ConDem con trick can't disguise inequality growth

The ConDems claim that pay for most rose faster than prices in the year to April 2013 is a con trick that cannot disguise a rapid growth in inequality of household incomes since 2008. And with another credit-fuelled frenzy under way, a second crash is much more likely than a “sustainable recovery”.   

First, while the figures rolled out by the government take account of tax cuts for those in work, they omit the benefit reductions suffered by millions of people as a result of austerity attacks on welfare. Secondly, since April last year, energy and transport costs have soared while incomes have remained static.

All in all, most people are much worse off than they were before the recession kicked in after the banks went belly up.

More potent and revealing figures are those relating to crime, which were published yesterday. Police records show a 4% rise in shoplifting and a 7% rise in “theft from the person”, such as snatching expensive mobile phones from passers-by. Nick Gargan, chief constable of Avon and Somerset Constabulary, told the Financial Times that police leaders were starting to talk about an “austerity bulge” in crime figures.

“We are seeing a ramping-up effect as the cuts take hold,” Gargan said. The rise in shoplifting came in more than two-thirds of the UK’s 43 police force areas, with the biggest increases in the West Midlands, Merseyside, and West Yorkshire. The British Retail Consortium said thefts from shops were 26% higher than the annual average.

The numbers arrested are overwhelming local forces. Chris Mould, executive chairman of the Trussell Trust, which last year handed out more than 700,000 food parcels from its network of foodbanks across the country, said that in Islington police had given vouchers to some shoplifters who were obviously not criminals, just in desperate need.  

In the last three months police in Byker, east Newcastle, stopped 26 first-time offenders, compared with five the previous year. Twenty of the first-time shoplifters were female and 11 of the 26 incidents were low-value, food-related thefts. Another indication of growing desperation was shown by scuffles this week between shoppers and police at a 99p store in North Wales when it scrapped its half-price sale

Lancashire chief constable, Steve Finnigan, said there was a rise in the theft of basic food items, such as bread, milk and cheese. "The offenders are first-time offenders and, when you talk to them, they are not stealing food to sell on; they say they are stealing to feed themselves" he says. "In my own force we have seen an increase in shoplifters who are first-time offenders and say they are doing it to put some food on the table."

“People are struggling for all sorts of reasons,” Mould said. “Hunger in Britain is a really serious problem and it’s affecting large numbers of people. Thirteen million people at least are in poverty, according to the government’s own statistics, which is defined as people on 60 per cent or less of the average income. And that average income is getting lower, so it’s 60 per cent of something that’s getting worse, while the cost of basics such as food, ­power and, increasingly, housing is rising.”

All sorts of people are warning about a coming social explosion. The police themselves are getting tooled up. This week they asked home secretary Theresa May to authorise the use of water cannon arising from “ongoing and potential future austerity measures”. The sinister Association of Chief Police Officers, as guardians of state power, are pressing their case. May has yet to respond.

Even in Davos, at the annual meeting of the transnational capitalist class, there was talk of the “wealth divide” as the elites acknowledged the fact that any “recovery” in output is founded on the vast quantities of money printed by the central banks since 2008. 

As the Observer’s Will Hutton, notes, the “inequality that drove the last crash is even greater now and, ominously, the same forces are abroad again”. While it’s not apparent to Hutton, creating a more equal Britain now patently requires a more equal, democratic society beyond capitalism, where resources are held socially and used for the common good.

Paul Feldman

Communications editor

Capitalism - guilty as charged!

It is rare enough for anyone on the voice-of-the-establishment BBC to even mention the ‘C’ word let alone devote a whole programme to it. Even rarer then for it to broadcast a two-parter entitled “Capitalism on Trial”.

Reality will out, however, because the evidence that this is a crisis of the system as a whole is piling up, hour by hour.

Today, Italy’s debt was further downgraded. Yesterday, frantic discussions over the worsening Greek-focussed Eurozone crisis led to a postponement of the country’s aid package.

The reason? European banks are in no position to cope with an inevitable Greek default. So they are going to have to be bailed-out in advance! In the meantime, a new credit crunch is gripping financial markets.

Consumer spending has slumped, with incomes slashed by inflation, unemployment and short-time working. Sales of petrol in the UK, for example, have fallen by 15% since 2008.

Hosted by former Tory Michael Portillo, who admitted having a small part in the early 1986 Big Bang deregulation of the financial markets by the Thatcher regime, the programme gave air-time to a handful of the BBC’s favourite commentators.

Its own Robert Peston, the FT’s Gillian Tett, and the ever-lugubrious Will Hutton were among those offering a variety of defences of the crisis-ridden system, accompanied by those in favour of state intervention and others who would prefer to see “creative destruction” allowed free rein. Even the Socialist Workers Party’s Alex Callinicos got a look-in, drawing attention to Marx’s discovery of the tendency of the rate of profit to fall – the system’s most fundamental flaw.

But it was Peruvian economist Hernando de Soto who got closest to the heart of the problem, explaining the necessity of current attempts to reconnect the stratospheric book values of financial assets that were set free by the Big Bang to the real value-producing components of the global economy.

When the 30 years of deregulation driven on by the expanding needs of globalising manufacturing corporations stretched the credit system to breaking point in 2007/8, the requirement outlined by de Soto became unpostponable.

On the sidelines, the Coalition’s George Osborne’s rabbit out of a hat of “new” credit for small businesses is more confidence trick than conference trick. It finds him floundering against the stream of more wildly radical would-be policy makers who are calling for bank and mortgage debts to be wiped out by 50-100% “haircuts”, so that consumers can be freed to start spending again.

Portillo’s programme ended with a serious challenge – the system may be in crisis, but as yet nobody, he suggested, has come up with a well-defined replacement.

It’s a test that cannot be ignored and must be taken up by the crowds of people assembling in city centres across the planet. How can we extend the multitude of not-for-profit, democratically-controlled, worker and consumer co-operatives to the rest of society?

How do we bring the corporations and financial centres under social, common, democratic control? What bits of the old system can prove useful and what should be discarded (eg hedge funds, stock markets)?

We have to aim to go beyond resistance, beyond protest and pressure, beyond strikes and even occupations to actually challenge and remove the system’s grip on people’s lives and futures.

There is a need to contest political, state power itself because that’s how the system is held together. Creating new democratic forms like people’s assemblies, we shoud bring them to the point of challenging and replacing the old order.

That has to be the focus of the growing occupations of places like Wall Street (where trade unionists will join today’s march) and plans for similar actions worldwide on October 15.

Capitalism has had its “trial” and been found guilty as charged.

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

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