1.25 per cent next year will, therefore, prove too optimistic.”
What the paper doesn’t say is that restarting the economy after every previous crash has required the destruction of productive capacity – factories, offices, transport infrastructure, employees. It’s in the nature of the capitalist system. It’s what “boom” and “bust” means. But this time the scale and severity of the crash will be far greater than at any previous time in history. New Labour’s policies of promoting free-for-all, corporate driven globalisation and the fantasy financiers of the City have made certain of that.
Gerry Gold
Economics editor
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