Don't pay the price for their follies

As the minor surge of festive consumer hysteria peters out, analysts are preparing for an unprecedented perfect storm in 2009 with unpredictable economic and social consequences.

Market researchers warn that over 1,600 UK retailers will be driven out of business this year, triggering thousands of job losses and leaving more than one in ten shops empty.

Experian said trading conditions for survivors would be the worst for at least 30 years and there would be knock-on effects at suppliers, manufacturers and service providers. 

The economy is in such a precarious state that two of the UK’s largest mortgage lenders, Halifax and the Nationwide, have decided not to release house price forecasts for next year. Nationwide said it could be irresponsible to make a forecast, given the market's dependence on confidence. 

In attempting to reinvent himself as a critic of “unbridled free market dogma”, Gordon Brown is also trying to play the confidence trick. “To those who know that the only solution for our economy and environment is a global solution - expanding growth and tackling climate change together - let us say that we will work with Europe, America and others,” Brown said in his New Year message. 

Being tied hand, foot and brain to the capitalist system of production and exchange he can envisage nothing else but “growth” as the solution when in fact it is the heart of the problem. An economy that has to expand constantly in order to fatten shareholders is inherently unstable and liable to collapse (and has also precipitated climate change). This is the dreadful and unacceptable price ordinary people are facing as a result of the follies of global economic and political elites. 

Forecasters now have their hopes pinned to Barack Obama’s $800 billion stimulus package of infrastructure projects. But, as the New Year broke, hopes were already being dashed. It’s a small sum when measured against the problems in the global economy, including a financial system that has come close to collapse and remains seized up. 

Action by Russia’s energy company Gazprom to cut off gas supplies to Ukraine in mid-winter highlights the sudden, sharp contraction in gross domestic production (GDP) and industrial production in the latter country. Both have dropped rapidly since August. By November, GDP was 14% down on a year earlier and industrial production was down by 28%. It’s no wonder that Ukraine can’t pay its gas bill. 

Japan's Economy Ministry reported a 16.2% year on year fall to November. Worse still, output is expected to decrease by a further 8.0% between November and December, taking the year on year decline in December over the 20% mark. Similar sharp reductions have been reported in Germany, and Spain as recession turns to slump. 

Instead of making predictions we must now turn to policies and actions – not to restore the system to profitability based on unsustainable growth, but to make the changes that can establish society on different foundations altogether.  

When a campaign of protest failed to stop the closure of the local post office and shop, a small rural community in West Wales took matters into their own hands. They have set up a not-for profit community enterprise to take over and ensure continuation of essential services. A small beginning, but one of myriad examples of collective responses, worker-managed, democratically-run organisations working out the social relations that will form the basis of sustainable production for need. 

Gerry Gold
Economics editor

A global car crash

Any lingering doubts about the trend towards recession were swept away last night as the world’s vehicle makers announced their April results. Falling off a cliff would sum it up. General Motors sales fell 23%, Ford 19%, and Chrysler nearly 30%. And to make matters worse for the manufacturers, the effect of spiralling fuel prices has shifted sales from high-profit trucks and gas-guzzling SUVs to more fuel-efficient but less profitable models. The idea that a US recession wouldn’t affect the rest of the world also took a beating as Toyota dropped 5% and Nissan 2%.

The latest figures on US manufacturing confirm that the American economy overall is contracting, with employment dropping sharply to its lowest level since May 2003. Despite the distribution of $110 billion in tax rebates intended as a stimulation package, these figures are certain to deepen and accelerate the impact on US consumers, already hit by house repossessions. These jumped by 23% in the first quarter and are more than double the level of the year before. One in every 194 households received a notice of default, auction sale or bank repossession in January, February and March. Rising fuel and food prices are also taking their toll on household spending.

To say that these are unprecedented times is an understatement. Last year GM was the 5th largest of the global corporations ranked by revenue. It made a loss of nearly $2 billion on sales of $207.3 billion. Toyota was the 6th and DaimlerChrysler the 8th largest. Ford was 12th in the list. It made a massive loss of $12.6 billion on sales of $160.1 billion. So the impact on of a slump in their sales will be felt throughout the global economy.

For the UK, latest projections from the National Institute of Economic and Social Research show consumer spending growth falling from 3.1% last year to just 1.2% - the slowest rate since 1992 when Britain was emerging from recession. "The UK economy has perhaps reached its most precarious position in over a decade because of global financial market developments," NIESR says. "Private consumption will slow to a crawl this year and next."

Before the car makers’ shock results, commentators had been playing alphabet soup with the economy trying to guess whether the recession will be brief, giving a V-shaped curve to growth, a double-dip W, a longer U-shape, or (though the BBC ignored it on Newsnight) a long L. All of these options assume that there’s a bottom. In reality, the global capitalist economy is headed for the biggest wave of destruction of productive capacity in history.

This prospect has reinforced the loss of confidence in governments to deal with basic questions, let alone the economic crisis, as seen in New Labour’s disastrous local election results. Avoiding the horrific consequences of a prolonged recession leading to slump requires bold political action well beyond the capacity of parties like New Labour. The objective has to be to end the anarchy of the market and capitalist production for profit in favour of a sustainable, co-operative system that is motivated by meeting people's needs.

Gerry Gold
Economics editor