Our sham democracy needs replacing - and soon

If you are looking around for arguments that boost the case for creating a real political and economic democracy in place of the sham one we live under, then this week has seen them piled one on top of the other.

How about the inability of MPs on the Commons public accounts committee (PAC) to get to grips with the failure of global corporations operating in Britain to pay tax on their profits? Senior executives from Amazon, Starbucks and Google were accused of secretly hiding their profits in tax havens when they appeared before MPs.

MPs admitted that a director from Amazon was “deliberately evasive” about the company’s operations. And when a Starbucks executive told MPs that the coffee chain made no profits in Britain, MPs found the story too incredible for words.

Ultimately, however, PAC members were up against the law. Google operates in Ireland and Bermuda because they offer attractive tax rates. "Like any company you play by the rules [and] manage costs efficiently to offer fair value to shareholders," said executive Matt Brittin.

In response to that, all Margaret Hodge, the PAC chair, could do was to accuse the corporations of “immoral behaviour”. But there’s no morality and certainly no democracy involved here. The bottom line is all that counts. The state created the rules to benefit global corporations and these are what they play by.

Here are two more examples from today that add to the case for change. The same PAC was back in action this morning, reporting that taxpayers were unlikely to get back any of the £66 billion spent on shares in the Royal Bank of Scotland and Lloyds when they were bailed out four years ago.

That’s the equivalent of about a year’s spending on education by local authorities who have been ordered to cut their budgets by 25%. So the taxpayer is left with a load of worthless shares while the bankers continue to pay out record bonuses to themselves. Nice.

Finally, there’s the record low turn-out for the elections for police commissioners which were held yesterday. Clearly, the vast majority of voters find participation in such elections a waste of time. And they are right. There are already local police authorities that are made up of assorted councillors and others. Why add another tier of bureaucracy?

When you add to this the imposition of the burden of the economic crisis – a crisis they did not create – on the backs of ordinary working people, you have to conclude that the current system is “undemocratic and unjust”.

This truth, contained in the initial statement adopted by the Occupy London general assembly at St Paul’s a year ago, embraces all the institutions of rule that make up the British state/political system.

The evidence is that that this system of rule favours the 1% in a variety of ways and actions and, therefore, cannot be considered democratic in the true sense and meaning of the term. Virtually every element of the establishment is now seen as exposed and corrupt. People are searching for alternatives and answers.

We should not accept that this state/political system is the end of history in so far as the story of democracy is concerned. The time is right historically to consider what a real democracy would and could look like.

To this end, we appeal to all those who support democratic change to work together to develop an Agreement of the People for the 21st century in the spirit of the Levellers who fought for democracy during the English Revolution of the 1640s.

A new Agreement should form the basis of a new constitutional settlement that favours the presently powerless majority. It should propose new forms of democratic decision-making that go beyond representation.

Seven organisations are supporting the project to create and fight for a new Agreement of the People which gets under way in London tomorrow. Be there if you can.

Paul Feldman

Communications editor

Turn anger over RBS bonus into action

The palpable anger over the £963,000 bonus in shares awarded to state-owned Royal Bank of Scotland chief executive Stephen Hester has to turn into some direct political and industrial action if society is to see an end to this kind of obscenity.

Hester is effectively a public servant, as 81% of the shares are owned by the state following a bail-out of the bank by the previous New Labour government. Since he took over as CEO in November 2008, RBS has sacked 33,000 staff.

The aim, as always with a capitalist concern, was to shed staff in a bid to return the bank to profitability. This Hester has done with the blessing of both the ConDem coalition and the Brown government that preceded it.

The mistake some people have made is to think that because the state owns a bank or two they would be run along different lines, perhaps more ethically or fairly. But the state nationalised the banks to prevent a collapse of the entire financial system – not to set up an alternative banking network.

The banks were allowed, nay encouraged, to continue along their usual profit-driven path. Recently-sold Northern Rock, for example, went about repossessing people who were behind with their mortgages and calling in loans while state owned.

As one of hundreds of angry comments on the BBC news website noted: “This is interesting, we own 81% of RBS and still the government and board of this bank show nothing but contempt for the general public and small business. RBS are about to repossess my brothers house for approx the same amount and close his building company putting people out of work and on the dole. Can anyone explain this madness?”

What is “madness” to some is sanity to others who hold the reins of a state that to all intents and purposes is a plaything of economic and financial elites. They call the shots – and not the government. Or as another sharp comment put it: “It's another sign the politicians aren't running the country, or at least not for the people. Their bonus is the cushy job their friends in finance offer them when they quit parliament.”

Robert Peston, the BBC commentator who broke the Northern Rock debacle, says he was “reliably told” that had the government blocked Hester’s bonus, it would have triggered mass resignation from the RBS board and the CEO’s departure. This financial blackmail clearly worked. Only a junior LibDem minister has demanded that Hester rejects the bonus – elsewhere there is silence.
So there you have it – the state is an extended arm of business. That has been the case since the modern state was formed in the early 19th century to facilitate the development of capitalism in Britain. For a period, this role was disguised by consensus politics, a welfare state, full employment and trade union rights.

The globalisation process produced transnational corporations and global financial institutions that more openly wagged the tail of the state. One consequence is that large numbers of people believe that traditional politics is corrupt, unrepresentative, undemocratic and a waste of time.

They are right. The state needs deconstructing and rebuilding with people’s assemblies and the like to create a real, functioning democracy.

Trade union leaders have reacted with outrage at the bonus for Hester, whose basic salary is £1.2 million a year. David Fleming, the Unite national officer, said: "What planet does Stephen Hester and his banking chums live on? Taking almost £1m from taxpayers' pockets as a bonus is utterly disgusting and offensive to every working person across the country.” Paul Kenny, the general secretary of the GMB union, said: "A bonus of nearly a million pounds looks to ordinary people like he has won the lottery – with a ticket they paid for.”

Public sector workers, by contrast, are facing a pay cut as a result of the government’s 1% pay limit (backed by Labour). If the union leaders are to be taken seriously about their desire to remedy gross inequality, they ought to be organising indefinite strikes against the pay limit (and pension cuts) with the aim of bringing down the ConDems. Otherwise it’s all hot air.

Paul Feldman
Communications editor

Markets bleeding Ireland dry

“International investors”, better known as the hedge funds and other financiers who gamble and speculate with other people’s money, are queuing up to turn the screws hard on the beleaguered Irish government.

Deep in slump, Ireland is obliged to borrow more money to service the additional loans it incurred in its €33 billion bank bailout. Like many countries, the crash and ensuing recession has substantially reduced its tax income. So Ireland is forced to sell more and more government securities, known as bonds, on the money markets.

But it’s the markets that determine the “yield” – the interest rates that the government will have to pay. And because Ireland is currently rated the sixth-riskiest national borrower in the world, just ahead of Portugal and Iraq, they are insisting on increasingly punitive borrowing rates that the Irish people will be made to pay for in one way or another.

Yesterday, Ireland sold €1bn of securities due for redemption in 2018 at a yield of 6.023 per cent, up from 5.088 per cent in June, the National Treasury Management Agency in Dublin said. It also sold €500m of 2014 debt at an average yield of 4.767 per cent, compared with 3.627 per cent at an auction in August. The cost of 10 year debt fell slightly but remains close to 4 per cent higher than that paid for German bonds –regarded as the safest in the eurozone.

Meanwhile, across the Irish Channel, the amount of new public sector borrowing in Britain, hit £15.9bn for August, a record for that month, as the Coalition government ratcheted up its warnings of the severity of the cuts to be announced in October. The UK overtook Japan to become the world’s most indebted country in 2007. Its interest payments were £3.8bn in August - almost three times the £1.3bn it paid last year.

There can be no doubt that the market traders have more than an eye on the prospects for the mythical global recovery, since it is that, as well as governments’ determination to implement brutal cuts, that will determine their ability to service the mounting debt.

So the latest statistics from the Organisation for Economic Co-operation and Development (OECD) the club of 33 rich, developed countries will have set the red lights flashing on traders’ screens around the world. According to the OECD’s composite leading indicators, measures designed to indicate a turning point in a country’s economy, the effect of the massive panic interventions to reverse the effect of the global financial meltdown of 2007-8 peaked earlier this year. “The pace of economic expansion is waning”, as they put it. The “recovery”, such as it was, appears to be over.

The news will have delivered a sharp shock to the ConDem government which based its June Budget on the IMF’s return to growth prediction of 2.7% for 2010 and 2011. They’ll be busy re-aiming their cuts towards the worst case 40% aired during the spending review.

These are the objective forces at work in the global economy. The autumn hurricane of capitalist debt is certain to overwhelm the puny campaigns of resistance being talked up by trade union leaders. Effective opposition has to set its sights on replacing the capitalist system of finance and production before a second stage of the meltdown plunges the world into outright Depression.

By creating a network of People’s Assemblies, we could initiate a programme of closure of the speculative financial markets, repudiation of unrepayable debt, and replacing banks with not-for-profit, socially-owned co-operative banks, credit unions and building societies. That would open the prospects of socialising the assets of the manufacturing corporations and the creation of an alternative, sustainable economic system.

Gerry Gold
Economics editor

Banks a millstone round society's neck

Nine million people in the UK don’t have access to credit from banks, so have no choice but to use rip-off lenders. The cost of a £100 loan with a company such as Provident Financial can be £49.50 – nearly 50% of the amount borrowed, or an APR of 545.2%.

A loan from a payday lender costs even more; to borrow £100, lenders charge £25 for one month – an annual percentage rate of nearly 1,300%. These lenders charge whatever they want – the sky is the limit, according to a new report from the New Economics Foundation (NEF) launched today.

Two thousand people from more than 150 civil society organisations will gather at the Barbican Centre in the City of London this evening to call for a cap on interest rates and the extension of the London “living wage” (a paltry £7.60 an hour). Concerned at the impact of the financial crisis on ordinary people, the capital’s largest civic alliance is calling for the measures in order to “soften the impact” of the financial crisis.

Among those responding to the five-point call by London Citizens will be politicians from the main parties (Stephen Timms, New Labour's Financial Secretary to the Treasury, Greg Hands, Tory Shadow Treasury Minister, Vince Cable, Lib Dems, Shadow Chancellor of the Exchequer), representatives of leading financiers (the British Bankers’ Association, the Corporation of London, Barclays, KPMG) and bodies such as Fair Finance and moneysavingexpert.com.

The NEF study by Veronika Thiel reveals that three million UK households pay hundreds of thousands to “legal loan sharks” because of lack of access to credit from banks. London Citizens and NEF argue that the UK should follow the example of major European countries and introduce a 20% cap on the cost of lending by financial institutions, thus making borrowing at interest rates of 50% or 500% illegal.

“Despite historically low interest rates and a massive taxpayer bailout of the banks, ordinary people across London have been forced into the hands of legal loan sharks in order to gain access to credit,” says Paul Regan, London Citizens trustee. “It’s time to restore responsibility.”

When was this golden age of “responsibility” to which we should return, you may ask? Forget about loans sharks for a moment, who have existed since time immemorial. Mainstream bankers do not hesitate to repossess homeowners behind with their mortgages, refuse small businesses vital bridging loans, impose harsh penalties on those who stray into overdraft territory, sack their staff, speculate with other people’s money and generally act as a millstone around society’s neck.

The state’s “responsibility” is to the bankers and whatever cosmetic changes may be promised in relation to loan sharks, that won’t change. In fact, it’s about to get a whole lot worse as politicians of all parties busy themselves preparing plans for an historically unprecedented assault on public expenditure.

Only hours before the London meeting more evidence of New Labour’s real priorities was revealed. One year ago, at the direst moment of the financial meltdown they approved £61.6bn in emergency funds to the Royal Bank of Scotland and HBOS. The banks and the authorities decided to keep the operation secret. Alistair Darling, chancellor, said he had shared the Bank’s assessment that disclosing details of the lending to the two banks “would seriously jeopardise the financial stability of the system as a whole”. There's clearly no lack of credit for the bankers.

London Citizens are well meaning in their bid to curb the loan sharks. But the system is broken and now is the time to ask the bigger questions: What exactly is the capitalist financial system for? What benefits, if any, does it bring to the majority of people? Why should it be bailed out? Why not close it down and start again on the basis of mutually-owned and run banks that serve society?

Gerry Gold

Economics editor

The mother of all bail-outs

In the run-up to the 2012 London Olympics, the New Labour government has put in a credible bid for victory in the financial events with the sums spent on bailing out the banks. The increasing size of the bail-outs shows one thing – the crisis is getting worse rather than better.

The Royal Bank of Scotland has so far received a world-record £53.5 billion since the onset of the crisis in 2007. That accounts for most of the total of £74 billion of taxpayers’ money the government has put into the banks, including Lloyds and HBOS, over the last two years.

The latest £25.5 billion for the RBS announced by Chancellor Darling yesterday is part of a second bank bail-out which adds up to nearly £40 billion, which is more than the amount handed over in 2008. The government is hoping this will keep the banks afloat whilst they tear themselves apart under direction from the EU’s competition commission.

The dismemberment of systemically important “too-big-too-fail”’ banks is a hot topic for the world’s financial community, but there is no agreement on a co-ordinated package of regulation and reform. Some want to return to the regime established in the wake of the 1929 crash which separated high-risk investment – gambling – from the relatively safer, but less profitable business of balancing deposits and lending.

Others, like the IMF, are busy trying to work out how to reduce the grossly unsustainable government deficits resulting from attempts to prevent global meltdown. All of the schemes under discussion concentrate their attention on repairs to the financial system. None of these can work however.

Martin Wolf, the Financial Times’ leading commentator puts it starkly: “It is idiotic to discuss the reduction of the huge fiscal deficits, without considering the nature of the offsetting adjustments in the private and external sectors.” What he implies is that the financial system can’t be fixed without either an “extremely perilous” return to credit-led growth.

Yesterday the Indian government gave its verdict on the health of the global economy. It swapped $6.7 billion of its US paper dollars for 200 tonnes of gold bullion put up for sale by the IMF. This is the latest and strongest indication that the Asian countries are moving away from a reliance on the declining dollar. India’s finance minister couldn’t have put his reasons clearer. He said the economies of the US and Europe have collapsed.

The contradictory movement of the tectonic plates of the capitalist financial and economic system is producing seismic shocks throughout the world. Even its most ardent defenders are losing faith in the possibility of a “solution” that is anything but an attempt to repeat the past.

Warren Buffet, the capitalist system’s most long-standing and successful investor of other people’s money has just bought a US railroad, in his biggest ever deal, describing it as “$an all-in wager on the future of the American economy”. Burlington Northern Santa Fe is a freight company. Its biggest cargo is coal for power stations. So much for concern about global warming.

Profit-motivated growth has brought us to an historical crossroads. The capitalist road leads to economic destruction, warfare and the collapse of life-support systems. If the historical process could speak to us directly, it would surely urge humanity to move forward to a co-operative social set-up where a financial system that serves only shareholders and speculators is put out of its misery and corporations that plunder the planet become the property of the people as a whole.

Gerry Gold
Economics editor

Banks show who rules Britain

So Alistair Darling is going to “get tough” with the banks over their lending rates. Don’t make me laugh! The fact is that the banks have simply stuck two fingers up to the government and let New Labour know that when it comes to real power, they are in charge.

After all, the banks have called the government’s bluff once and they know they can do it again. Since the autumn of 2007, when Northern Rock collapsed, the government has propped up the banks to the tune of £1.3 trillion– more than half the value of a whole year’s output of the entire economy.

The outcome? Closures and government-enforced mergers have left the banking sector dominated by just a few operators, who are using their monopoly position to charge exorbitant interest rates while rationing the scale of their loans to those in need like homeowners and small businesses.

The official bank rate is 0.5% yet according to a recent survey, the banks are often lending at between 4-5% in a desperate bid to rebuild their balance sheets at the expense of customers. Mortgage rates have seen the sharpest rise. Three months ago, the price of a typical two-year fixed mortgage was 4.65%. Now it's 5.17%.

Michelle Slade, of the financial information website Moneyfacts, said potential profit margins – the difference between what it costs a bank to borrow the money itself and what it charges its customers –are the highest ever on record. "Typically we would have seen a 0.8% margin on top of their product. Now we are seeing a 3.1% margin," said Ms Slade.

Behind the scenes, the banks are still not lending to each other for the simple reason that the real extent of toxic debt in the system is still a secret – especially from the government! What this clearly indicates is that another stage of the global financial meltdown is on the cards.

This could centre on credit card defaults, which has already hit major American banks. The International Monetary Fund estimates that 7% consumer debt in Europe will be lost, with much of that falling in the UK, the continent’s biggest nation of credit card borrowers. A UK national debtline says calls about debt arrears reached 41,000 in May – double the number it received in May 2008.

With millions of homeowners in negative equity, for example, the previous practice of remortgaging to pay off credit cards has disappeared. Banking analyst Sandy Chen says that the poorer sections of society are being hit hardest, with roughly half of UK households “facing negative cash flows, an inflationary environment and the combined threats of negative equity, difficulties in refinancing or remortgaging, and unemployment” while top earners are seeing their real incomes actually rise.

The bank bail-outs (which have signally failed to revive the financial system) and falling revenues from the economic recession have led to the spectre of state bankruptcy itself. Add in the political bankruptcy gripping Britain and you could see what a dangerous moment this is. It could conceivably produce a national coalition government to “save the nation” by imposing massive spending cuts and tax rises.

The price to try and save a failed capitalist economy and banking system is not worth paying. Far too much hard-earned taxpayers’ money has been wasted already. A more practical solution would be to bring the banks under public ownership and control without further compensation or bail-out payments. Then we could strip out the toxic debts and bury them somewhere deep in the ocean. Mortgage and credit card debts would be renegotiated or written off so that ordinary people did not suffer. In other words, we need to relaunch the entire banking system on a new footing, a task patently beyond the capacity of the bankers’ government, New Labour. Drastic? Too revolutionary? Got any other suggestions?

Paul Feldman
Communications editor

Plan B has to be co-ownership

When Gordon Brown announces that the “old idea that markets were by definition efficient” is over and that “laissez-faire” has “had its day”, you can see how the crisis of confidence in the capitalist system has pervaded the highest reaches of government and the state. What plan B is, however, is altogether another question. 

Brown’s interview with The Guardian, the semi-official government mouthpiece, reveals a prime minister and government who are floundering as economic and financial conditions deteriorate. 

Brown’s conversion on the road to Damascus will cut no ice with those who are victims of the very markets that he championed for so long such as the unemployed and the homeless. Increasing numbers of people feel betrayed by the political class and their cosy relationship with big business and financiers like Sir Fred Goodwin, knighted by Brown and now enjoying his big fat pension at the taxpayers’ expense. 

Detestation of the banking system is now showing itself in public opinion polls like the one in the Financial Times this week. It found sharp opposition to the government bailing out banks, insurers or car manufacturers. Barely a third – 36% – backed state aid for banks, while a fifth supported bail-outs for insurers. A survey carried out by the People’s Charter was even more damning. It showed that a staggering 87% of those questioned said the higher priority was projecting jobs rather than supporting banks or bankers, with only 9% backing New Labour’s bail-outs. 

As the economy slides into slump, and faith in the hidden hand of capitalist markets plummets, other less positive attitudes are coming to the surface. The same FT polls on bail-outs also indicated growing hostility to migrant workers without jobs.  

Now, you can always get the answer you want by asking the right sort of question, so the figures need to be treated with caution. Nevertheless, more than three-quarters – 78% – of British adults believe immigrants should be asked to leave the country if they do not have a job, according to the survey published on Monday. A majority also oppose European Union citizens working here, even though they have a legal right to do so. 

To a great extent, of course, New Labour is responsible for this result. They have relentlessly played the anti-immigration card to appease right-wing, middle-class Daily Mail readers and spent vast resources pursuing migrants without papers and constructing an electronic, impenetrable fence around Britain. And, infamously, the British Jobs for British Workers slogan that was taken up in the recent oil refinery strikes came from the mouth of the prime minister himself. Clearly, these are volatile times which extreme right parties like the BNP are beginning to exploit. 

Brown’s admission today that he might, have in retrospect, seen the seeds of today’s crisis when Asia sustained financial meltdown in the year New Labour came to power, will cut no ice. And the idea that there was a “wider intellectual failure” to understand what was happening in financial markets is also rubbish. Brown was, after all, chancellor for a decade and had spent years cultivating contacts in the City. The financial bubble that has burst was not exactly the first in history either. 

What we are experiencing today is not a failure of “laissez-faire” or markets. These are superficial aspects of an unsustainable economic system as a whole – and that is what is collapsing. The solution does not lie in some alternative, kinder, more regulated capitalism. That is fantasy land, especially when the global economy is on the point of disintegration. Our answer to both New Labour and the BNP lies in an altogether different direction, in an economy based on co-operation and co-ownership, not completion and private ownership for profit. 

Paul Feldman

AWTW communications editor

Behind the Royal Mail sell-off

As postal workers gather outside Parliament today to lobby the government over plans for a partial sell-off of the Royal Mail, as a prelude to mass redundancies, any lingering doubts they might have had about where New Labour’s priorities lie should be dispelled by reports of yet another bail-out of the banks.

The extra £500 billion in liabilities taxpayers are said to be facing to prop up RBS and Lloyds will take the state’s commitment to the insolvent banking system to a staggering £1.3 trillion (£1,300,000 million if it makes the total any easier to understand). That’s equivalent to the value of the British economy’s output for a whole year. 

Meanwhile, on the back of a paltry – by comparison - £5,900 million deficit in the Royal Mail’s pension fund, New Labour is planning to sell off part of the company to a transnational corporation. New investment will be undertaken at the price of “modernisation” of this nominally public service, resulting in large-scale job losses and price increases. The break-up of post office services is an indication of what is to come. 

That, at least, is the plan and it is entirely consistent with New Labour’s role in life. This is to use the capitalist state to create opportunities for global companies operating in Britain to extract maximum profits from working people. With the capitalist economy in freefall, new opportunities for profit-taking are most welcome by business and part-privatisation does just that. 

It is no use the Communication Workers Union leaders pussy-footing around in a futile bid to try and isolate business secretary Lord Mandelson, who is introducing the legislation in the House of Lords on Thursday. Prime minister Brown and the rest of the cabinet are equally behind the sell-off because they are unreservedly committed not just to the preservation of but also to the enhancement of corporate and financial interests. 

Yet the transfer of wealth from taxpayers to banks will not avert the slide into slump that is now taking place at a rapid pace on both sides of the Atlantic. In America, Citibank and AIG insurance are once more on the point of collapse. Wall Street has fallen back to 1997 levels. A new shock to the system is being prepared that will produce social outrage and upheaval in country after country. The massive anti-government demonstration in Dublin at the weekend – equivalent to a march in London of 1.5 million – is a sign of what’s coming up the line. 

That’s why Brown’s bovver boys – aka the Metropolitan Police – are letting it be known that they are preparing for a "summer of rage". Superintendent David Hartshorn, who heads the Metropolitan police's public order branch, said. "Obviously the downturn in the economy, unemployment, repossessions, changes that [public mood]. Suddenly there is the opportunity for people to mass protest. It means that where we would possibly look at certain events and say, 'yes there'll be a lot of people there, there'll be a lot of banner waving, but generally it will be peaceful', [now] we have to make sure these elements [“extremists”] don't come out and hijack that event and turn that into disorder." 

There are also reports that a secret police intelligence unit has been set up to spy on political groups, to mount surveillance and run informers on “domestic extremists”.  The unit is being set up by the unaccountable and secretive Association of Chief Police Officers (Acpo) and will be based at Scotland Yard. Acpo was instrumental in co-ordinating the attacks on miners during their 1984-5 strike. 

Postal workers should challenge their leaders to start from these realities and mount a real, militant campaign against the Royal Mail sell-off. They would find ready allies throughout the country if they were involved in action to defeat and bring down New Labour to defend their jobs and pensions.  Any other course is sure to reinforce the government’s determination to pursue its role as the agency of big business. 

Paul Feldman
AWTW communications editor

 

Corporations warn against bail-out risk

Massive government spending to support financial institutions in countries including the US, United Kingdom, France, Italy, Spain and Australia will significantly further damage the weakening global economy, especially if, as predicted, China suffers a sharp slowdown this year. Those are not my words but come from an organisation that speaks for the major global corporations.

The World Economic Forum (WEF) is deeply concerned about the prospects for 2009 and beyond – and it shows. Its new report, Global Risks 2009, highlights the interconnectedness of financial, economic, environmental, social and political risks.

The WEF’s real worry is that the political response is inappropriate and too short-term, thereby adding to the long-term consequences of the global economic and financial crisis. There are also warnings that the worsening crisis will have multiple adverse impacts on the environment, food security, health and political stability with dire consequences for the half of the world’s population already living in areas of high water stress.

In a reference to the countless billions thrown at the banking system – another $20 billion was handed over to the Bank of America last night while everyone was asleep – the WEF warns: “It is dangerous to address immediate concerns without remedying the root causes of the problem, or sowing the seeds of new ones whose impact will not be immediate but may be strongly felt at a later date.”

Adding to existing debt, the key to the rescue plans promoted by Gordon Brown and Barack Obama, will intensify the downward spiral, the report says. Global share values will be driven further below the already steep drop-off of more than 50% on average as massive selling floods the markets.

The report dismisses deflation as a “short-term risk” and then forecasts that state pump-priming to try and rescue the global economy can easily lead to rapidly rising prices and adds: “Economic history is littered with periods during which governments reduced their debt burden through inflation.” Are the authors referring to the Weimar Republic in Germany in the early 1920s, whose collapse created conditions for the Nazi Party to flourish? We don’t know.

The WEF’s warnings coincided with a severe deterioration in the credit ratings for Greece only days after it was placed “on watch” following weeks of unrest. In the past week the ratings agency S&P also reviewed ten other high-rated industrialised western countries, warning Ireland, Portugal and Spain that their ratings are under threat too. Thomas Mayer, chief European economist at Deutsche Bank, said: "The downgrade of Greece is a wake-up call to everyone that there is a price to pay for taking on big levels of debt."

Ironically constituted as a non-profit foundation, the WEF is the collective voice of the global corporations with more than 1,000 member companies, typically with a turnover of more than US$5 billion. Its annual meeting in Davos, Switzerland, is designed to set the agenda for the world’s political leaders who revel in the luxury and limelight offered by the glittering event.

The crisis has changed all that and the language of the risk report is intended to convey a deep concern, reinforcing the public face of its headline commitment to “improving the state of the world”. It clearly reflects the concern in the corporate community that short-term actions by governments like New Labour do not address the problem of restoring profitability, which is the sole criterion by which capitalism judges itself.

Two things are implied here: governments are a hindrance rather than a help in this crisis and massive cuts in state spending are required to get capitalism back on its feet. We have been warned.

Gerry Gold
Economics editor