How to fight spending cuts

As Britain heads for state bankruptcy, we urgently need a bold strategy that rejects the massive cuts in public spending being planned by New Labour and the Tories because, clearly, the present economic set-up is not sustainable.

On the one side is growing mass unemployment, especially among young people, a rise in repossessions and growing poverty; on the other side, there are hidden plans for government-inflicted pain on key services because the economic and financial meltdown has devastated public finances.

A report today from the National Audit Office (NAO) reveals the steepest decline in government revenues since the 1920s. They fell by an estimated £32 billion or 5% in 2008-9, as the recession took its toll on taxes and VAT receipts. Taking this and bank bail-outs into account, the government will have to borrow a massive £230 billion in the coming year or about 40% of 12 months’ public expenditure.

There’s no guarantee that the financial markets will stump up this sort of money or, if they do, the interest charged will rise to take account of the possibility that the state may not be able to meet its repayment obligations. All this means that whoever wins the next general election will slash and burn to balance the books.

If you want to see the consequences of losing control of state finances, you need look no further than Ireland. The country has gone from being the so-called Celtic Tiger to the toothless pussycat in the flicker of an eye, joining Iceland as one of the most precarious economies in Europe.

Irish prime minister Brian Cowen has put his name to a 300-page report that includes proposals to slash social welfare payments and make cuts in healthcare and education. “The scale of the issues are such that no area of expenditure is immune from consideration,” he warned.

The Cowen government, which includes the Greens, has already passed two emergency budgets to stop the deficit soaring to 15% of the country’s annual wealth. They have not been enough. At least 17,300 public sector workers could now be laid off, even though unemployment is already 12% and heading for 16% next year.

Education faces severe cuts. Scores of rural schools will close, and 6,900 teachers must go. "The attacks outlined in this report would represent an education disaster and light a short fuse on a social time bomb," said the Teachers Union of Ireland. Child benefit is being reduced by 20% in a desperate bid to cut government borrowing, which is running at £345m a week, with punitive interest rates a large chunk of the bill.

If ever proof was required of the insane nature of capitalism, what is taking place in Ireland and what is planned for Britain is surely enough evidence to convict. Services built up over decades as the result of the campaigns and struggles of ordinary people are suddenly to be dismantled because global capitalism not only isn’t working but is on a path of self-destruction.

A crash programme is required to stabilise the position as a first step to reorganising the economy in a more sustainable way. The programme has to include:

* Public ownership of the entire banking and financial sector, without compensation to the former owners
* Redirection of the billions made in interest payments by corporations to shareholders in order to maintain services
* A recycling of UK pension funds, which have lost out by being tied to stocks and shares, to help public finances
* Creation of new jobs for the unemployed through public infrastructure projects and the seizure of all workplaces threatened with closure such as the occupied Vestas wind turbine plant on the Isle of Wight.
*The scrapping of Trident nuclear missiles and a withdrawal from Afghanistan.

Of course, neither New Labour nor the Tories would dare to challenge the vested interests of capitalism in this fashion. Carrying through this alternative to horrific spending cuts will require the building of a movement for revolutionary change that can turn society upside down – or perhaps put it the right way up!


Paul Feldman
Communications editor

Regulators dance to the banks' tune

That Goldman Sachs, the world’s largest investment bank, is set to pay record bonuses that even exceed those made before the credit crunch, is only one sign that nothing has changed in the world of global finance. This comes hard on the heels of decisions by Alistair Darling and the European Union to leave the banking system more or less as it was before it collapsed gratefully into the arms of taxpayers.

Sachs, whose former executives include the US treasury secretary Timothy Geithner and his predecessor Henry Paulson – joint architects of the bail-outs – has reported record earnings for the second quarter and if it maintains these profit levels, bonus payouts for the year could reach a staggering $22 billion.

As Matt Taibbi, the fearsome US journalist, writes in a powerful article for Rolling Stone: “The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

All of which goes to show two things: how powerful banks like Goldman Sachs remain and how powerless governments and states are in relation to global financiers. Remember the pledges at the G20 summit in London in April? Obama and Brown et al committed themselves to regulate the banks so that the financial meltdown could not happen again. You would do well to remember that the summit began gathering on April Fool’s Day.

The joke, made at our expense, is that the state will use taxpayers’ money to keep the banks afloat – Goldman, for example, got billions from the US government to cover losses incurred when insurance giant AIG went belly up – while only the most cosmetic regulatory changes will be introduced.

Last week, Alistair Darling, the chancellor, published a white paper on the future of banking. While acknowledging that any significant changes would have to be agreed globally, the white paper remains in favour of preserving what many see as a major cause of the collapse – the use by banks of arms-length “special vehicles” for the purposes of speculation.

Although the report is supposed to be dedicated to regulation, it adds that “the government is clear that the financial crisis was not caused by a lack of powers within the UK’s regulatory regime”. Not only that, but “the prime cause of the problem was the action (or, in many cases, inaction) of market participants”. A similar view is being taken by the European Union and by the Bank for International Settlements, leaving one commentator to suggest:

The message, then, is speculative business as usual, though at a higher capital cost. So the crazy habit of running the banking system as an off-balance sheet vehicle of the public sector may still be intact. To put it in the language of former Citigroup chief Chuck Prince, the regulators are still dancing. The taxpayer is still at risk.

What actually exists is an unholy alliance between regulators – aka the state – and the banking behemoths, which politicians like Brown and Obama orchestrate. The objective is to maintain and sustain capitalism at all costs, one of which is years of cuts in spending on essential public services to pay for the banking bail-outs. The moral of this story is there is not going to be a kinder, better regulated, fairer kind of global capitalism at the end of this crisis and the sooner that is understood and acted upon, the better.


Paul Feldman
Communications editor

Poor bloody infantry pays the price

New Labour lied about the reasons for invading Iraq and now they are doing the same about the purpose of the continued occupation of Afghanistan. In fact, ministers have the blood of the young British soldiers on their hands. They are the sacrificial lambs of a failing neo-colonial policy which messages of condolence cannot conceal.

Prime minister Brown and the rest of the talking parrots in the cabinet are deceiving everyone, including the families of the bereaved, when they claim that the soldiers, some as young as 18, are dying on the front line in Afghanistan so that British citizens can walk the streets safely.

This is simply a repeat of the failed mantra of the “war on terror” that New Labour signed up to under George W. Bush’s presidency (which was extended to justify the illegal invasion of Iraq). Obama’s White House has simply dusted down the doctrine and given it a “human face” with talk of “nation building” and minimising civilian deaths in place of torture and random air strikes.

In any case, the idea that fighting the Taliban makes British citizens safer from terror attacks is clearly delusional. It conjures up a 19th century vision of uncivilised and ungrateful Afghans heading for Britain armed to the teeth in search of revenge. As for defeating the Taliban to thwart Al-Qaeda, they are by common consent in Pakistan not Afghanistan and their reach is global rather than national.

The only significant terror attack in Britain, in July 2005, was carried out by British-born Muslims angered by US and British support for Israel’s war on the Palestinians while they invaded Iraq. Significantly, a recent survey for the BBC found that 76% of young Muslims in Britain thought that Britain and the US were wrong to intervene in Afghanistan, while only 25% “fully understood the reasons” for the occupation. You can draw your own conclusions about the implications of this finding if the occupation is allowed to continue.

Rory Stewart, who has been a soldier, diplomat and academic and has travelled extensively in Afghanistan and Iraq, has exposed the government’s policy of building a “stable Afghanistan” as a nonsense when he wrote recently:

Obama and Brown rely on a hypnotising language that can – and perhaps will – be applied as easily to Somalia or Yemen as Afghanistan. It misleads us in several respects: minimising differences between cultures, exaggerating our fears, aggrandising our ambitions, inflating a sense of moral obligations and power, and confusing our goals. All these attitudes are aspects of a single worldview and create an almost irresistible illusion.
It conjures nightmares of "failed states" and "global extremism", offers the remedies of "state-building" and "counter-insurgency", and promises a final dream of "legitimate, accountable governance". It papers over the weakness of the international community: our lack of knowledge, power and legitimacy. It conceals the conflicts between our interests: between giving aid to Afghans and killing terrorists. It assumes that Afghanistan is predictable. It makes our policy seem a moral obligation, makes failure unacceptable, and alternatives inconceivable. It does this so well that a more moderate, minimalist approach becomes almost impossible to articulate.

As always, the poor bloody infantry, or the PBI as British foot soldiers have referred to themselves down the ages as they suffered under incompetent leadership and failed strategies, are paying the price for the Afghan military adventure. Evidence is mounting that New Labour is not even prepared to spend the money to protect and equip the PBI adequately in a war that produces nothing but misery for ordinary people in both countries. Perhaps Brown and company ought to be sent to Afghanistan to try their hand at “nation-building” themselves following their great successes in Britain.

Paul Feldman
Communications editor

Durham Gala brings past struggles to life

It was an awesome and poignant sight that sent shivers down your spine and brought a lump to your throat - the first colliery band entering the pristine, green old racecourse at Saturday’s 125th Durham Miners Gala.

The men and women playing the shiny brass instruments marching behind their colourful pit banner were not some quaint folk tradition. No, they stand for much more. They, and the dozens of other colliery bands, who took pride of place at the Gala, or “the big meeting”, are living symbols of a working class movement that has gone through the harshest of histories.

These communities have endured two centuries of sheer backbreaking drudgery and high mortality rates, the betrayal of the 1926 General Strike, the erosion of jobs, and, finally, the trial of strength between the Thatcher government and the National Union of Mineworkers, led by its president Arthur Scargill, a quarter of a century ago.

The magnificent attendance of around 50,000 at the gala is a demonstration that those workers and their families have not forgotten that history. On the contrary – the grandparents, mothers and fathers and their children strolling through the sunshine – were only too aware that today’s generations stand on the shoulders of their ancestors.

The Gala has been held continuously since 1869 interrupted only by miners’ strikes and the two world wars. At its height, it attracted 250,000 workers and their families. On Saturday, three new banners, Westoe, Boldon, and South Hetton, joined the parade. Two of County Durham’s worst pit disasters - West Stanley in 1909 when 168 men and boys were killed and Easington in 1951, when 83 died – were also commemorated. Gala co-ordinator George Robson said that enthusiasm for the Big Meeting was growing, with groups restoring their banners: “I am dealing with 46 or 47 lodges or community groups and they are springing up all the time."

Amongst those present was an acute awareness that what the miners’ endured in their year-long strike 25 years ago was on the agenda again today, albeit in a new and more comprehensive form which affected all workers as a vast new economic meltdown takes effect. Matt Wrack, secretary of the Fire Brigades Union and Bob Crow of the Rail Maritime and Transport Union joined Dennis Skinner MP and NUM president Ian Lavery and Durham Miners Association and former NUM general secretary David Hopper on the speakers’ platform. Hopper accused Labour MPs of "paving the way for the return of the Tories” while Crow denounced the government and said the future for workers did not lie in the direction of New Labour.

Surveying from the edges and even strolling through the racecourse for the first time at a Gala, police Forward Intelligence Teams (FIT) armed with batons and cameras, strutted their stuff, despite the entirely peaceful and festive nature of the occasion. They were a reminder of the confrontation with state forces in the 1984-5 strike for jobs.

Although the miners were forced to end their strike in the spring of 1985, without achieving their objective of preventing the pit closures, they demonstrated the fighting capacity of their union and their class. The strike marked the end of the post-war epoch in which pressure politics of trade union action could achieve aims such as higher pay and the protection of jobs. The image of the British state as an even-handed mediator standing above the classes in society was stripped away as police cavalry charges and jail sentences rained down on those who had dared to fight for their jobs.

As A World to Win’s new book, Unfinished Business, launched at the Gala concludes:

“The miners in 1984-5 found that they were unable on their own to save their jobs and communities. Ultimately, the power to determine their futures rested with the state and capitalism. Today, new generations and other communities will, like the miners, rise to the challenge and create a leadership that sets its eyes on the main prize: the conquest of power. This is the way to prevent capitalism from turning another industry and its communities into a wasteland. The great miners’ strike remains unfinished business.”

Corinna Lotz
Secretary, A World to Win

A crisis beyond the power of prayer

When the leader of an organisation claiming a billion members decides to write a letter about the “complexity and gravity of the present economic situation” to the G8, the leaders of the world’s richest capitalist countries meeting in Italy, it’s worth considering what he has to say.

In his third encyclical, Pope Benedict XVI delivers a profound, historically-grounded analysis of the causes and consequences of the current crisis, taking in neo-liberalism, corporations, globalisation, the collapse of the Soviet-bloc countries, growing inequality, poverty and mass migration, terrorism associated with religious fanaticism – and points his critical ringed finger at the narrow pursuit of short-term profit. Here’s a sample of his analysis:

The global market has stimulated first and foremost, on the part of rich countries, a search for areas in which to outsource production at low cost with a view to reducing the prices of many goods, increasing purchasing power and thus accelerating the rate of development in terms of greater availability of consumer goods for the domestic market. Consequently, the market has prompted new forms of competition between states as they seek to attract foreign businesses to set up production centres, by means of a variety of instruments, including favourable fiscal regimes and deregulation of the labour market. These processes have led to a downsizing of social security systems ...Through the combination of social and economic change, trade union organisations experience greater difficulty in carrying out their task of representing the interests of workers…

When it comes to prescriptions, he’s equally grounded and looking for change:

The human consequences of current tendencies towards a short-term economy — sometimes very short-term — need to be carefully evaluated. This requires further and deeper reflection on the meaning of the economy and its goals, as well as a profound and far-sighted revision of the current model of development, so as to correct its dysfunctions and deviations. This is demanded, in any case, by the earth's state of ecological health.

Warning of the new risks of enslavement and manipulation arising from the “cultural eclecticism” resulting from the "increased commercialisation of cultural exchange”, the Pope gets right to the heart of the matter – calling for a re-evaluation and remodelling of the state, leading to new forms of democracy, “an increase in the new forms of political participation, nationally and internationally, that have come about through the activity of organisations operating in civil society”.

And on the economy, to a degree he even puts himself alongside those calling for forms of common ownership, rejecting the “binary market-plus-state” and suggesting economic initiatives which “aim at a higher goal than the mere logic of the exchange of equivalents, of profit as an end in itself”. The encyclical declares that “there must be room for commercial entities based on mutualist principles and pursuing social ends to take root and express themselves”.

Before you get too excited, just like the many versions of Keynesian new dealers, so-called lefts, reformists and greens, the Pope is, naturally enough for the leader of one of the richest organisations on the planet, in favour of capitalism, albeit in a more civilised form.

When he says that “economic life undoubtedly requires contracts, in order to regulate relations of exchange between goods of equivalent value”, he’s talking about the employment contract. People must have jobs so that when they sell their labour power to employers, profit, rent and interest can be extracted from the value they generate. That’s the essence of capitalism, and until those social relations have been replaced in their entirety there is no way out of the present global meltdown, not even through the power of prayer.

Gerry Gold
Economics editor

How 'queue-jumping' myth is reinforced

The report by the Equalities and Human Rights Commission (EHRC) that confirms that social housing allocation does not favour new arrivals to the country nails a myth, although it won’t stop it being repeated. Our question is, however, is who perpetrated this legend and why?

All the evidence points to the New Labour government and the right-wing press like the Daily Mail, which have been courted for their prejudiced middle-class, middle-England voters.

So when you ask how the neo-fascist British National Party is able to use lies about queue-jumping immigrants to stir up opinion, you need look no further than the governments led by Blair and Brown, as well as statements by former ministers like Margaret Hodge.

The figures and facts produced in the EHRC report have always been available. Many of them are held by the Office for National Statistics, others by local authorities.

Yet for more than a decade, the government decided to reinforce prejudice and myth rather than counter it. As the report itself points out, one of the early acts of the New Labour government was to change the rules on the housing entitlements of asylum-seekers.

In 2000, after the implementation of the Immigration and Asylum Act 1999, all existing rights to housing and all types of benefits were removed, and a new housing and subsistence scheme for asylum-seekers based on dispersal and the use of private landlords, was created. The EHRC report says these policies “fuelled misconceptions” about “queue jumping”.

A notorious voucher scheme was introduced before being abandoned, while the courts eventually had to step in to declare that a refusal to give destitute refugees any help breached human rights law. This made sure that the story repeatedly made its way into the tabloid press.

The report also points the finger at urban renewal policy since 2001, where “community cohesion” has taken on new meanings that place “greater focus on migrants and minorities themselves, and less on all residents of a neighbourhood”. In other words, migrants are made the problem and not part of the solution. It is scapegoating in the name of “integration” and the acceptance of so-called British values, an approach that has marginalised sections of Muslim youth and driven some of them into the arms of sectarian Islamists.

These perceptions were highlighted in May 2007, when Margaret Hodge, MP for
Barking and then a member of the government, suggested in The Observer that new migrants should have less right to social housing than “established British families”. Hodge had said the year before that eight out of ten of her Barking constituents might vote for the BNP because “no one is listening to them”. The BNP made huge gains in the following month’s council elections and sent Hodge a bunch of roses as thanks.

And so it goes on. Government proposals, published as a Green Paper in 2008, proposed amending migrants’ restricted entitlement to social housing even further. Settled status may in future be abolished and instead replaced with a status termed “probationary citizenship”, with no entitlement to social housing and most benefits.

Then last week, in a desperate bid to outdo the BNP, prime minister Brown announced that the government would "reform social housing allocation - enabling local authorities to give more priority to local people whose names have been on waiting lists for far too long". Or British homes for British people. No wonder gullible voters are led to believe that these are major problems in society, when the cause lies somewhere quite different.

Since it came to power in 1997, the number of new homes built for social rent has fallen dramatically, as the report points out, while council homes continue to be sold off. Public investment has been directed towards encouraging “shared ownership” schemes instead. There is an absolute shortage of social housing and this is entirely the responsibility of a government, as is the myth of queue-jumping.

Paul Feldman
Communications editor

A system bent on self-destruction

So Steve Bundred, chairman of the Audit Commission, wants a public sector pay freeze, describing it is a “painless” way to make some of the spending cuts that, according to accepted wisdom, are required to balance the government’s books. His remarks not only demonstrate a breathtaking arrogance but a bankruptcy of thinking as the economic crisis deepens.

Bundred is a civil servant, appointed to run an unelected body whose job it is to drive “efficiency” (translate this as jobs cuts) and “value for money” (more of the same) mainly in local government. It is not within his remit to make or advocate public policy like he did in an interview with The Observer over the weekend. Any half decent government would have slapped him down/fired him by now.

Not New Labour, however. Bundred was flying a kite for the government, which chancellor Alistair Darling has picked up and is running with. Darling followed Bundred by declaring: “Public sector pay obviously has got to reflect prevailing conditions and, in particular, inflation has come way down.” He said the government would decide its pay policy “over the next few weeks”, hinting that a freeze was in the offing.

The Tories are beginning to fall in line, with today’s Daily Telegraph declaring: “Mr Bundred should be congratulated for kick-starting a discussion stalled by the cowardice of politicians. The public wants an urgent debate about how and where the inevitable spending axe will fall, and where taxes will hit. Now it has begun.”

What has actually started is a war on working people through unemployment, pay cuts and attacks on public services. A pay freeze is, in reality, a reduction in take home pay as prices for everyday commodities like food and fuel continue to rise. BT staff are being asked to take a massive 75% pay cut just to keep their jobs for a year, while British Airways workers are being urged to work for nothing for a month!

There is no question, however, of the sacrifices being shared out. Bundred, who has made a long journey from the early 1980s when he was a leading left-wing member of Ken Livingstone’s pioneering Greater London Council administration, will go on collecting his £230,000 a year salary. There is an allowance of up to 10% for “performance-related pay” top-ups, so he wouldn’t even notice a pay freeze.

The fact is that, even within the framework of capitalist economics, none of this will help restore the battered economy to some sort of normality. In fact, quite the reverse is true. The less purchasing power workers have, the fewer goods that are bought, the more jobs that are lost as a consequence, the deeper the overall crisis gets. This is ABC economics.

But capitalism knows no other way. If profits are to be sustained, and public spending balanced, then the main targets are pay, jobs and services. In that sense, it is a suicidal system, driven towards self-destruction at our expense.

There is another way, however. At present, the British state is the political extension of corporate and financial power. That is why the banks are bailed out while the state itself is bankrupted, and why corporation tax at 28% is the lowest of any of the developed capitalist economies. While economic and financial power remains in private and/or state hands, clearly we do not have the means to make the ruling classes pay for the crisis instead of ordinary people. Altering that state of affairs is what have to turn our attention to.

Paul Feldman
Communications editor

New Labour hits the buffers

It was yet another New Labour panacea. Bringing in private finance would make public spending go further and transfer the risk from the taxpayer to companies. Who cared whether it was public or private sector that financed and/or delivered services and projects – what mattered, we were assured, was “what worked”.

Well, it has turned out to be yet another New Labour con-trick. The collapse of the National Express rail franchise and the failure to find to a buyer for part of Royal Mail, are sure indications that the entire policy is in ruins – and that taxpayers and workers will be made to pay the price if the government gets half a chance.

The whole approach was, in any case, founded on the serious illusion that global capitalism had an infinite appetite for “public-private partnership” (PPP), and that the world had entered a new period of endless, stable economic growth. There was enough spare capital to replace what the state used to do.

So the state’s role was simply to facilitate the corporate-driven globalisation process. A key departure, started under the previous Tory regime, was to privatise state assets, including rail. New Labour took this further and before long the state was a “commissioner”, inviting the corporate sector to get involved on a grand scale.

And it did. Under Brown as chancellor and Blair as prime minister, the value of contracts for public services held by the private sector grew to over £80 billion. A third of all services are, in one form or another, contracted out to companies and charities, a higher proportion than any other major economy.

We are talking about school building, school services, schools themselves in the form of Academies, hospital projects, health services, air traffic control, employment services, welfare provision, London Underground, sections of the legal and justice system, prison building, large parts of council housing, defence technology – in fact, you name it and it is almost certainly been given the PPP treatment.

Now both outright privatisation and PPP is floundering as the economic meltdown gathers pace. Metronet pulled out of the London Underground project and left passengers to pick up the tab in higher fares. Many college and school building projects are in difficulties.

National Express – or should that be National Excess because their fares are eye-wateringly high – have reacted to falling passenger numbers on the East Coast route by simply walking away from the contract struck with the government in 2007. The company is simply not going to pay the £1.4bn due to the government by 2015.

The transport secretary, one unelected Lord Adonis (whatever happened to the Commons?), plans to take the franchise into state ownership later this year – and then retender it in 2010. But no one expects bidders (if there are any out there) to offer what National Express paid. One of the factors behind the franchise’s demise is that the government itself got greedy and encouraged bids that were in practice dependent on impossible increases in passenger numbers.

So we are left with the situation where neither the capitalist state nor capitalist corporations are in a position to deliver on contracts or services that are essential in a modern society.

The state, as we know, is essentially broke after giving the banks vast sums in a futile bid to prop up the financial system, while the corporate sector is slashing jobs and shutting down operations in every sector. What will happen to the pensions of Royal Mail workers, for example, now that capitalist firms have failed to come to the government’s aid?

This is an unacceptable position. Britain is not a poor country. Its workforce creates vast amounts of added value when it has the opportunity. The economy has just been hijacked and then wrecked by the political class and its corporate friends. There can be no stronger case for removing their power to do any further damage.

Paul Feldman
Communications editor

'Honey - I shrank the economy', a nightmare by Brown & Darling

The graph from the Office of National Statistics, showing Britain’s incredible shrinking economy, surely has a much bigger immediate impact on our ability to grasp what is happening than the many thousands of words pouring from journalists’ keyboards and spewing from politicians’ mouths.

What it reveals is that the recession is rapidly turning into another Great Depression. ONS figures show that the British economy shrank by a massive 4.9% in the year to the end of March 2009. According to economic historian Angus Maddison, this contraction is the biggest since 1931, the year when the Ramsay MacDonald Labour government collapsed and the prime minister formed a national coalition with the Tories.

"Clearly this is now the worst peacetime recession since the 1930s," said Michael Saunders, chief UK economist at Citigroup. "The worst contraction then was a year of around -5pc; this year will not be hugely different." The Great Depression only ended when preparations began for World War Two.

The ONS also announced that GDP (gross domestic product) in real terms in the first quarter of 2009 fell by 2.4% compared with the previous quarter. Yet only a month ago, the ONS still estimated a decline of 1.9% for the same period.

It is important to understand the reason for the revision: the rate and scale of the collapse are both so great that they overwhelm the predictive statistical techniques which the ONS use. Largely based on inferring trends from historical data, the ONS is no longer able to accurately approximate the immediate past, let alone say much about the present or the future. When more of the real concrete evidence came in, the shock of the new took most of those supposedly in the know by surprise.

Put simply, things are getting much worse and faster. Output of the production industries fell 5.1%, but construction output fell 6.9% compared with a fall of 5.0% in the previous quarter, and it is set to deteriorate further, as investment in machinery and new buildings has slumped.

And what of the future? With tax income declining and having tested the limits of its ability to issue new debt, the New Labour government is caught between denial and a charade of lies about the cuts it will have to make if it remains in power after the next election. So much so that, according to the unelected autocrat-in-waiting Lord Mandelson, it has either postponed or cancelled its comprehensive review of public spending.

The Bank for International Settlements (BIS), in its annual report is forced to acknowledge that the crisis shows that the “presumed benefits of diversification derived from the creation of financial conglomerates” were – wait for it – “an illusion”. Well, who would have thought it!

The shattering of the financial illusion resulted in a financial collapse, which in turn precipitated the economic collapse now taking place, ending another delusion – a boom based on debt-driven consumer spending. As to the notion of a swift recovery, the BIS report is sobering. It warns: “The very speed of the recent downturn could create larger than average second-round effects. In particular, if the propensity to save were to rise further in the industrial economies – as could easily happen, given the high overhang of household debt and dramatic reduction in household wealth – contractionary impulses in the global economy could be prolonged.”

Don’t say we haven’t been warned. The echoes of 1931 are resounding across the globe, reinforcing the urgency of our developing practical alternatives to capitalist slump which tackle the roots of the crisis by replacing a profit-driven economy that relies on illusions with one designed to meet the needs of people and the planet.

Gerry Gold
Economics editor

If it can't be fixed, scrap it!

At the end of last week, Lord Mandelson, the authentic, unelected voice of global capital within the New Labour government, stated what he saw as the “simple problem”. He was making a bid for supranational influence in Washington, in a speech entitled “Can we fix globalisation?".

He put it like this: “The stability of the global economy is the sum of sovereign national macroeconomic policies on interest rates, currency levels, domestic spending and demand. There is no mechanism to mediate between these policies or enforce action that would counter systemic risk, in financial markets or at the general level of the global economy.”

Mandelson, who is now effectively deputy prime minister after saving Gordon Brown’s skin, couldn’t have put it clearer: the whole thing is beyond control. Capital does what it has to do, regardless of what policymakers and wonks want. Take pensions, for example. Employers now see their contributions as a major cost to be cut at a time of crisis.

Yesterday, the Organisation for Economic Cooperation and Development warned that the destruction of the value of both private and public pensions threatened to turn the two year financial crisis into a “social crisis lasting decades”. An OECD survey found that private pension plans lost 23% of their value last year, while higher unemployment “leaves little room for more generous public pensions”. At the same time, accountancy firm PricewaterhouseCoopers revealed that for the first time many firms are planning to end their final-salary pension schemes for existing staff as well as new entrants.

What, you may ask, about the total of $5,000bn (about £3,000bn or £3 trillion) already pumped into banks and pledged by governments to stimulate their own economies? Even if you discount the fact, according to Kroll, the world’s leading risk consultancy, in the rush to spend the money, more than $500 billion – at least a tenth of the total - will be lost to fraud and bribery it’s still a load of cash. Surely all that money is doing its job, freeing the credit markets and restarting investment? Surely the upturn is on the way?

No, it isn’t.

The World Bank, another global agency with no power at all to fix the crisis, projects that the world economy will now contract 2.9%, seriously worse than its forecast of a minus 1.75% just three months ago in March.

Capital inflows to developing countries will turn sharply down, says the report, falling by a shocking 75%, leading to a 50% contraction in industrial outputs. Germany, Japan and South Korea are heavily dependent on capital intensive exports to economies like Russia, China and Hungary, so will suffer badly from the reciprocal effect of the accelerating downturn. Shares in Russia have crashed 20% this month already, and its banking system has all but ceased lending due to growing fears about a second wave of financial crisis that could hit the banking sector later this year.

Meanwhile, back in the UK, 16 weeks have passed since the Bank of England began “quantitative easing” after Alistair Darling authorised the creation of £150 billion of new money, widely trumpeted as the last throw of the financial dice. So far, £96 billion has been spent, of which £93.5 billion was used to buy “gilts”, which means it was not lent to industry for capital investment but lent to the government.

But it isn’t working. Overall, lending to private, non-financial companies fell by an average of £1 billion over each of the past six months. It’s OK though, Alistair’s capitalist friends haven’t gone empty-handed. They’ve had £750 million in the form of corporate bonds. It’s amazing how they’ve got away with it for so long, and it’s high time they were stopped. The simple truth is that the capitalist system cannot be “fixed” and instead would benefit from a unique scrappage project much more radical than the one introduced to try and boost car sales.

Gerry Gold
Economics editor