The real looters

The coalition government has placed an emergency army battalion on standby and is considering authorising the use of water cannon and tear gas to quell disorder and looting around the country.

But the threat of a mailed fist is a desperate response to an out-of-control social and political crisis. It cannot possibly solve the deeper issues that lie behind the anger and contempt for authority seen in British cities since Saturday night.

The looting of sportswear and plasma screens from high street shops shrinks to insignificance in comparison with the havoc wreaked in the global economy by those in charge. The hard men and women who have come to the aid of the ailing capitalist system have their own economic wrecking ball.

Governments in the United States, Europe and elsewhere have sought to resuscitate growth and bring about a recovery of production following the 2007/8 credit collapse. But their attempts have precipitated a new, far deeper crisis as the debt tsunami engulfs the world’s richest nations.

The truth now emerging is that a return to profitable growth is impossible without imposing equally impossible intolerable conditions of exploitation. ‘Austerity’ doesn’t even begin to describe what must follow if capitalist society is to survive.

It’s not only government cuts that will hurt people. Over the last seven days alone, £200 billion was wiped from the market - and about £300 billion in the past month, drastically reducing people’s pensions and savings.

The United States, still the world’s biggest economy, is no longer able to inspire confidence in the global financial markets. On Friday it experienced a humiliating downgrading of its debt. Standard and Poor, one of the credit rating agencies which speak for the gamblers, speculators - so-called ‘investors’ - whose interests seem all-powerful today, expressed their contempt for the outcome of the US political process and are driving the crisis into a new, more dangerous stage.

President Obama whistled in the dark when he responded on Monday to the historic downgrade of US debt. “No matter what some agency may say, we have always been and always will be a triple-A country,” said the President, as he tried to reassure the investors whose power commands governments.

But whether or not Obama believed that his words could unite the warring factions amongst Democrats and Republicans into accepting his demand for slashing cuts to Medicare and tax increases, they failed to halt the world’s stock markets plunging into the darkness.

The Federal Reserve’s despairing decision to hold interest rates at historic lows for two years cannot restore the US economy any more than it has in the UK in the last two years or in Japan in the last decade. The towering edifice of fantasy credit and debt has to be eliminated, and as a consequence the capitalist economy will contract. Surplus productive capacity has to be physically destroyed.

The nature of the capitalist system is the heart of this crisis – a system first revealed around 150 years ago when Karl Marx published the first volume of Das Kapital, his analysis of the capitalist mode of production.

The words of a critic were incorporated into an afterword to the second German edition in 1873. “The scientific value of such an inquiry” he said “ lies in the disclosing of the special laws that regulate the origin, existence, development, death of a given social organism and its replacement by another and higher one. And it is this value that, in point of fact, Marx’s book has.”

Resolving the current crisis by replacing the present system with a democratised economic and political form of society is on the order of the day.

Gerry Gold

A World to Win economics editor

Will Hutton's fantasy world

I wonder what Will Hutton, writer on economic affairs, chief executive of the Work Foundation and former editor-in-chief of The Observer thought at breakfast this morning as he scanned today’s financial headlines, where the talk is all gloom and doom? Just two days ago, in Sunday’s Observer, Hutton argued that the US economy was showing the world the way forward, despite all the evidence to the contrary.

“The US economy is certainly in transition,” Hutton wrote , “made vastly more difficult by the spreading impact of the credit crunch. But the underlying story is much stronger. The country is developing the prototypical knowledge economy of the 21st century, an economy in which the division between manufacturing and services becomes less clear cut, in a world where the deployment of knowledge, brain power and problem-solving are the sources of wealth generation …” Here, Hutton claims, “the US is so far ahead of the rest of the world it is painful”.

And so we now we know. The answer to the global financial and economic crisis lies in ignoring its actual source – the unleashing of vast amounts of unsecured credit to drive growth and enhance the balance sheets of the global corporations. Ignore the fact that it was the generation of vast amounts of financial products of all kinds that widened the gulf between fantasy finance and the actual generation of tangible value by real human beings acting in the physical world.

Hutton’s sanguine belief in the ability of the US capitalism to lead the world out of economic turmoil is not borne out by the latest raft of reports and statistics. The price of goods leaving Britain's factories rose at the fastest level in more than 20 years last month as soaring food and fuel bills pushed up the cost of production, according to the Office for National Statistics.

“Banks losses to hit public finances - £2.5 bn could be cut from Treasury receipts” and “Mounting signs of economic slowdown” are from the Financial Times this week while the Royal Institute of Chartered Surveyors says confidence in the housing market is at rock bottom.

HSBC, the biggest bank operating in Britain, has taken a £3.2bn sub-prime hit and warns investors against assuming the worst of the crisis is over. HSBC chairman Stephen Green said it was "increasingly likely that the US will enter a recession in 2008, the length and depth of which is uncertain", and that it comes as "the major economic risks facing the global economy now include inflation, particularly from rises in food and energy prices".

Then there's a less-than-starry-eyed assessment by Ambrose Evans-Pritchard of the Daily Telegraph. He is in no doubt that a slump is under way. Under the headline, “The global slump of 2008-09 has begun as poison spreads,” he says today that “the avalanche of bankruptcies has begun. Six US companies of substance have defaulted on bonds over the past fortnight, against 17 for the whole of last year”.

And finally, “Crisis over? No, it’s set to spread much wider”, is how the Evening Standard summed up things, quoting City financier Gerard Lyons, who said “that this is not the beginning of the end but rather the end of the beginning … the first stage of the crisis may be past its peak, but we are about to embark on the second stage, where problems spread to the wider economy and in turn add to the challenges facing the financial sector – a sector that is no condition to accept them.”

Hutton’s slavish faith in US capitalism is reminiscent of a famous scene in the gangster film, White Heat, where James Cagney shouts “Made it, Ma! Top of the world!” shortly before he is devoured by the flames of a massive explosion.

Corinna Lotz
A World to Win secretary

A turbulent 2008 beckons

The coming year is certain to be one of the most turbulent for a generation in terms of economic, social and political instability, particularly in Britain. While they undoubtedly present themselves as dangers and threats to people’s jobs and livelihoods, the new conditions also open up the possibility of shaping the future in a way that reflects the aspirations of the powerless majority.

At the heart of the matter is, of course, the crisis in the global capitalist financial system and its growing impact on the economy in general. We are witnessing the early moments of the unravelling of a period of economic growth constructed like a house of cards, with debt as its less-than-solid foundations.

The collapse of Northern Rock in Britain is only one example of what is to come in 2008. In the United States, several banks including Merrill Lynch, are in serious difficulties. Executives gave up their Christmas turkey to spend the holidays desperately trying to raise new capital for the ailing bank. John Thain, the new chief executive held talks with Chinese and Middle Eastern state-controlled sovereign wealth funds that could lead to the sale of another big stake in the bank.

Reports are mounting that Merrill Lynch will be forced to write down between $10bn and $15bn worth of assets related to CDOs - so called collateralised debt obligations - when it reports financial results next month. But the value of these assets is falling day by day – if buyers can be found at all – as the financial system remains log jammed by the so-called credit crunch. What Merrill Lynch is facing – just like banks around the world - therefore, is a solvency crisis. That’s why attempts by the world’s central banks to increase liquidity have had no real impact.

An economic system founded on credit and its twin brother debt, must plunge towards slump as lending is cut back and loans called in. No wonder then that New Labour prime minister Gordon Brown fears for the worst. Already wounded by his opponents, Brown insisted that "with unbending determination, in 2008, we will steer a course of stability through global financial turbulence" just as “we withstood the Asia crisis, the American recession, the end of the IT bubble and the trebling of oil prices”.

This is more of the same wishful thinking that led his government to ignore the warning signs at Northern Rock. It is also a distinctly rosy view of history. The trebling of oil prices in 1973 led to a period of social instability that lasted until the late 1980s. Two governments – Heath’s in 1974 and Callaghan’s in 1979 – were brought down by resistance to the impact of the economic slump and renegade MI5 and army officers seriously plotted a coup.

Furthermore, the British economy has lived beyond its means on a greater scale than anyone has previously understood. Figures released just before Christmas show that the gap between imports and exports is now a staggering 5.7% of gross domestic product – just as big as America’s and twice the level earlier estimates suggested. Stephen King, managing director of economics at HSBC, noted in The Independent (December 24): “And just like the US, the UK economy has motored along on a diet of debt and ever-rising house prices. To claim, then, that the sub-prime and credit crisis was born in the United States along is nonsense.”

Brown may want to portray himself as the politician who can guide the country through the crisis. But the truth is that events are largely out of his control. The same market forces that he encouraged as chancellor now dominate and will decide the fate of his government as well as the economy in general. The evolving crisis offers real opportunities to campaign for and create a new chapter in history, based on sustainable economic and political, democratic alternatives to the madness of the capitalist market economy and the corporate state. Building the membership and influence of A World to Win will be crucial in ensuring this project’s successful outcome.


Paul Feldman
AWTW communications editor

Sarkozy’s ‘Thatcher moment’

The outcome of the strike movement sweeping France is being monitored closely by The Economist and other voices of the market economy. “Let battle commence”, urged The Economist (15 November). “Can Nicolas Sarkozy be a French Margaret Thatcher?” asked Les Echos, a business newspaper. “Is Sarkozy ready for a long trial of strength with the unions à la Thatcher?” mused Le Parisien, in a reference to the class conflict that shook Britain between 1982 and 1986.

Previous French governments have lost their nerve in the face of strikes and demonstrations against plans to impose what is referred to as the Anglo-Saxon globalisation model by the country’s trade unions. This is viewed, correctly, as an economy based on flexible, low-cost labour, the unfettered movement of capital and a continuing reduction in social benefits and rights.

Will Nicholas Sarkozy stand firm, The Economist asks? It recalls with alarm the attempt in 1995 by the Chirac government to break up the country’s excellent public-sector pension schemes. Sarcastically, the magazine notes: “In the end, Jacques Chirac's government did what French governments do best: it backed down and dropped the whole plan.” It sees more hopeful signs this time, as Sarkozy confronts strikes by transport workers, civil servants, teachers and protests by students against plans to open universities to corporate investment.

Sarkozy wants to end what are known as “special regimes”. These allow railway, electricity and gas workers to retire on full pension after 37½ years of pension contributions, rather than 40 years in the rest of the public sector. Some 500,000 workers, and 1.1m pensioners, benefit from these regimes. Over the next four years, Sarkozy wants to lengthen the required contribution period to 40 years. The government also wants to extend to 41 years the required pension-contribution period for all workers, as well as introduce changes to the labour market and the benefit system.

The Economist is keeping its fingers crossed. By comparison with his predecessors, the magazine notes, Sarkozy has done exactly what he said he would do. And he has calculated that the leaders of the strike movement are looking for a compromise rather than building a momentum to bring down his government. The government has said it is prepared to talk about details in an effort to woo union leaders. The Economist is not completely convinced that France will enter the world of Anglo-Saxon globalisation, however, warning: “The deal he [Sarkozy] does on special regimes needs to be scrutinised to see how far he keeps his word.”

Nevertheless, the strike movement in France, along with industrial action by railway workers in Germany and nurses in Finland, indicate a rising tide of militancy just as the wheels come off the global economy. With the euro rising to new heights against the declining dollar, exports from the European Union become more expensive. This is what is driving the state and employers to reduce workers’ conditions. The events in France could presage a European-wide period more like the revolutionary year of 1968. Now that would really get The Economist worried!

Paul Feldman
AWTW communications editor

US confronted by double crisis

The warnings about the dangerous state of the global economy are flying thick and fast. Earlier this week, a senior banker told City financiers that capital markets had suffered a heart attack over the summer. “If we stay stuck,” Hans-Jörg Rudloff, chairman of Barclays Capital said, “the patient will die”. Then the half-yearly forecast by the Organisation for Economic Cooperation and Development published on Thursday urged action by the United States Federal Reserve to counter the threat of a recession.

The report makes sober reading. It underlines the reality that the shock-waves on the property and share markets are not a blip or “market correction” but rather the beginning of a protracted and deepening recession. Using the word “ominous”, the organisation’s chief economist, Jean-Philippe Cotis spelled it out: “Our diagnosis is a slow-down. We cannot rule out a recession.” He added that the OECD now expected the US to grow at 1.9%, against an earlier projection of 2.2%, as the housing sector exerted a "longer and more potent-than-expected drag". Cotis admitted that analysts had been taken by surprise by the “spread of this financial risk beyond the boundaries of the US” and called for a more active fight against “"predatory lending", as well as "more pugnacious" rating agencies.

The crash in the US housing market has led to a continuing credit crisis bringing, not only the Fed, but also the Bank of England and the European Central Bank under increasing pressure. Yesterday, the Fed responded by injecting another $31.3bn (£15.5bn) into the banking system and the European Central Bank pumped €42.2bn (£28.5bn) into the money markets. Yet more signs have emerged that the US financial and economic crisis is worsening. The property market is at its weakest since the dip after the 9/11 attacks, the Dow Jones plunged and the dollar fell on foreign exchange markets.

The sharp decline of the US economy and the prospects of a long-term downturn are clearly destabilising the global financial and economic order. It’s also more bad news for the US presidency, which is already in terminal decline as one Bush adviser after another quits the White House. Even if there were solutions to the economic crisis, Bush and his diminishing circle are tied down by a morass of insoluble problems that originate deep within the political and state system in Washington itself.

There is an almost unanimous agreement that the war in Iraq has failed. Even former supporters of Bush and the invasion of Iraq have turned critical. One right-wing commentator, Timothy Garton Ash, has noted that “there are now only about three people in the world (G Bush, R Cheney, D Rumsfeld) who would not acknowledge that US policy over Iraq was deeply flawed and inconsistent”. But the realisation that invasion has been an unmitigated disaster does not translate into an ability to change strategy or learn from errors. Garton Ash points to the strange fact that the failure to build a viable state structure in Iraq is a kind of mirror image of the governmental and constitutional crisis within the American leadership circles themselves, hampered by, he notes, the disproportionate influence of lobbyists and funders, and an absurdly dysfunctional election timetable. One senior military officer, Garton Ash reported, has compared the malfunctioning of the US government to that of the Hapsburg empire as it staggered into the First World War, an event from which, of course, it never recovered.

Corinna Lotz
AWTW secretary