UK heads for recession as '1930s moment' nears

Greek debt is but one black hole among many in the eurozone crisis which threatens to tip the world into a ‘1930’s moment’ according to IMF managing director Christine Lagarde. But the problems facing global capitalism are far deeper.

Even Lagarde had to acknowledge that there is “little margin for manoeuvre” and that the real problem is "America's debt and deficit - the lack of a medium-term plan to reduce it”. Even that doesn’t begin to get to the heart of the matter.

Only yesterday the worst-case expectation was that the UK’s Gross Domestic Product – the key measure of growth - fell by 0.1% between October and December. But today’s official figure from the Office for National Statistics reveals that the UK economy actually shrank by 0.2% in the last quarter of 2011, and is heading for recession.

Accumulated UK government debt broke through the £1 trillion mark as a dual consequence of falling tax revenues, continued support for the financial sector and higher welfare bills as a result of soaring unemployment.

Despite the ConDem’s stated intention to reduce the country’s dependence on debt, its combined corporate, public and household debt has increased to 507% of GDP and the country remains where it was in the league table of the richer nations when the crisis broke in 2007/8 – right at the top.

Despite all the evidence, there are some like governor of the Bank of England Mervyn King, who try to present even the darkest of messages in a glowing halo of hope for the future of the capitalist society.

He said: “All crises come to an end, and businesses will find ways to trade with each other and meet the needs of consumers whatever the transitional problems posed by deleveraging.” Of how and why this might happen he gave no sign, making his message rather mystical in content.

Oliver Blanchard, the International Monetary Fund’s chief economist also tried to package his warning that Europe's debt crisis could tip the world economy into recession with the faintest hint of a rosy future "With the right set of measures, the worst can definitively be avoided and the recovery can be put back on track," he said. "These measures can be taken, need to be taken, and need to be taken urgently."

Only the first indications of the impact of these ‘measures’ have been seen so far in the millions of dispossessed American families, and hundreds of millions thrown out of their jobs worldwide.

But there are some who are, however reluctantly, coming to the conclusion that the game is up. In a wide-ranging article inspired by the Financial Times ‘capitalism in crisis’ series, its senior commentator Martin Wolf reviews the defining characteristics of civilisation.

Taking in the insolubility of the crisis of extreme financial instability, the prospect of a global economic collapse, the impact of humanity on the planet, and the role of leadership, he observes that states alone are now unable to supply the ‘public goods’ of education, health, control of crime and pollution.

“Ours is an ever more global civilisation that demands the provision of a wide range of public goods. The states on which humanity depends to provide these goods, from security to management of climate, are unpopular, overstretched and at odds. We need to think about how to manage such a world. It is going to take extraordinary creativity.”

Wolf doesn’t offer a solution, because the only ones available within the framework of capitalist civilisation are too brutal and unacceptable to liberal thinkers like him.

It is time to open a new era, based upon co-operation in a democratically-controlled, ecologically restorative system of production and distribution designed to satisfy the needs of the 99%.

Gerry Gold
Economics editor
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Revolt heading your way sometime soon

When the wave of revolutions and resistance reaches Europe from North Africa and the Middle East, as it surely will, what happens in Britain depends on how we prepare for the eventuality.

The Coalition government is clearly in some disarray and its longevity is unpredictable. A crisis government from the off, and one without a mandate for most of its policies, it is even incapable of organising the repatriation of its citizens from Libya in a timely fashion.

Prime minister Cameron was too busy boosting arms sales to sheikdoms while foreign secretary Hague was preening himself for his trip to Washington (now cancelled). They are self-evidently political lightweights in an increasingly heavy situation, with Nick Clegg more like a tailor’s dummy than a deputy prime minister.

Now the economic crisis has taken a turn for the worse, with the release of figures today showing that the contraction in the economy in the fourth quarter of 2010 was sharper than at first thought.

It can only get worse as public spending cuts made in a desperate attempt deal with the gargantuan budget deficit take their toll. Councils all over Britain are reducing their workforces and services, led in the cities by Labour-controlled authorities.

Households are on living on a knife edge. Families' disposable income dived by a record £9 a week during January as inflation continued to outstrip wage growth, research by supermarket giant Asda shows.

The average family had £174 a week left to spend after meeting all of their essential outgoings, down from £183 a week in January last year. It was the 13th consecutive month during which people suffered a year-on-year fall in their disposable income, well before the last election.

Rising prices outstripped wage increases and it’s only the start. The research does not take account of last month’s VAT rise, while gas, electricity and petrol prices will continue to rise, driven in part by the revolts in the Middle East. The Bank of England is considering interest rate rises that could prove the final straw for people with mortgages.

With a million young people are out of work, record numbers of people working part-time and, according to the TUC, doing unpaid overtime to keep their jobs – 5.26 million workers are missing out on almost £5,500 a year – the conditions for a social explosion are rapidly maturing.

At that point, the obvious political options are extremely limited (and even dangerous).

Labour is committed to the same market capitalism that led to the present crisis, while its own policies on tuition fees, business involvement in the NHS and academy schools led to a Cameron-Clegg government. Green MP Caroline Lucas today described Coalition policies are the “logical conclusion” of Labour’s. It’s hard to disagree with her.

Add in a parliamentary system which is a sham and a façade behind which corporate power is exercised, you can see there is a problem. It’s not free speech or the right to vote that is the issue, either in Britain (and now not in countries like Egypt either). It’s about who owns and controls the country’s resources and for what purpose.

The global economic crisis is so deep that one-off taxes on the banks and attacks on corporate tax-dodgers, the TUC’s policies for the March 26 anti-government demonstration, come nowhere near a solution.

Capitalism isn’t working and it isn’t sustainable. Trying to fix it or make the banks and corporations change their spots is futile. The preparation we need to make can be not limited to simply challenging existing economic and political power but directed towards actually taking it out of their hands altogether. And that will require leadership, organisation and a revolutionary strategy.

Paul Feldman

Communications editor

Workers must sacrifice so capitalists can profit

The Governor of the Bank of England, Mervyn King has assured us that unemployment will rise and the value of wages will fall as inflation lets rip, leading to the most dramatic assault on living standards since the 1920s.

What’s more, you’ll be pleased to know, it’s absolutely necessary. This is the price we are obliged to pay, says King, to smooth the path to growth and economic recovery.

In actuality, it’s the consequence of failed to attempts to stave off the deepening recession and confirms that they don’t have a clue what to do, apart from the usual capitalist remedy of increasing exploitation and the share of national wealth that goes to the ruling classes.

It’s a similar story across the Atlantic as the rate of repossessions accelerates, driving millions of families from their homes and unemployment touches 10%. President Obama used his annual State of the Union address to warn that the US must mobilise to meet the “mortal threat of foreign competition from China and India”.

He is proposing to reduce government spending to the lowest share of the US economy since the1950s. Despite renewed attempts to rehabilitate the policies of Keynes – who favoured higher spending in a recession – the crash of 2007-8 means that, for capitalism, the era of high levels of government spending is over.

Are these programmes of slashing cuts “ideological”? Yes indeed, they manifest the ideology of those whose job it is to sustain a society devoted to profit at the expense of the majority of people on the planet, and the planet itself.

Throughout the relatively short period in which capitalist production spread across the world, its inner dynamic forced its human agents to find ways to counteract the relentless tendency for the rate of profit to fall.

Investing in technology to increase productivity is one. Forcing wages down another. Together they lead to increases in productive capacity and the volume of goods and services. They call it “growth”.

Pretty soon production expands beyond the available marketplace of consumers. And then credit comes into play, stretching things beyond their “natural” limits - for a while. Then comes the crash. Surplus productive capacity is eliminated, and the process starts up, once again.

This time there’s a difference.

The period of growth called “globalisation” consumed the world’s natural resources at an exponential rate. Corporations spread production throughout the world by recklessly burning fossil fuels, unlocking energy and releasing it into the atmosphere and so intensifying weather patterns.

Early snow in Britain helped to reduce national output by an estimated 0.5% in the last three months of 2010. Floods in Pakistan and Queensland, Australia wiped out crops. Nature mocked capital as the floodwaters wrecked the extraction of coal.

But capital’s human agents are blind to these effects. They are tied into the historic logic of profit from which they cannot escape. Sir Richard Lambert, outgoing chief of the Confederation of British Industry accused the Coalition of having no strategy for growth.

But the Cameron-Clegg branch better reflects the needs of capital at this point in history. They are hell-bent on cutting the deficit, reducing capacity, shrinking incomes, eliminating jobs and services – every action aimed at facilitating the contraction without which “recovery” is impossible.

Rather than allow the destruction of the valuable results of a couple of centuries of human endeavour, it falls to the rest of us to bring the destructive system to an end before it threatens to end the conditions for life on the planet.

In the process of building a global network of people’s assemblies we can establish democratic stewardship of the world’s resources, utilising and advancing the science and technology for sustainable production, and setting ourselves the task of converting it to satisfy the needs of the majority.

Gerry Gold
Economics editor