King's speech wins Oscar for half-truths

As everyone who buys their own food and fuel knows, price rises are accelerating. Even in the unlikely event that the revolutionary uprisings in the Middle East and North Africa don’t push oil prices even higher, inflation in the UK is shooting past 4% and heading towards double that by the middle of the year.

The supermarkets which control 75% of groceries, have already doubled the inflation coming through the commodity markets. They’ve pushed the price of processed food up by as much as 6.5% as they try to protect their profits from falling demand.

As the world has seen, when rising prices push food beyond reach even the most autocratic governments feel the anger of the people.

Inflation is just one side of the global crisis. It is the direct and inevitable result of desperate attempts by governments and central banks to reverse the implosion of the global financial system in 2007-8. They poured in trillions of dollars, pounds, yen, and yuan, hoping to restart lending through commercial banks that they had rescued with money borrowed in advance – without asking - from billions of ordinary people, their children and grandchildren.

It was clear from the outset – at least to some – that the growth needed to repay the debt will never materialise. But they had to try. So another solution to the worsening debt crisis is now in play – higher taxes and cuts in government spending which have already provoked social upheaval throughout Europe.

Now the reality is hitting home. Mervyn King, governor of the Bank of England, told MPs yesterday: "The research makes it clear that the impact of these crises lasts for many years. It is not like an ordinary recession, where you lose output and get it back quickly. We may not get the lost output back for very many years, if ever."

And, he added something that should strike fear into the parliamentarians: "The price of this financial crisis is being borne by people who absolutely did not cause it. Now is the period when the cost is being paid, I'm surprised that the degree of public anger has not been greater than it has."

Maybe King is thinking of joining the national demonstration called by the TUC for March 26, which looks like turning into the Britain’s very own Day of Rage. King told the Treasury select committee that the billions spent bailing out the banks and the need for public spending cuts were the fault of the financial services sector. And so he’s now proposing that rather than rescuing ailing banks, ways should be found to allow them to fail, albeit gracefully.

But the bankers’ banker is only telling half the story, or at best one side of it, to shield the real villain in all this – the capitalist system of production for profit. This is the elephant in the room that few people want to speak of. Certainly not the TUC nor Ed Milband and his let's-build-a “prosperous capitalism”-party which we wrote about yesterday.

For decades, global growth of the capitalist economy was only made possible by an expansion of credit many times greater than the new value generated. It couldn’t last. When the limit was reached, meltdown took over. Then everything that was done to try and solve the crisis by treating its symptoms only made it worse.

Growth has been replaced by recession, and everything and anything that is done to try and deal with it just inflames the people affected most. King wonders why people are not angrier and out on the streets like the workers of North Africa. Don’t worry Mervyn. The rage is building and when it blows it needs to be directed not just against a few bankers but at the crazy capitalist system as a whole. At that point, you will be out of a job!

Gerry Gold

Economics editor

Obama's stimulus plans deepen debt crisis

As the political front man for the world’s most powerful capitalist nation, you might expect President Barack Obama to have some degree of control, or at least influence, over the future direction of both US and global economy.

But his proposed budget for 2012 shows exactly the opposite to be the case. The trajectory of the global capitalist economy is beyond the control of Obama or anyone else.

The first big number of note is the projected government budget deficit for 2011 which the White House expects to soar to $1.65 trillion (1 trillion = a thousand billion), equal to 11%of the country’s annual output (just about the same as the UK’s deficit, by the way).

By themselves the two numbers don’t tell us much. But in the era of sovereign defaults or state bankruptcies, it’s important to note that this will turn out to be the largest deficit as a share of the US economy since World War II.

The projected figure is significantly larger than the $1.48 trillion recommended by the non-party Congressional Budget Office (CBO) only a few weeks ago. And it will be 28% higher than last year’s deficit of $1.29 trillion. Unless this week’s battle in Congress manages to achieve what the Republicans want: a savage and immediate programme of slashing cuts for the spending programmes on which millions of Americans impoverished by the crisis increasingly depend.

Some 48 million are already receiving food stamps and the rate of repossessions is increasing. (Incidentally, the more people there are on food stamps, and the more who are driven out of their homes, the more financial corporations like JP Morgan Chase, who are paid to process them, make in profits).

There’s not a lot Obama can do about all this without enraging the people that elected him. The projected deficit is the result of many factors. The most obvious amongst them is the $600 billion printed to offset the effects of the deepening recession, declining tax revenues and the refusal of Republicans to accept the end of tax concessions for the rich.

The budget for 2012 - and the ten years beyond - is based on fairyland estimates of growth (high) and inflation (low), so the details underpinning the intention to reduce the 2012 deficit to $1.1 trillion are hardly worth considering.

But the progress of the ongoing struggle over reducing the deficit is itself directly influenced by the rising cost of servicing the debt charged by lenders. The CBO warned last month that debt interest is "poised to skyrocket" without drastic cuts. Even if Washington faces up to the crisis by raising taxes by a third, it said, debt interest costs alone will still jump from 1.5% to 3.3% of annual output.

But there’s a longer term chronic problem: the one that blew up in 2007. For more than 50 years, each additional dollar of credit issued (and there have been an awful lot of them) bought a declining amount of growth. There lies the insoluble contradiction for Obama and all those trying to solve the problems the crisis presents.

Attempts to stimulate the economy end up costing more than can be repaid. They have failed to reduce unemployment. Youth unemployment in the UK has risen to a fresh record high, with more than one in five 16 to 24-year-olds out of work after a rise of 66,000 to 965,000 without jobs. Printing money has helped send the price of food soaring around the world and inflation is taking off, as yesterday’s figures from Britain confirm, with interest rates sure to rise soon. In Egypt, these were key factors behind the uprising that ousted the Mubarak regime.

China has now become the world’s second largest economy, behind a faltering US. The tensions between the two are palpable. The challenge before us to end a system of production that has entered a deeply destructive mode before trade conflict takes an altogether more aggressive form.

Gerry Gold
Economics editor

Workers must sacrifice so capitalists can profit

The Governor of the Bank of England, Mervyn King has assured us that unemployment will rise and the value of wages will fall as inflation lets rip, leading to the most dramatic assault on living standards since the 1920s.

What’s more, you’ll be pleased to know, it’s absolutely necessary. This is the price we are obliged to pay, says King, to smooth the path to growth and economic recovery.

In actuality, it’s the consequence of failed to attempts to stave off the deepening recession and confirms that they don’t have a clue what to do, apart from the usual capitalist remedy of increasing exploitation and the share of national wealth that goes to the ruling classes.

It’s a similar story across the Atlantic as the rate of repossessions accelerates, driving millions of families from their homes and unemployment touches 10%. President Obama used his annual State of the Union address to warn that the US must mobilise to meet the “mortal threat of foreign competition from China and India”.

He is proposing to reduce government spending to the lowest share of the US economy since the1950s. Despite renewed attempts to rehabilitate the policies of Keynes – who favoured higher spending in a recession – the crash of 2007-8 means that, for capitalism, the era of high levels of government spending is over.

Are these programmes of slashing cuts “ideological”? Yes indeed, they manifest the ideology of those whose job it is to sustain a society devoted to profit at the expense of the majority of people on the planet, and the planet itself.

Throughout the relatively short period in which capitalist production spread across the world, its inner dynamic forced its human agents to find ways to counteract the relentless tendency for the rate of profit to fall.

Investing in technology to increase productivity is one. Forcing wages down another. Together they lead to increases in productive capacity and the volume of goods and services. They call it “growth”.

Pretty soon production expands beyond the available marketplace of consumers. And then credit comes into play, stretching things beyond their “natural” limits - for a while. Then comes the crash. Surplus productive capacity is eliminated, and the process starts up, once again.

This time there’s a difference.

The period of growth called “globalisation” consumed the world’s natural resources at an exponential rate. Corporations spread production throughout the world by recklessly burning fossil fuels, unlocking energy and releasing it into the atmosphere and so intensifying weather patterns.

Early snow in Britain helped to reduce national output by an estimated 0.5% in the last three months of 2010. Floods in Pakistan and Queensland, Australia wiped out crops. Nature mocked capital as the floodwaters wrecked the extraction of coal.

But capital’s human agents are blind to these effects. They are tied into the historic logic of profit from which they cannot escape. Sir Richard Lambert, outgoing chief of the Confederation of British Industry accused the Coalition of having no strategy for growth.

But the Cameron-Clegg branch better reflects the needs of capital at this point in history. They are hell-bent on cutting the deficit, reducing capacity, shrinking incomes, eliminating jobs and services – every action aimed at facilitating the contraction without which “recovery” is impossible.

Rather than allow the destruction of the valuable results of a couple of centuries of human endeavour, it falls to the rest of us to bring the destructive system to an end before it threatens to end the conditions for life on the planet.

In the process of building a global network of people’s assemblies we can establish democratic stewardship of the world’s resources, utilising and advancing the science and technology for sustainable production, and setting ourselves the task of converting it to satisfy the needs of the majority.

Gerry Gold
Economics editor

Winning the council workers' claim

The 48-hour strike by 600,000 council workers is testimony to the strength of feeling among the low-paid, rank and file of the Unison and Unite unions. Whatever doubts they may have had about striking would surely have vanished yesterday when official inflation figures showed prices rising at their highest rate since 1992.

With the cost of feeding a family shooting up by 10% in a year, the 2.45% offered to council workers by the employers – backed up by the New Labour government – is the equivalent of a substantial pay cut. Eggs have soared by over 37% in price, butter by 31.%, fresh milk by nearly 20% and potatoes by 17p in the pound.

The impact is felt greatest by those with the least amount to spend – those on strike today and tomorrow. In the pipeline are huge increases in gas and electricity, while the cost of petrol rises almost on a daily basis as the global corporations try to maintain their profit margins.

The question is: How is the modest claim for an increase of 6% or 50p an hour more to be won? The government has made it plain that “fighting inflation” is its priority. In ordinary language, that equates to holding down wages in the public sector while prices soar. New Labour is backed by the Tories, who control the employers’ negotiating body.

If union leaders like Dave Prentis of Unison are really serious about winning the claim – and there are real doubts about their intentions - they must make this week’s strikes a starting point for a campaign to defeat the government because, make no mistake, that’s what is involved. One or two-day stoppages will not achieve this and run the risk of demoralising strikers.

Unison and Unite leaders must prepare for all-out, indefinite action which is co-ordinated with other unions who have outstanding pay claims, like the teachers and civil servants, some of whom are also out on strike today. A decade of cosying up to New Labour has produced few results, as shown by the 48-hour strike. Now union leaders must listen to their members and totally reject New Labour’s policies, which are aimed at offloading the crisis on to the backs of ordinary workers.

The unions should lead a real fight against inflation which would rouse public support by campaigning along the following lines:

* Creating price committees of producers and consumers. These should analyse the real cost of food and fuel, exposing the profiteering and price-fixing that goes and propose sustainable, not-for-profit alternatives.
* Demanding that supermarket chains cut prices. Tesco, Sainsbury, Asda and Morrisons racked up £4.5 billion in profits last year alone by exploiting producers, staff and consumers. Instead of distributing profits to shareholders, the profits should be used to reduce prices.
* Campaigning for common ownership and control. If, as is likely, the supermarket chains refuse to play ball, the unions should campaign for them to be taken into common ownership and run on not-for-profit lines.
* Reorganising government priorities. By ending wars in Iraq and Afghanistan and cancelling the Trident nuclear missile replacement programme, state subsidies could be made available to make food and fuel affordable.

Just like the Tories, Brown and company are tied hand-and-foot to big business interests. If winning the strike involves breaking, even bringing down, New Labour, the government’s demise would be no great loss. Such an event would create a unique opportunity for trade unionists and other workers to discuss new political possibilities as well as real solutions to the deepening economic and financial crisis.

Paul Feldman
AWTW Communications editor

Lies and more lies over pay

Chancellor Alistair Darling has joined forces with Mervyn King, the Governor of the Bank of England, to admit their inability to prevent spiralling prices and deepening recession. Except for one thing. In order to protect corporate profits they have launched an assault on the living standards of public and private workers by denouncing any attempt to keep pay levels in line with inflation.

They used a twisted, but expected logic. Whilst the problems in the economy are due to global conditions beyond the control of government, this doesn’t prevent them from holding UK workers responsible for causing inflation. Darling and King warned of the dangers of a return to the 1970s, when, they allege, big wage increases were the cause of spiralling price rises.

The facts, however, are stronger than the misinformation (and ignorance) of the defenders of capital within New Labour and the Bank of England. Stephen Roach, head of Morgan Stanley Asia, is one of the world’s most respected investment bankers. Writing last week he had to admit that things were different: "Today’s stagflation risks are very different from those that wreaked such havoc 35 years ago. Unlike in that earlier period, wages in the developed economies have been delinked from prices. That all but eliminates the automatic indexation features of the once dreaded wage-price spiral – perhaps the most insidious feature of the ‘great inflation’ of the 1970s."

And a year and a half ago, Roach really showed what had happened to wages in the period since the 1970s when he wrote: "At work is a powerful asymmetry in the impacts of globalisation and global competition on the world’s major industrial economies namely, record highs in the returns accruing to capital and record lows in the rewards going to labour." In plain English, the real value of wages has fallen over the last three decades for many workers, while profits (and bonuses) have gone in the other direction. Not our fault then.

Meanwhile Dave Prentis, general secretary of public sector union, Unison, grabbed some headlines for himself, threatening to bring down Brown’s government over pay. Prentis is worried that his members are deserting not just New Labour, but also deserting the unions which have sat on their hands for decades as jobs have been exported and living standards fallen.

But behind the posturing, Prentis is still trying to keep his members tied to New Labour. His conference speech ended with these tired sentiments: "Gordon Brown and Labour need to become, once more, the party with vision, the party that marks itself out as the champion of working people, of social justice and fairness, of the poor and the vulnerable: the party of high quality, properly funded public services, finally breaking the costly chains of privatisation."

This is not going to happen and Prentis knows it. His members are angry because Unison refused to oppose a three-year pay deal in the NHS which, with inflation going through the roof and 40% energy price rises to come, looks and feels like a pay cut. Unison’s rank-and-file will have no confidence in Prentis’s drum-banging while cosying up to New Labour at the same time. They are going to have to force the union leaders to act, and then watch them like hawks, in order to defend their standard of living. When the anger of Unison and other low-paid trade unionists blows, as it surely will, it could easily sweep both Prentis and New Labour away with it.

Gerry Gold
Economics editor

A cornered, frightened government

New Labour came to power pledging to end the “boom and bust” policies of the Tories for ever. Now, as the economy slides into recession and prices soar, the Brown government is paralysed, desperate to divert attention away from the mounting crisis by any means. Scaremongering plans to lock up terror suspects for six weeks without charge fit the bill nicely.

That’s one explanation why the beleaguered Brown premiership is pressing on with the vote tomorrow on proposals to give police powers to hold people for 42 days, despite widespread opposition ranging from former attorney-generals to Scotland’s chief law officer. The move would destroy historic, constitutional rights to know what you are accused of and to be charged promptly or set free.

Another reason for soldiering on is that this frightened government is anticipating social unrest and is amassing an array of measures for the state to deploy as and when necessary. Anti-terror laws are already routinely used against climate camps, anti-arms trade protests and women protesting outside the secret Menwith Hill installation in north Yorkshire. "Anti-terror" powers are used to convict individuals merely for alleged membership of "proscribed" political organisations, for possessing DVDs and for downloading web pages.

A social crisis is looming as the credit-fuelled economy continues to unravel day by day. The number of houses changing hands has collapsed to the lowest level in 30 years, a new survey shows. The fall in sales far exceeds the depths of the last housing crash in the 1990s. Neil Hunt, a Derbyshire-based estate agent, said: "Demand has plummeted to a crisis point with sales at their lowest May level in memory. An avalanche of job losses in the housing industry is beginning to materialise which could make current media stories look like the good old days." At the same time, the Bank of England is planning to increase interest rates in a futile response to rising inflation. It has all but given up on attempts to unlock the credit crunch by pumping money into the financial system and is apparently preparing for the worst. Mortgage rates are likely to rise, increasing the pressure on hundreds of people already unable to cope with rising costs.

On that front, the Office of National Statistics yesterday released factory inflation figures, which showed that prices last month increased at the fastest rate since records began 22 years ago, and most probably since 1976. One of Britain's biggest food manufacturers – Northern Foods – has closed a pasta and ready meals factory in Grantham that supplied Marks & Spencer because the supermarket refused to absorb some of the cost increases. Up to 700 people face losing their jobs. A cooked meat plant in Deeside, north Wales, shut down last week with the loss of 70 jobs, because of soaring prices.

With popular support draining away, Brown now depends for survival on a narrow group of senior police officers (most outside London oppose 42 days), the generals doing the government’s bidding in Iraq and Afghanistan, the spy agencies MI5 and MI6 and some sections of the civil service. And, of course, on New Labour’s own MPs who have helped create an authoritarian edifice by approving endless anti-terror laws and surveillance powers. Something along the lines of the Spanish truck drivers’ border blockade over fuel prices could easily destabilise New Labour. Be warned: Desperate, cornered governments can do desperate things to maintain their grip on power.

Paul Feldman
AWTW communications editor

A perfect economic storm

The Bank of England and the European Central Bank kept interest rates steady this week, despite pressures for a cut to boost economic activity. The central banks were paralysed by contradictory movements in the global economy that render them helpless.

As everyone knows, prices are rocketing, and the things that hit most people hardest are rising the fastest – food, housing, fuel for heating and travel. Lowering interest rates would add to inflationary pressures. At the same time, growth, the one thing that is the essential measure of the health of the capitalist economy, is turning into its opposite - recession and slump.

Amongst the world’s most powerful global corporations car makers Ford, General Motors and Chrysler are shutting some of their most productive factories as demand for fuel-hungry models evaporates. Ford is slashing salaries by 15%, delaying agreed wage increases by three months, ending training programmes, putting a $25,000 limit on life insurance payouts, and sacking as yet unknown thousands of its employees,

The airline industry is shrinking fast. Silverjet, the UK all-business class airline last week suspended all flights. In the US, Credit Suisse analyst Daniel McKenzie expects 2009 domestic capacity “will be in line with where it was in 1998 to 1999, essentially wiping out 10 years of growth for the legacy carriers.” Continental Airlines is cutting 3,000 jobs and taking 73 aircraft out of service. United Airlines is grounding a fifth of its fleet.
According to Giovanni Bisignani, director general of the International Air Transport Association, “oil skyrocketing above $130 per barrel has brought us into uncharted territory. Add in the weakening global economy and this is yet another perfect storm.” Bisignani said 24 airlines had gone bankrupt in the past six months and the sector faced $99bn of extra fuel costs in year ahead. He describes the situation as “desperate and potentially more destructive” than the setbacks the industry had faced in recent years from terrorism, economic slowdown, the outbreak of Sars [severe acute respiratory syndrome] and the war in Iraq.

Despite all of this, shares in airlines have risen. Investors smell profits when companies take action to cut costs. Proponents of the market economy see all this as a necessary shake-out and some are looking for opportunities to revive the economy through new ventures linked to the climate crisis. Ken Lewis, chairman and chief executive of Bank of America, has called for governments to intervene to help accelerate the movement towards renewable energy sources. He says “there is a strong connection between our willingness to diversify our energy sources and our ability to grow the global economy sustainably.”

What’s the betting he was part of the lobby that ensured the US delegation blocked any acknowledgement of the impact of the switch to biofuels on food prices at the UN’s food crisis summit yesterday?

The economic crisis is sharpest in the US and Britain – the two countries weighed down by the largest amounts of debt. Both countries are in a deadly race, to see which one is actually the weakest link in the global capitalist chain and breaks first. Judging by this week’s deeply pessimistic OECD forecast, accompanied by plummeting house prices and consumer spending, Britain could well be in first place.

Gerry Gold
Economics editor