Osborne to up the war on the people

Today’s autumn statement from chancellor George Osborne will extend the predicted period of the recession and pile more pressure on the 99% of the people in Britain who are struggling to meet rising bills as real incomes fall.

The financial crisis has been as economically devastating as a world war and may still be a burden on our grandchildren according to Andy Haldane, the Bank of England’s executive director for financial stability. 

Things are certain to get a whole lot worse.

In 2007, the cost of servicing the post-war ballooning of debt shot past the declining ability of people and businesses to make their interest payments and the crisis struck.  Credit-funded growth had reached its limits.

Five years later and the UK economy is still 3% smaller than at its peak and set to shrink further as the global depression deepens.

Haldane warned that the banks were still hiding risky assets – bad debts just the same as those that led to the crash in 2007/8. These will have to be admitted, exposed – and written off – before there is any prospect of a recovery.

So Haldane’s comparison of the impact of a world war should be seen as a warning of something much worse to come.

The global depression is spreading, and its path determines the actions of governments whatever their subjective intentions.

Nothing can stand in its path, if the system is to survive.

In Ireland, amongst the first to suffer the effects of the crash, the government is today introducing a sixth round of cuts and tax increases amounting to €3.5 billion. This will be added to the €25 billion euros taken out of the economy since 2008 which has resulted in a 15% fall in total output or GDP.

After months of attempts to avoid the inevitable, the Spanish government was yesterday forced to ask for help for the country’s banks and Eurozone finance ministers approved €39.5bn in initially low-interest loans.

But many analysts believe that the amount is less than one-third of what will be needed. And though the government remains in denial, even the full amount of €100 billion being made available is unlikely to prevent the bankruptcy of the country itself.

Spain, like Greece has seen months of protest, nationwide actions, strikes and demonstrations on a scale never seen before. The conditions attached to the new loans are certain to trigger more violent uprising.

Whatever the outcome of newly re-elected President Obama’s negotiations with the Republicans to avert the fiscal cliff - the triggering in four weeks’ time of a predetermined $500bn programme in annual tax increases and spending cuts which would push the country back into recession - reining in the unsustainable debt is certain to see trillions of dollars cut from federal spending.

The unfolding of events in Ireland, Greece, Egypt and Syria show that the costs of keeping the for-profit system of production and finance in place are driving millions across the globe over a different cliff. The limits of tolerance have been reached.

Haldane’s comparison with a war is more than symbolic. This is a war – a class war. It is being fought between the majority and the small group who own and control economic and financial resources. In a war there is a winner and a loser.

So we must set off on new path – rejecting the destructive demands of the capitalist economy and replacing it with a system of social relations that sets out to satisfy rather than deny the needs of the 99%. New kinds of democratic decision-making carried out in popular assemblies can and must give rise to the replacement of profit as the determining criteria of society.

Gerry Gold

Economics editor

A capitalism that lacks legitimacy

While Ed Miliband brings Labour into an ever-closer alignment with Tory arguments (and policies) on the economy, it falls to the Financial Times to ask whether capitalism can respond to an historic crisis of legitimacy.

As the FT notes: “The system, in all its different varieties, is widely perceived to be failing to deliver.” This is a genuinely serious question which in turn raises real issues about democracy (or the absence of it) and whether the system is capable of re-enlisting the support it once enjoyed.

Miliband, naturally, is incapable of addressing these matters because they strike at the heart of the system of political rule which acts as a proxy for corporate and financial power in every country (and which he is so desperate to be part of).

In fact, his acceptance today of spending cuts to reduce the deficit, attacks on welfare (even questioning the winter fuel allowance for older people) – in effect, setting out Labour’s very own austerity package – will only deepen the growing hostility to the system itself.

Actually naming its series of articles “Capitalism in Crisis”, the paper of choice for business executives, acknowledges that “democratic legitimacy has been largely lacking” in the measures taken by governments over the last four years.

“On both sides of the Atlantic there is now a risk that reasonable aspirations to equality of opportunity are being undermined, accompanied by a growing threat of political instability. Support for open trade and free markets is also being adversely affected.”

The significance of this lack of consent should not be underestimated. As a system based on private control of wealth and resources, capitalism actually depends on a measure of acceptance by the 99% which is mostly expressed through the political process.

When consent declines in any significance, the nature of capitalism itself stands revealed and becomes more reviled (which the article points out has happened several times over the last 200 years). “Greedy bankers, overpaid executives, anaemic growth, stubbornly high unemployment – these are just a few of the things that have lately driven protesters on to the streets and caused the wider public in the developed world to become disgruntled about capitalism,” the FT remarks.

In a recent survey about trust, under 50% of Americans and British asked said they had “faith in business to do what is right”. The US and the UK were only just ahead of Russia.

The FT believes that growing income inequality is at the root of the discontent rather than growing poverty. In this they are partly right. In 1975, the ratio of the pay of a CEO to an average worker was 35 times greater; by 2010 the ratio had soared to 325 times. Large sections of the middle-class also did very well in the halcyon days of globalisation.

There’s no doubt that perceptions of unfairness drive many protests. But demands that workers pay for a crisis they did not create through lower pensions, reduced wages and unemployment is about defending an often modest standard of living and brought millions out on strike.

For the FT, as for Miliband, the question is “how to improve the existing model of capitalism”. Here they both run into a major difficulty. The globalisation process created a hydra-headed beast that knows no borders, has more power than nation states and is very much immune to political processes.

The trust survey showed an even greater mistrust of government than of business, which must in part be due to the fact that politics is seen to do the bidding of and be in the pockets of the wealthy. Meanwhile, as the FT admits, “efforts to re-regulate the banking system…have failed to convince many experts that an even larger financial crisis can be avoided”.

In sum, capitalism has little room for manoeuvre and a negligible chance of restoring consent for its continued rule. Of course, it’s not giving up power voluntarily time soon either. But the opportunities to argue for and achieve a revolutionary democratic transformation of capitalist society are more favourable than for a very long time.

Paul Feldman
Communications editor

International currency war under way

The Bank of Japan’s decision yesterday to further reduce its close to zero interest rate looks suspiciously like one of the opening shots in an exchange rate war that will intensify the problems besieging the already weakened major economies.

In dropping below its lower limit of 0.1%, and looking at a small programme of quantitative easing (QE) (aka printing more money), Japan managed to get the yen to fall on currency markets. This has the effect of making its exports cheaper.

But Tokyo didn’t start it. They just followed Brazil’s finance minister who, on Monday, took measures to hold down the value of the real. Guido Mantega warned: “We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness.”

Both Japan and Brazil pre-empted the widely expected “return to QE2” – a sequel to the fading effects of the previous programme of money creation by the now struggling Obama administration. Washington wants the dollar to fall to give its exports an edge.

So the alarm bells are ringing at the International Monetary Fund, which is warning that the “recovery” has run out of steam. IMF head Dominique Strauss-Kahn told the Financial Times: “There is clearly the idea beginning to circulate that currencies can be used as a policy weapon. Translated into action, such an idea would represent a very serious risk to the global recovery.”

It’s not long since world’s leaders in government, banking and finance came together to hammer out the agreements that enabled at least the semblance of a co-ordinated programme of measures designed to restart lending and bring about a return to growth.

Whilst the previous concerted action is credited with averting a financial and economic Armageddon, its effects are best described as a phony recovery. And that is now over. The optimism induced by unprecedented measures couldn’t and didn’t overcome the uncontrollable logic of the capitalist system of production.

The global crisis may have erupted in the financial system but its roots are elsewhere. Throughout its short period of existence on the planet, the capitalist system has been racked by contradictory forces. Competitive pressures have obliged companies to invest in productivity enhancements which, whilst giving the front runners a temporary advantage, inevitably reduce costs, prices and profits for all.

To offset the tendency for profits to fall, greater volumes of every product have to be cranked out and sold, and the pressure for even more productivity accelerates and accentuates the growing economy.

This irresistible objective logic created the globalising corporations that came to dominate the world. And when the surging millions of cars, computers and mobile phones overwhelmed the market, a house of (credit) cards and mountains of debt were created so that consumers who could buy them up. At least until we, and the rest of the economy found ourselves drowning in that very same debt.

Optimism is now being replaced with realism. Cuts in government spending to reduce the budget deficits they’ve accumulated over years of trying to keep growth on track are just one part of the story.

The phony recovery allowed manufacturers to restock their warehouses and showrooms, but there’s still not, and won’t be enough buyers. So the factories that restarted production after the 2008 collapse will go back onto short time and no time.

Competition for the remaining market will sharpen, and the intensification in the rate of exploitation will prove truly shocking, sparking social unrest to match. These are the objective laws which shape the decisions in the boardrooms and in government buildings.

Successful resistance will depend on individuals and communities creating new forms of democracy – People’s Assemblies with the power to terminate the web of contracts and property relationships that tie workers to capitalist employers and ensnare us all in debt. The system of profit-chasing growth must be torn up at its roots. Let’s compost capitalism!

Gerry Gold
Economics editor

650,000 words later...

In the four years since A World to Win launched its weekday news blog, we have written over 1,000 of them – that is somewhere in the region of 650,000 words! Now the blog team is going on annual holiday.

Our posts have focused on politics and the state, on ecology and economy, tracking the credit crunch (actually, predicting it!) and charting the growing ecological crisis. We’ve used over 1,600 labels (they are all indexed here to help identify the different subjects).

But it hasn’t been all serious stuff. This year’s April Fool blog raised an ironic laugh: “It’s a no-brainer,” said energy and climate change minister Ed Miliband. “The planet is under threat – people are facing actual death as a result of climate change, human society will not be able to survive the disruption and misery – what else can we do but act, and act now.”

Then there was the unofficial communiqué from last year’s G20 in London, which declared: “We will do whatever it takes to rebuild the balance sheets of the banks and to restore people’s confidence in a system that has come off the rails and is unfortunately and mistakenly despised by increasing numbers of our citizens.”

We’ve written about events in Palestine, Lebanon, Thailand, Africa, India, Pakistan, China, Kenya, Nigeria and Ogoniland, Sri Lanka and the struggle of the Tamils, about the United States, Greece – and many other countries where people are struggling for their rights.

The team has provoked discussion about youth unemployment, the privatisation of education and the brutality of the youth prison system and urged the decriminalisation of drug use.

AWTW was first out of the blocks analysing the ConDem coalition, recognising it as a government of crisis, with fundamental weaknesses as well as a vicious streak. We have been clear that whilst ideology has a role, it is capitalism’s profound and growing economic crisis that is driving the attacks on public spending.

But we don’t want our readers to be bored while the blog team takes a well-earned rest. So here are three things you could do in the time you normally spend reading the blog:

1. Consider the case for People’s Assemblies. On the website is a new explanation of how these can go beyond resistance and become a focus for struggle for a democratic society based on co-operation and self-determination instead of profit and corporate power.
2. Read the Manifesto of Revolutionary Solutions, produced this year. It is a living document that can be continuously updated and amended – so tell us what you think.
3. Think about joining A World to Win.

Being a loyal reader of blogs is one thing, but we need you if we are to grow an organisation that is not just about protest and resistance, but has a positive revolutionary perspective.Without that, neither the political, the economic nor the ecological crises can be stopped in their tracks and turned around.

When we return, you can be sure the analysis of the global crisis and its impact in Britain will be fresher than ever!

Blog editorial team
August 20, 2010

They have lost control

The trouble with conspiracy theories is the impression given that “they” – bankers, politicians, the military etc – are always in control of events and will thus determine their outcomes to suit themselves. How wrong-headed and disarming this approach is.

Take the United States. Is President Obama in command of the environmental and economic disaster resulting from the BP oil rig explosion in the Gulf of Mexico? Clearly not. The White House can’t even find out how much oil is actually leaking from the ruptured well a mile below the surface.

What about the economy then? Obama’s government has spent countless billions of dollars trying to stimulate the economy, to no avail. Over 84,000 public sector jobs alone have been lost this year and unemployment overall is 10% and rising.

Now Obama insists another $50 billion is needed to save the jobs of thousands of teachers, fire fighters and police officers. Even fellow Democrats are expected to join Republicans to block the plans in Congress. The ability of a powerful government like America’s to determine the course of the economic crisis is patently absent. Not much control there then.

In Britain, you couldn’t say that the Lib-Dem coalition is “in control”. Its very formation was hardly a planned event but the result of circumstances beyond Clegg and Cameron’s control. We are talking about two things here – the result of the general election and the impact of the global financial crisis on Britain.

To appear to be in control, both coalition parties have had to marginalise their own rank and file and claim to be ruling in the “national interest” to save Britain from state bankruptcy. The coalition could flounder over the scale and impact of the spending cuts that are being prepared or as a result of any number of external events.

Surely someone out there must be in “control”, you would think? If it’s not the state and politicians, it’s got to be the bankers and the heads of the handful of transnational corporations that are the dominant forces in the global economy? They only wish they were, especially the CEO and chairman of BP!

The bankers thought they had command as they built the most far-reaching financial empire the world has ever seen. Ultimately, the line between reality and fantasy became so blurred that they lost what little control they possessed. It all went belly up in 2008 as fiction overwhelmed fact. With a huge overhang of debt still waiting to be accounted for, nothing will persuade the bankers to start lending again.

Now people say that financial markets are “in control”. But a market like this one is not some defined group of men and women sitting in known locations who can be told what to do or who will act in a rational way. Financial markets are greater than the sum of their many, many parts. That’s what makes them so unpredictable, prone to herd instinct and fear, rumour and gossip.

The essence of the capitalist beast in times of crisis like these is that far from being in control, there are many indications that it is actually out of control. Global warming, for example, is proceeding without any apparent political capacity to halt it. Recession is turning to slump and spending cuts will only make that more certain.

We shouldn’t conclude, however, that it is impossible to have a rational politics and economics in place of the chaos and turmoil that is global capitalism. For that to happen, we just need to exert out own potential power in new, democratic ways, putting the present elites out to grass.

Paul Feldman
Communications editor

Darling's budget deception

You have to hand it to Alistair Darling. Britain is in the midst of a major financial and economic crisis and all the major parties are planning unprecedented cuts in public spending after the upcoming general election. Except you wouldn’t know that from listening to the chancellor of the exchequer drone on yesterday.

The gigantic budget deficit that results from bailing out the banks and the global recession combined was left out of the equation in a bid to fool the electorate that all will be fine so long as you re-elect New Labour. And when he actually got round to talking about the economy, Darling’s forecasts for growth were soon dismissed by experts as fantasy figures. So much for truth and transparency!

Darling’s difficult task was to give the managers of global financial markets enough to hold off their attack on the government over borrowing levels whilst announcing attractive headlines to persuade people to cast their vote for New Labour in a few weeks time.

So, in an hour long speech full of detail, on the vote-getting side we heard an attempt to restart the housing market with stamp duty changes, an extension to the winter fuel payment for pensioners … and not much else. Only later, after the media had mostly lost interest, came the negative news, marked for the attention of the bond traders and currency speculators.

The yield on government bonds – the rate the government has to pay to borrow from the credit markets to fund the deficit – had begun to creep up, not by much, perhaps, but just enough to remind New Labour’s ministers who or rather what forces are in charge of the economy.

Swelling deficits worldwide are forcing governments including the US to increase their borrowing by issuing bonds, and the market is flooded. When that happens they have to pay more to get lenders to invest. The same happens when credit rating agencies mark a country down – as they did with Portugal yesterday, as its sovereign debt crisis deepened.

The unavoidable fact is that whoever lead the next British government will be required to launch an assault on almost every section of the population in an attempt to reduce the monumental - and increasingly expensive – public debt.

Every international gambler, every credit rating agency and every supranational agency like the OECD, the IMF and the European Central Bank is insisting that the assault must begin sooner rather than later.

And indeed it has already. Just like in Greece, Ireland, Iceland, Spain, Portugal and the once mighty US, millions of ordinary people are being forced to bear the cost of a crisis over which they have no control. In Britain, universities and hospitals are already feeling the heat as “efficiency savings” – aka cuts – take their toll.

Resistance is growing. As Darling prepared to deliver his holding operation 250,000 civil servants throughout the UK were on strike against cuts in redundancy pay and many were picketing government buildings. Brown shrugged them off in England, but in Wales, Labour and Plaid Cymru seats were empty in the National Assembly with some Assembly Members refusing to cross the picket line (but cynically working elsewhere). British Airways cabin crew are due to resume their strike action this weekend and rail workers are fighting job cuts and have voted to walk out.

Yesterday’s phoney budget reinforces our call to “Hang on to your vote” at the election rather than giving any of the parties a mandate to destroy services, alongside the building of People’s Assemblies which would begin to wrest control of our future out of the hands of the hedge funds and corporations.

Gerry Gold
Economics editor

The apostles of growth have had their day

Gordon Brown is in big trouble. The financial system he piloted to prominence during his years as Chancellor is in ruins. Rupert Murdoch has turned The Sun against him. The majority of the UK population is in favour of a withdrawal from Afghanistan, and his letter-writing skills have slipped, angering army wives and mothers.

Brown’s plight is a pale reflection of the political crisis engulfing capitalist governments throughout the world as disaffection grips the masses whose lives are being destroyed by attempts to prevent a slump unparalleled in history. Despite trillions of stimulus dollars, pounds, euros, and the lowest interest rates ever set by central banks, unemployment is soaring worldwide.

In an attempt to repair the damage to his reputation as warm-hearted saviour of the global economy, Brown is trying a populist appeal to the massed ranks of the Trades Union Congress (TUC) and the many other well-meaning members of the Stamp Out Poverty Coalition.

At the weekend G20 meeting of finance ministers and central bankers in Scotland, Brown took up Brendan Barber of the TUC’s call for a tax on financial transactions within the UK – something within the powers of the national government, at least in theory.

The chorus of disapproval was almost deafening.

The response from Barack Obama’s Treasury Secretary Timothy Geithner gave a clear and succinct voice to the objective force that is capital. Geithner said there was broad agreement that "growth remains the dominant policy imperative across our economies". US unemployment, which hit a 26-year-high at 10.2% in October, highlighted a "very tough economic environment" that will take a period of sustained growth to correct.

"Government policy has to provide a bridge to growth led by the private sector," he said. "We're now in the middle span of that bridge." In an interview with Sky News, Geithner added: “A day-by-day financial transaction tax is not something we are prepared to support."

Geithner, late of Goldman Sachs, insisted that government had to stay cautious (apart from giving bankers untold billions) and warned: “If we put the brakes on too quickly we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater." In other words, business as usual is the goal.

Canadian finance minister Jim Flaherty and Dominique Strauss-Kahn, the head of the IMF joined the opposition to a transactions tax. Flaherty said Canada was working out how to reduce taxes, while Strauss-Kahn opted for a politer more diplomatic response – it’s just too difficult to measure international transactions. Unsurprisingly the banks including Barclays and HSBC aren’t in favour either.

All of the voices in this song-fest are united in their blind subservience to the status quo. The chorus against a tax on financial transactions shows two things. Firstly, reform of the global capitalist financial system is out of the question. Secondly the dependent relationship that links the state to the productive and financial components of the capitalist economy has to be shattered before we can move forward.

The world is now ready for a society that places the satisfaction of needs as its primary goal. Rather than attempting to tax the proceeds of gambling in the global casino, the casino should be shut down and the capitalist state deconstructed. Geithner, Brown and the other apostles of capitalist growth have had their day.

Gerry Gold
Economics editor

The real issues behind the election campaign

As the countdown to the general election gets under way with New Labour’s conference at Brighton, there is a danger that politics in Britain will become so narrowly focussed that the real issues and challenges are consumed by a debate about which party to vote for.

Some political organisations on the Left, led by the rail union RMT, are even in a race to put together a new electoral coalition in time for the election, which is likely to be held in early May 2010. This would be a kind of “No2EU – Yes to Democracy” Mark II, which produced a nationalist programme for the recent European elections.

The election and what comes afterwards was also uppermost in the minds of most speakers at the Convention of the Left over the weekend, where there were repeated calls for “unity” alongside a reluctance to consider more fundamental issues.

But the impending disintegration of New Labour has far greater implications than those connected with mere voting intentions.

The emergence of New Labour was driven by the capitalist globalisation process and its demise is determined by the crisis now affecting the world economic and financial system.

Brown and Blair championed an economy subservient to the needs of the transnational corporations and banks.

Globalisation at the same time rendered Parliamentary democracy meaningless in an historic sense of being an arena where significant reforms could be established. Instead, the market has penetrated and undermined public services while MPs have been reduced to fiddling expenses.

The changed role of the capitalist state was underscored when no resources were spared by New Labour in propping up failed banks. Now the price for this is to be paid by ordinary working people, whoever wins the election.

However, we are not facing anything like a repeat of the early period of the 1979 Thatcher government, when public spending cuts roused fierce trade union opposition.

For one, the scale of the cuts now required is so immense that they would require a dictatorship of sorts to impose on the population. Whether the Tories or a coalition of the main parties is capable of this is another question.

But you can say with certainty that all the traditional parties are lying about the grave nature of the financial crisis and about the prospects for the economy, which is prevented from collapse only by pumping in increasing amounts of government debt.

Any hesitation on making savage cuts will produce a “strike” by international finance, which will refuse to fund further loans.

So what lies ahead goes far deeper than electoral considerations. Challenging the cuts will throw up the need not just for an alternative economic and financial set-up but bring on a challenge for power itself.

Under the threat of dictatorship, our aim is not the resurrection of a worn-out, limited and barely democratic political system but the total reconstruction of the state in a way that transfers essential power to ordinary people.

It would be a grave error, therefore, to waste time and resources just to focus on having something or someone to vote for without warning of the dangers ahead. If we don’t attend to the underlying processes at work, we will pay a heavy price.

Paul Feldman
Communications editor

Bankers' government is bankrupt

Is there such a thing as a banking “expert”? We ask this question in the light of today’s announcement that New Labour has recruited a top City banker to the government to – wait for it – try and save the banking system. 

Mervyn Davies, chairman of Standard Chartered, will become Minister of State in Lord Mandelson's Department of Business, Enterprise and Regulatory Reform. He will be granted a peerage so that he can sit in the House of Lords, Downing Street said in a statement. 

According to the Daily Telegraph, Davies was personally courted by the prime minister for his “banking expertise”. He was involved in the government's autumn bank bail-out – which prevented bankruptcy but has signally failed to lift the financial system off life support. 

Davies’ appointment is unlikely to make any difference, therefore, except confirm that we truly have a bankers’ government in every aspect of the term. Such is the dire state of affairs in the world of capitalist finance that the government itself has essentially been transformed into a bank. From being the nominal property of the people who elected it, New Labour has become demutualised, privatised. It could and should be renamed New Labour Investments, Savings and Loans PLC.

How else can you explain Mandelson’s announcement today that the government is to guarantee up to £20 billion in bank loans to small businesses? This is the state transferring yet more taxpayers’ money to banks who have helped crash the economy. This is how desperate New Labour has become in trying and stave off what is looking more and more like an economy heading for a catastrophic slump. 

Business leaders have painted a bleak picture of the UK economy, with a survey suggesting the end of 2008 saw a "frightening deterioration". The British Chambers of Commerce (BCC) said its survey results were "awful" and the worst since it began in 1989. Elsewhere, a separate report suggested it had been the worst December for UK retail sales in at least 14 years. The British Retail Consortium figures on sales from the High Street and online said that like-for-like sales in December were down 3.3% on a year ago while total sales shrank 1.4%. This is despite the government cut in value added tax (VAT), which took effect in December.

New Labour is running out of options. It is desperate to avoid the direct printing of money to pump into the financial system because a) it’s the last throw of the dice b) nobody knows if it would work and c) it’s a recipe for runaway inflation. Little surprise, therefore, at a new survey shows that people in Britain are now less likely to trust banks, the stock market or the government's economic management than people in comparable nations.   

Asked to rate their trust in the government's management of the financial situation, British people award the government 4.5 out of 10, below the worldwide average of 5.2 and just ahead of Iceland on 4.4. Only Germany and Japan are gloomier, scoring 4.0 and 3.0 respectively in the poll. Britain ranks 16th out of 17 countries for public trust in its banks. 

What the survey indicates is that the government has no mandate for handing over vast sums of money to banks or any other form of capitalist enterprise. This is a bankers’ regime governing on behalf of the narrowest of monied interests, using the powers of the capitalist state. New Labour’s argument that there is no alternative is another big lie. None of the bail-outs have succeeded in halting the economy’s downward plunge. The banks are effectively bankrupt and so is the government. 

Paul Feldman
AWTW communications editor 

'The worst is yet to come'

The emergency state bail-out today of Britain’s major banks to the tune of £37 billion marks the end of an era and is the clearest indication that the recession that prompted the global financial crash is already turning into economic depression.

Shortly before he became prime minister, in July 2007, Gordon Brown told bankers that the previous ten years has been a period “that history will record as the beginning of a new golden age for the City of London”. He praised bankers for being “pioneers of free trade” with a “deep and abiding belief in open markets”.

How times have changed! Over the weekend, the very same bankers were forced to go cap in hand to the state to try and stave off total collapse. But boosting banks’ capital assets with taxpayers’ billions will not save the banks from the globally economic tsunami that is building with each passing day. As recession turns to depression, the indebtedness of the banks will grow exponentially as ordinary people can’t pay their debts and businesses go broke.

What is ending is the era of corporate-driven, debt-fuelled globalisation. The consequence is not some slowdown but the destruction of large portions of capital created in this period, leading to a cycle of mass unemployment, sharp reductions in consumption, even more job losses and the wiping out of lenders when people/corporations can’t service their debts.

As one commentator observed: “Usually, a banking crisis follows some form of economic crisis: lenders are hit by wave after wave of customer bankruptcies until they themselves cannot take any more and topple over. This time, the banking collapse has preceded the recession… Instead, last week’s stock market rout marked the point when the usual direction of cause and effect was reversed: now it is the real economy that is expected to take its cue from the markets.”

The indications are all present. A slowing world economy has forced down the price of oil, while mining companies are in difficulties because China is importing less. General Motors, once the world’s largest carmaker, is one of several colossal companies on the verge of bankruptcy. It has already temporarily shut down its European factories to preserve its precious cash reserves.

In Britain, Keith McGregor, restructuring partner at Ernst & Young, said: "UK profit warnings continued to come thick and fast during the third quarter, crossing over the 100 mark once again. It is deeply concerning to think that the worst is almost certainly yet to come for UK corporates." It is predicted that 2 million people could lose their jobs by the end of the year.

Homelessness charity Shelter predicted last week that there will be around 45,000 repossessions this year, with one in 150 homeowners already three months or more behind on their mortgage repayments. The number of court orders for mortgage repossessions is 24% higher than last year. The number of homes being sold in Britain has fallen to its lowest level since 1959 in August. The new house-building sector has collapsed, with tens of thousands being laid off.

Under these conditions, for the state to take on the debts of the banks is not only a massive transfer of wealth to the private sector – it also focuses future risk on itself. The next stage could be a currency crisis as government debt spirals out of control. Britain could then easily face its own “Iceland moment” and state bankruptcy. As a result of today’s actions, national public debt is likely to exceed total national income. Tax increases and spending cuts are on the immediate horizon.

The crash of banks and other financial institutions is at the same time the failure of the capitalist economic system as a whole, whose thirst for profit-driven expansion at any cost has brought humanity to this point of disaster and catastrophe. This the fundamental issue we will address at our Stand Up for Your Rights festival this Saturday.


Paul Feldman
AWTW communications editor

A step forward in Manchester

The Convention of the Left meeting in Manchester near the New Labour conference yesterday adopted a “statement of intent” that is intended to sustain a framework of ongoing discussion on policies and actions over the next few months. A World to Win’s participants voted for the statement because it represents a step forward.

John McDonnell, one of the few MPs who have consistently resisted the New Labour government, was right to stress caution. An attempt to create a “left unity” or to launch a new electorally-oriented party would not only be premature but futile. The dilemmas facing the socialist movement require more than what would amount to cosmetic political window-dressing along these lines.

The challenges arise from the fact that the conventional routes to social and political progress are now more or less closed off. Labour being transformed into capitalist New Labour – in fact, it is the self-appointed bankers’ party – is only part of the story. Two other inter-related developments within the state raise even more problematic questions.

Firstly, in Britain the post-World War II so-called consensus, welfare state has been obliterated by successive Tory and New Labour governments. In turn, policies of governments express profound changes in the demands of the corporate-driven globalisation process. What we have now is an undemocratic, unashamedly business state under which parliamentary processes and political representation count for nothing.

The priorities of the business state are clear: save capitalism and its financial system at all costs, including mass unemployment, homelessness, reduced wages and social division, provoked by racist, anti-immigration statements and policies. The events of the last seven days, with the US government offering to buy up bad debts and New Labour facilitating the takeover of HBOS, is a graphic illustration of how this is working out.

The Convention’s statement of intent makes no mention of these questions. Nor does it refer to the crisis now spreading like a contagion from the financial sector to other areas of the economy. Most observers now acknowledge that the crash of 2008, which last week claimed banks in Britain and America (and yesterday saw the last two investment banks change their status to try and escape), is only just starting to unfold.

The statement’s strength lies in the admission that there are no simple answers, declaring: “We must find ways to develop and promote alternative positive policies and demands – of peace, social and environmental justice, public ownership, workers’ rights, civil liberties and equality. We must join together with all those seeking a better society, as an anti-capitalist left fighting for an alternative socialist society.” The Convention also wants to define ways of joint working and is calling for local Left Forums to continue the discussion.

This is a positive initiative. For our part, A World to Win will want to discuss how to take forward the struggle for democracy that in its time produced parliamentary representation, the Labour Party and major welfare reforms. The termination of that period of history is not a matter for regret but can be made into an opportunity to create a new democratic state as a platform for overturning an economic system that is plunging the world into a catastrophe.

Paul Feldman
Communications editor

On a knife edge

The Financial Times puts it like this: “The world has not ended. The international economy has not yet collapsed. But one thing is now quite clear: the banking system as we know it has failed.” Note the “yet” because the financial earthquake that produced the collapse of Lehman Brothers and Merill Lynch will claim more victims and translate into economic slump.

The American International Group, a global insurance company that sits at the centre of the world’s financial system, is on a knife edge. Others in the sickbay include Goldman Sachs, Morgan Stanley and the HBOS bank in Britain. “The locusts may be running out of big names to attack, but there are still some big names in the market’s sites,” said Alan Ruskin at the RBS Greenwich Capital.

After a series of spectacular rescues, starting a year ago with Northern Rock, the world’s central banks have reached the already-stretched limits of possibility in their attempts to avert disaster. They can only stand and watch as the laws of the market take their toll on debt-laden financial institutions that are unable to keep their operations going.

On Friday, Lehman Brothers was an investment bank with $42 billion of liquid assets. By Monday it was bankrupt. Why? Lehman Brothers had invested 35 times the value of its capital in a variety of exotic instruments that few people understand. The bank depended, however, on constant refinancing. But with great holes appearing in the balance sheet, the loans dried up and Lehman Brothers was suddenly a financial king with no clothes.

Joseph Stiglitz, Nobel prize winner in economics, and former senior chief economist of the World Bank says: “The present financial crisis springs from a catastrophic collapse in confidence.” According to Stiglitz it is “the fruit of a pattern of dishonesty on the part of financial institutions, and incompetence on the part of policymakers”. He should know. It was the objective, law-governed pressure for the expansion of capital that transformed the role of the World Bank and created new institutions like the World Trade Organisation which obliged governments to reduce and eliminate regulation.

As we explained last year, in A House of Cards, the disintegration began in 2005 when the frantic period of credit-fuelled growth that had produced globalised corporations reached the limits of the markets. Consumers, who had been equipped with new ways to accumulate debt so as to buy the torrent of cheap commodities needed to fill their newly-acquired mortgage-funded properties found themselves at the limits of their ability to repay even the interest on their mountainous loans.

So came the collapse of the pyramid of exotic, toxic, derivative financial products which had been invented to provide a mirage of wealth. But, just like the highly-profile “extenders” used to cheapen and debase the food we eat, they too had no real value. Instead, just as we have been poisoned and weakened by “food” consisting of fats and sugars, these worthless financial products poisoned and weakened the real, productive economy.

What to do? The Financial Times says things have begun so bad “as to render a coherent regulatory riposte impossible”. We agree. The financial and economic and social system based around production for profit is broken. It is beyond repair and must be replaced. It means moving rapidly to a system based around social ownership, and the identification and satisfaction of need. Only then will we be able to begin to repair the damage done to the planet’s eco-systems by decades of wilful destruction by credit-crazed capitalist corporations.


Gerry Gold
Economics editor

Darling going down with the ship

“Floundering - SS Corporate Globalisation taking on heavy water – pumps failing.” That was the essence of the emergency message relayed to the world yesterday by chancellor Alistair Darling as he announced public ownership of failed bank Northern Rock following failure to strike a deal with venture capitalists led by Sir Richard Branson. His was the equivalent of announcing "don't panic" to passengers on the Titanic.

So a government that promoted with gusto the virtues of the deregulated market-driven global capitalist economy has now taken on responsibility for the bank’s mortgages, arrears and repossessions and the fate of several thousand Northern Rock employees. Or rather Ron Sandler, the bank’s new executive chairman who at a mere £90,000 a month will be making the decisions on behalf of New Labour.

Darling says that the intention is to return the bank to the private sector when “market conditions improve”. His grey hair may have all fallen out if and when that ever happens. For Northern Rock’s demise is only the most public face of a growing global financial crisis, one which is having the greatest impact in the United States and Britain where “economic growth” has been based on astronomical levels of debt. The government is, of course, taking over Northern Rock just as the bottom falls out of the housing market.

The panic, Sunday morning decision to nationalise Northern Rock rather than let it go into administration means that the British state – or, more precisely, taxpayers – have been saddled with mountainous debts with uncertain prospects of them ever being repaid. Taxpayers are already subsidising Northern Rock in loans and guarantees to other lenders to the tune of about £55 billion. Under the new plans this will jump to a staggering £110bn, a cost of £3,500 per taxpayer and getting on for a quarter of annual government spending.

What the Northern Rock fiasco also shows is that it is far easier for governments to promote and facilitate market-driven globalisation than it is to rescue parts of the system when the wheels come off. The globalised economic system is transnational in character, with an objective existence and presence that is far more powerful (and uncontrollable) than nation states. The evolving financial crisis is essentially beyond the reach of central bankers and governments. The fictitious nature of much of the financial system is exposed on a daily basis now that the real economy is slipping into recession.

Nationalising Northern Rock won’t stop other banks, particularly those heavily committed on the mortgage front, from going the same way. In fact, it might encourage a few more to declare themselves insolvent on the basis that the government will rush to the rescue.

New Labour clearly dithered over Northern Rock as it contemplated an autumn election. Now its actions are seen as damaging to the City of London, which is one the most powerful – and vulnerable - sectors of the global financial system. Prime minister Brown personally set up the regulatory system that so clearly failed in the case of Northern Rock.

Roger Bootle, the managing director of Capital Economics and a former adviser to the Treasury, said: "This is an iconic representation of the collapse of all the ideas over the past few years about the quality of our economic management.” He added: "This is clearly political dynamite.”

We have entered a slash and burn crisis phase of corporate-driven globalisation. That means jobs, homes, pensions and incomes are under threat in every country. At the same time, the political system is clearly incapable of dealing with the crisis. The challenge immediately ahead is to promote political and economic solutions that take us beyond the limitations and dangers of the capitalist market economy.


Paul Feldman
AWTW communications editor

Seize the initiative

“Bloodbath in share prices”, “the dark 1970s”, “panic and desperation” – just some of the headlines littering newspaper pages and websites in response to the turmoil in the financial markets. While yesterday’s dramatic rate cut by the US Federal Reserve gave shares a small boost, nothing is resolved. Far from it.

The Fed’s rate cut decision – said to be made by a “very, very very worried” institution – was made in an emergency telephone conversation on Monday night, during a US national holiday. Many see this move as a panic measure, which cannot bring back stability or prevent the looming recession in the United States. Nor will the dark mood be lifted by Gordon Brown’s push for a meeting of European leaders at Downing Street after he returns from the Davos Economic Forum in Switzerland.

Few can now deny the severity of the financial crisis and its economic consequences. Even Sir Howard Davies, former director of the Financial Services Authority and now director of the London School of Economics, for example, believes that “the chances of avoiding recession here [in the UK] are pretty slight, because we do have many of the same features of the US economy”. And top officials like Mervyn King, governor of the Bank of England are warning of soaring fuel and food prices and a sudden slowdown of economic growth in the UK.

The inability of leaders and governments to tackle the implosion of the banking system and its consequences is becoming clearer and clearer. One crucial market indicator, the price of gold, tells an irrefutable story about confidence in the capitalist system of commodity production and its attendant financial structures. It is currently moving towards $1,000 an ounce, more than 200% up from the year 2000. When savers see paper money, shares and other financial products as increasingly volatile, and switch to precious metals, then it is surely time to consider the viability of the system as a whole – and, in particular, how to challenge and replace it.

The move into gold tells the story of an increasingly universal lack of trust in existing authorities and institutions, above all the state. Bush’s economic rescue package last week only led to further convulsions on the global markets while Brown’s government is struggling to rescue Northern Rock. Trust in what is called “democracy” will continue to fall away as the crisis deepens.

There are alternatives. People can rule over themselves, without the representatives of big money and big corporations. History has shown time and again that human beings do act collectively to defend their interests, often both for selfish and altruistic reasons. A bold initiative is needed. A World to Win seeks to develop concrete alternative strategies about how to use all the resources at humankind’s disposal to found a not-for-profit, ecologically-sustainable economy and democratic political system. You are invited to come to our discussion tomorrow evening to take part in this great challenge.

Corinna Lotz
AWTW secretary

The year of the bailiff

The extent to which we are cajoled, enticed, seduced and even tricked into spending more than we have – especially over the end-of-year holiday period – is revealed through startling figures. A poll conducted by the Norwich Union found that 73% people who responded said they would run out of money by today – several weeks before their next pay day at the end of the month.

Some 43% of people surveyed said this month was the most worrying time of year financially, while 19% did not think it was likely they could cover all their household bills during January. More than one in three thought they would go into debt this month. Some householders will dip into their savings or rely on credit and loans to make ends meet for the rest of the month, the Norwich Union said. It is estimated that Britons spent on average £781.86 extra over the festive period on gifts, socialising and sales shopping.

Global capitalism can only sustain itself by persuading people to buy increasing numbers of goods and services. It is the only way corporations can maintain rates of profit, which are what shareholders and stock exchanges are solely concerned about. Whether people need these commodities is irrelevant. What is absolutely essential is that they are sold so that the whole process can begin again and again and again.

This is not a new feature of capitalism, of course. But in the last 30 years of corporate-driven globalisation, the exponential growth in output has required an even greater growth in consumer spending – no matter how that is achieved. The deregulation of the financial sector paved the way for easy credit, cheaper mortgages, buy-now-pay-later deals and a view that if you got into debt you could always remortgage your house, which continued to soar in market value. Rampant consumerism went from a social phenomenon into a form of social compulsion, driven by advertising and marketing epitomised by slogans such as “Because you’re worth it”.

This has proved unsustainable at both a personal and at a corporate/financial level, where there is an unfolding crisis of insolvency as shown by the Northern Rock crisis. To sustain the level of expansion the economy demanded, the volume of credit and debt exploded. As we show in A House of Cards, this appeared in various forms as traditional banking assets, stocks, shares and bonds, and an array of exotic and increasingly toxic derivative products. The expectation of continued growth and profits to service the debt fuelled an impossible dream, now shattered.

Now desperate banks are refusing to pass on the recent cut in interest rates to hard-pressed home owners, despite pressure from the government to do so. Sharp rises in gas and electricity prices are on their way, along with council tax increases. Falling house prices and higher lending rates reduces the possibility for remortgaging to raise extra cash. Little wonder then that despite most people being broke today after splashing out at Christmas, retailers are announcing the end of the consumer boom. Marks and Spencer today reported a fall in sales over the Christmas trading period. Sales fell 2.2% in the last three months of 2007, M&S said. Sales of clothes and homeware declined 3.2%, while food sales dropped 1.5%. It was the firm's worst performance for more than two years.

Another, even uglier, side of capitalism is beginning to reveal itself – a world of home repossessions, bailiffs, county court judgements, job losses and pay cuts. Creating a more sustainable economy, based on producing what is actually needed rather than maintaining profit margins, is a practical question for 2008.


Paul Feldman
AWTW communications editor

A turbulent 2008 beckons

The coming year is certain to be one of the most turbulent for a generation in terms of economic, social and political instability, particularly in Britain. While they undoubtedly present themselves as dangers and threats to people’s jobs and livelihoods, the new conditions also open up the possibility of shaping the future in a way that reflects the aspirations of the powerless majority.

At the heart of the matter is, of course, the crisis in the global capitalist financial system and its growing impact on the economy in general. We are witnessing the early moments of the unravelling of a period of economic growth constructed like a house of cards, with debt as its less-than-solid foundations.

The collapse of Northern Rock in Britain is only one example of what is to come in 2008. In the United States, several banks including Merrill Lynch, are in serious difficulties. Executives gave up their Christmas turkey to spend the holidays desperately trying to raise new capital for the ailing bank. John Thain, the new chief executive held talks with Chinese and Middle Eastern state-controlled sovereign wealth funds that could lead to the sale of another big stake in the bank.

Reports are mounting that Merrill Lynch will be forced to write down between $10bn and $15bn worth of assets related to CDOs - so called collateralised debt obligations - when it reports financial results next month. But the value of these assets is falling day by day – if buyers can be found at all – as the financial system remains log jammed by the so-called credit crunch. What Merrill Lynch is facing – just like banks around the world - therefore, is a solvency crisis. That’s why attempts by the world’s central banks to increase liquidity have had no real impact.

An economic system founded on credit and its twin brother debt, must plunge towards slump as lending is cut back and loans called in. No wonder then that New Labour prime minister Gordon Brown fears for the worst. Already wounded by his opponents, Brown insisted that "with unbending determination, in 2008, we will steer a course of stability through global financial turbulence" just as “we withstood the Asia crisis, the American recession, the end of the IT bubble and the trebling of oil prices”.

This is more of the same wishful thinking that led his government to ignore the warning signs at Northern Rock. It is also a distinctly rosy view of history. The trebling of oil prices in 1973 led to a period of social instability that lasted until the late 1980s. Two governments – Heath’s in 1974 and Callaghan’s in 1979 – were brought down by resistance to the impact of the economic slump and renegade MI5 and army officers seriously plotted a coup.

Furthermore, the British economy has lived beyond its means on a greater scale than anyone has previously understood. Figures released just before Christmas show that the gap between imports and exports is now a staggering 5.7% of gross domestic product – just as big as America’s and twice the level earlier estimates suggested. Stephen King, managing director of economics at HSBC, noted in The Independent (December 24): “And just like the US, the UK economy has motored along on a diet of debt and ever-rising house prices. To claim, then, that the sub-prime and credit crisis was born in the United States along is nonsense.”

Brown may want to portray himself as the politician who can guide the country through the crisis. But the truth is that events are largely out of his control. The same market forces that he encouraged as chancellor now dominate and will decide the fate of his government as well as the economy in general. The evolving crisis offers real opportunities to campaign for and create a new chapter in history, based on sustainable economic and political, democratic alternatives to the madness of the capitalist market economy and the corporate state. Building the membership and influence of A World to Win will be crucial in ensuring this project’s successful outcome.


Paul Feldman
AWTW communications editor

Citigroup's 'assets' bonfire

When the world’s largest bank has to ask its chief executive and chairman to go because up to $11 billion of its assets are actually not worth the paper they are printed on, you know that the global financial crisis has entered deeper into the unknown. Citigroup, whose nominal assets – and nominal is the operative word here - are larger than the annual value of the British economy’s output, parted company with Chuck Prince on a Sunday night of all things. Citigroup’s losses announced relate to just one portion of the bank’s business – the sub-prime housing market. This is a bank which grew its assets – primarily its lending – by an astonishing 48% over the past 21 months. Now questions are being asked the real worth of all these “assets”.

Prince’s departure came hot on the heels of the resignation of Merrill Lynch’s Stan O’Neal, who was in charge of the investment bank as it ran up losses of $8 billion on mortgage-related debt. These gigantic losses stem from the banks’ involvement in what is euphemistically termed the sub-prime market in the United States where people with no income, no jobs and no assets – Ninjas – were encouraged to take out a mortgage on the basis of rising house prices.

Many of these mortgages were sold by unscrupulous and little regulated mortgage brokers, who received handsome commissions for selling expensive and unsuitable products. Then mortgage companies sold the debts on as securities packaged into “collateralised debt obligations” (CDOs). These were then traded around the world as if they totally-secure government bonds and ended up in the hands of Citigroup and Merill Lynch, as well as European banks in Germany, France and the UK (where Barclays is rumoured to be in difficulties).

The trouble is, the bottom has fallen out of the US sub-prime market. There have already been 1.7 million foreclosure proceedings in the US in the first eight months of 2007, and up to 2 million families are expected to lose their homes over the next two years, according to estimates by the US Congress's joint economic committee. In Cleveland, Ohio, an industrial city on the banks of Lake Erie, one in ten homes in the city is now vacant because of repossessions. The company making the most foreclosures in Cleveland is Deutsche Bank Trust.

While the German bank has loads of properties on its books that no one wants to buy, Citigroup and institutions around the world are left holding worthless CDOs – worthless because they can’t sell them on as the market for CDOs has seized up as part of the credit crunch. Or as Citigroup’s statement said, its securitised mortgage-backed debt obligations "are not subject to valuation based on observable market transactions". Overall, there are over $1 trillion worth of sub-prime mortgage-backed securities outstanding throughout the world.

Just in case you thought the global financial system was in melt-down, you can be reassured by the soothing words of Alistair Darling, the British chancellor. He appeared on radio just after dawn today to tell us that concerns should be kept "in perspective" because British banks had “very strong balance sheets”. Yet the failed Northern Rock bank has already used up £23 billion in government-backed loans – which the state will never get back. Darling added: "We have a strong economy, its momentum will carry us through." That’s alright then, except that the UK economy’s growth is largely founded on an unprecedented rise in house prices combined with easy credit. One million people are estimated to use their credit cards to pay their mortgages. This can’t go on, and Darling knows it. The crisis at Citigroup is the latest twist in the unravelling of financial system rooted in fantasy, whose collapse will take the productive economy down with it. On bonfire night in Britain, bankers are piling up assets for putting on the fire.

Paul Feldman
AWTW communications editor