Not me, guv'!

Listening to Gordon Brown yesterday reminded you that New Labour is not actually responsible for anything, despite a dozen years in office. Above all, the government has washed its hands of any shared liability for the financial crisis that has overwhelmed the economy.

Brown, chancellor Alistair Darling, and unelected Business Secretary Lord Mandelson are united in once again trying to pass the entire blame for the crisis on to the bankers while absolving themselves for creating the framework for the very same financial system.

"We won't allow greed and recklessness to ever again endanger the whole global economy and the lives of millions of people,” said Darling in Brighton. “Markets need morals” said Brown in his keynote speech, yesterday, pledging that the government would pass new rules covering bankers' behaviour, including disqualifying those unfit to run banks.

Leaving aside the fact that there can be no such thing as a “moral market” in the capitalist system, there is the small matter of Brown’s own role in the financial meltdown that is far from over.

For 11 years Brown was chief supplicant to the world’s financial operators. During that time he willingly and actively encouraged the City of London to become one of the world’s sweetest honey pots for the busy bees in the banks, and the gamblers on the non-bank markets in derivatives.

Ensuring that credit expanded and flowed around the world, turning into debt as it went, was crucial in keeping the profits of global corporations high. Somebody had to do it to keep production churning out the commodities, and consumers buying them.

So in June 2007, just weeks before the credit crunch took hold, Brown declared that the City had entered a new “golden age”, telling bankers: “The financial services sector in Britain and the City of London at the centre of it, is a great example of a highly skilled, high value added, talent driven industry that shows how we can excel in a world of global competition. Britain needs more of the vigour, ingenuity and aspiration that you already demonstrate that is the hallmark of your success.”

But now, apparently there’s going to be “new economic model for a strong economy”, “a new settlement”. While these platitudes were enough to win over union bureaucrats like Tony Woodley, of Unite, Dave Prentis of Unison and Brendan Barber of the TUC, they were just faint echoes of the laughable “birth of a new economic system” conclusion to the G20 meeting in Pittsburgh. And there, dissenters were dealt with severely using tear gas and sonic weapons.

Now, says Brown, finance is going to be the servant of the people, not the other way round. Why then, we ask, did the US and UK delegates ensure that the G20 decided against mandatory limits on bankers bonuses?

When Brown told his conference that “what let the world down last autumn was not just bankrupt institutions but a bankrupt ideology” he could (but wasn’t) have just as easily been referring to himself and the New Labour “project”.

Brown, Blair and Mandelson won the City over to New Labour on the grounds that they would use the state to set business and finance free to compete in global markets. They would resist the repeal of the anti-union laws and create markets in public services. And the City lapped it up and all went out and voted Labour.

Now the game is up. New Labour has lost it and the British state itself is teetering on bankruptcy. The Tories are on their way back with the support of The Sun, which has seen the writing on the wall and ditched Brown’s party. One thing is certain, however: New Labour is not actually responsible for anything!

Gerry Gold
Economics editor

Shocks to the system

It would be difficult to overestimate the significance of even one of the economic events of the last 24 hours. Fears of a severe recession sent financial markets into freefall once more while retailers launched their January sales two months early in an attempt to tempt now wary consumers into deeper debt.

The price of oil slipped below $50 to a third of the $147 reached earlier this year, a measure of the speed and depth of the slump. Only hours earlier, Robert Shapiro, an advisor to Barack Obama, gave a chilling warning of more financial shocks to come that would shake the system to its roots. Perhaps he had the impending crash of Citigroup in mind, whose planned sacking of 75,000 staff has done nothing to stop its share price from imploding.

Even before Democrats in the US House of Representatives failed to come up with a bail-out plan for the near-bankrupt car producers GM, Ford and Chrysler, another 542,000 workers filed new claims for jobless benefits last week alone, the highest number since the early 1990s recession. More than 10 million American workers are now unemployed.

The big three car makers employ 240,000 in the United States directly and indirectly support more than 4.5 million other workers, including thousands of dealerships and parts suppliers. Up to 3 million jobs could be at stake in a bankruptcy as well as retirement benefits for millions more. The impact of their collapse would be felt everywhere as these are among the giants of the global corporations with manufacturing, distributing and selling operations throughout the world. The crisis has spread to Honda too, which has just announced the closure of its Swindon plant for two months next year.

In Britain, as the Royal Bank of Scotland’s shareholders voted to accept a state hand-out, chairman, Sir Tom McKillop, said he was "profoundly sorry" for the bank's financial difficulties and "sorry" about the human cost that RBS’s troubles have caused. Its demise is a significant point in the history of British capitalism. RBS’s 300 years of operation closely follows the history of capitalist production. The bank’s forerunner, the Equivalent Society, was set up following the 1707 Acts of Union that created the United Kingdom of Great Britain. Now, the once great banking empire is reduced to receiving a £20bn hand-out from New Labour, and, as a consequence it seems, its shareholders will receive no dividends.

Gordon Brown’s dream of getting New Labour to act as a private equity fund by asset-stripping Northern Rock and returning it to private hands has turned into a nightmare as defaults on mortgages held by its previously highly profitable subsidiary Granite have soared, forcing it to stop making payments to the parent company. Repayments of mortgage debt which have fallen 90 days or more behind have risen four-fold since mid-2007. Figures out today have revealed a massive increase in repossessions by the major lenders. They were up by 12% in the third quarter, as another 11,300 were made homeless by the same banks who are guaranteed by the government.

In the midst of all this, the British state’s finances are themselves in dire straits. Borrowing is at unprecedented levels, while tax revenue is plummeting. Tax rises are on the way and the room for manoeuvre is extremely limited. Whichever way you look, the crisis can neither be contained nor solved within the existing political and economic frameworks. This raises the possibility and necessity of a reconstructed system based on not-for-profit finance, servicing sustainable production for need, carried into practice by a new democratic politics as outlined in our book, Unmasking the State.

Gerry Gold
Economics editor