FT turns to Lenin in desperation

Mark Carney isn’t due to move from being governor of the Bank of Canada to governor of the Bank of England until next July. But the intensity of the global economic crisis is so severe that policy makers can’t wait that long.

Chancellor George Osborne, who tempted him here, and the other beleaguered leaders of the capitalist world are prepared to discuss Carney’s ideas and put them into effect as soon as possible – preferably before the likely effects begin to be appreciated by those who’ll suffer the consequences.

Since the global crash in 2007/8, the top financial and economic brains in the world have tried everything they know to bring about a recovery. The shock of seeing the sudden shutdown of the credit markets bringing world trade to a virtual standstill after the decision to abandon Lehman Brothers prompted emergency action.

Governments encouraged central banks to pour trillions of every currency into the world’s financial institutions and, it must be admitted, the treatment had an effect. The patient’s heart was restarted. But capitalism has been on life-support ever since. The system has drawn its energy from the millions suffering the effects of “austerity” – soaring unemployment, falling incomes, smashed up pensions, wrecked health and social care.

Interest rates offered by central banks have been held at historic lows for years now, hovering just above zero – but below inflation, so negative in real terms. Low rates paid to savers mean the few people lucky enough to have any, have seen the income from their savings decline. The majority with debts to service find above inflation rates charged driving them further into poverty. It’s a deliberate policy called “financial repression”.

So what’s Carney’s big idea, and why is it so attractive? Does it really amount to a revolution as the Financial Times suggests?

Put simply, Carney says that its time to turn the attention from keeping inflation at bay to a more positive focus on promoting growth. The new target should be based on “nominal gross domestic product” – which brings growth and inflation together in a single figure.

It’s a way of convincing themselves that governments and their central banks can turn their attention from just rescuing the financial system to “prioritising growth”, by which they mean furthering the interests of the global corporations. It’s a refrain shared by the newly-elected centre-right government of Japan, led by prime minister Shinzo Abe.

But Carney and friends fail to understand that whatever the subjective intentions of the central bankers, or anyone else wishing for a “return to growth”, the objective conditions of the capitalist economy are what determines their actions. After several decades of growth stretched way beyond its natural limits by the deregulation of the credit system, the crash simply announced that the only way is down.

As the capitalist tide ebbs away, it continues to exposes the desperate measures taken to sustain profits, whilst millions suffer. UBS has joined Barclays in paying fines to the regulators for fixing LIBOR – the world price of financial contracts – so that it favoured them and their clients. As the regulators summed it up: “They manipulated UBS’s submissions in order to benefit their own positions and to protect UBS’s reputation, showing a total disregard for the millions of market participants around the world who were also affected.”

No surprise there.

In its article on Carney, the Financial Times actually quotes Lenin’s famous dictum that “a revolution is impossible without a revolutionary situation” to try to stand up their story. The situation is indeed pregnant with revolutionary possibilities – but not as the FT means. 

In December 1917, Lenin drafted a decree for attention of the revolutionary government. It called for joint-stock companies and the banks to be taken into social ownership. Something to consider over the holidays.

Gerry Gold

Economics editor

The capitalist leopard cannot change its spots

The dreaded “C” word is making its reappearance as commentators and economists alike openly question whether it’s capitalism as a system that’s in the mire rather than merely the banks or the euro.

When even the BBC is asking pundits whether “Western capitalism” has failed the day after large-scale falls on share markets, you know something is up.

And when Will Hutton, the former editor of The Observer and well-known reformer, says that “the way capitalism has been conceived and practised for the last 30 years has hit the buffers”, things must be really bad.

Others who earn their living directly from the system, like economist George Magnus who is senior adviser to highly-troubled Swiss investment bank UBS, are more explicit, writing recently:

It is a crisis of capitalism because our economic model and policy settings cannot produce sustainable growth, adequate income formation or employment creation. We have lost the housing, financial services and credit creation growth drivers and been left with excessive levels of personal and government debt to unwind, a dysfunctional financial system, and weak labour markets.

The capacity to produce and sell goods and services has outstripped that of consumers to borrow and spend. Without credit and jobs, other fault lines have been exposed, including the long stagnation of real wages and extremes of inequality. It is truly a crisis of aggregate demand.

While the acknowledgement that there is something fundamentally wrong with the present system of production and exchange, aka capitalism, is welcome, that’s as far it goes. Magnus, like Hutton, believes that the system can be reformed through intervention. Hutton advocates what he calls “good capitalism” brought into being by the actions of “democratic government” with the alternative being the “worst economic contraction for a century”.

A leopard cannot change its spots, however. And nor can capitalism. The globalisation process that accelerated following the breakdown of what now seems to Hutton and company a more reasonable, post-war capitalism cannot be put into reverse. Not by governments, not by the European Central Bank or the International Monetary Fund or the World Bank. And certainly not by Cameron, Obama, Merkel, Sarkozy et al.

Inherent contradictions of capitalism drove the transition from a managed economy to transnational corporations more powerful than national states and a global financial system to fund the expansion that accompanied huge increases in productivity.

The driving down of wages as a share of national income is well documented as capital expanded, moving production to cheaper labour areas, undermining local trade union bargaining power. So too is the fact that capitalism in the developed countries was no longer able to provide full employment as the technological revolution kicked in.

Yet the goods produced had to be sold to realise the profit they contained. And if workers couldn’t buy them out of earnings and savings, why endless credit would do the trick. And so it came to pass that the world was flooded with credit and debt, and that endless growth was here to stay (no matter if it destroyed the planet in the process).

Governments deregulated everything that moved and privatised what they could. The financial system went into an orbit where money seemed to create even more money.

No longer did we live under capitalism, New Labour told us. A paradigm shift had occurred.

Well, yes it had. But it was not the pain-free paradise that everyone was promised. Behind the spending frenzy was the slow-burn of the explosion of the very system of production and finance that New Labour and others had Merlin-like magicked out of existence.

There is no mystery about the solution. A system of production that is driven by co-operation has to replace the profit drive. The means of production already exist that can satisfy most human needs. Their ownership and control is simply in the wrong, shareholding hands.

The political class, experts and assorted advisors have no answers, not least because the crisis has spun out of control, driven by a self-generated momentum. Social, revolutionary change to put capitalism out of business is down to us.

Paul Feldman

Communications editor

Out of control

Some people you meet have a touching faith in global capitalism, although they would never put it like that. They believe that the authorities are more or less always in control of affairs and they will always be able to “manage the crisis” to avoid disaster. The assumptions behind this are that a) capitalism is a rational system that follows a predictable logic b) they have all the answers up their sleeves. Of course, if you add a) and b) together, there is no chance of challenging, let alone defeating, the economic system.

This viewpoint is found not just in universities but among militant trade unionists too. They prefer not to talk about the current economic crisis because they believe it is a passing phase, which the authorities are getting a grip on. So in the end, both the academic and the trade unionist can carry on with their present activities. One can continue to write impenetrable texts which neverthless advance careers, while the other can still focus on industrial issues or speak demogogically at meetings, ignoring the economic crisis altogether but still sounding miitant.

In reality, the financial authorities only wish they had as much control and power as they are ascribed! They know better than their opponents that capitalism is far from a rational, organised system. Production is carried out by private corporations operating purely to maximise profit. Commodities are turned out without firms knowing for certain whether goods will actually be sold because this is subject to the whims of the market. Reliance on credit, especially in the sphere of consumption, adds to this uncertainty and leads to overproduction in a world of scarcity. Subjective factors like confidence and trust are essential aspects of capitalist economic activity which no one “manages”.

Taken together, these diverse aspects of the capitalist system come together to constitute an objective process, a level of reality that has always been beyond conscious control and is more so in the present period of globalised economy where borders and national government policies are disgregarded by powerful economic and financial forces. None of ths is hot news. In 1848, Marx and Engels in the Communist Manifesto compared modern bourgeois society to “the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells”. They wrote of crises of productive forces that become too powerful for private ownership to handle and as a result “bring disorder into the whole of bourgeois society” leading to “enforced destruction of a mass of productive forces”. Sounds familiar?

But let’s not take Marx and Engels as the sole authority. Fast forwarding to April 2008, those in the know say something quite similar. Take George Magnus, senior economics advisor to investment bank UBS. He has warned that “there is a quite serious risk that the de-leveraging downturn could run amok: credit contraction causes economic contraction, which causes further write-downs and capital destruction, which leads to more credit contraction and so on”.

Magnus has also said that what the central banks are doing is just “firefighting” and that if the banks don't want to lend, no amount of extra liquidity is ultimately going to help. He should know about the crisis. UBS this week announced a $19 billion writedown in assets, to go with $18 billion losses revealed earlier this year. UBS is now top of the global mortgage writedown chart.

Yesterday, First Direct becamethe first UK major mortgage lender to close its doors to new customers. The bank - one of the country's top 20 home loan providers - gave only five hours' notice. The move came as figures showed that more than 90 mortgage products a day have been scrapped over the past week as lenders put the shutters down. Oh yes, they are really “managing the crisis”!

Paul Feldman
AWTW communications editor