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

The only way to stop the Tories

As time runs out for the New Labour government, the big question is how do we stop the Tories? The answer is made more difficult by the fact that there is no practical electoral answer to this matter.

For example, there is no way that you could advocate a vote for New Labour at the forthcoming general election. The party led by Gordon Brown is essentially capitalist in its outlook and practice, as it has shown in more than 12 years in power. From the beginning under Tony Blair, it assumed the role of the political management team in Britain for global corporate and financial power.

Policies inherited from the previous Tory governments have been deepened and applied in a ruthless fashion across the public sector, from education to health, while the private sector was set free to pursue profit and promote globalisation. Internationally, the government pursued neo-imperialist policies by invading Iraq and Afghanistan while domestically New Labour constructed the edifice of an authoritarian state.

Now that the world capitalist economy has plunged into crisis, New Labour government is in trouble politically and with the electorate. Tough! There’s no way anyone should help them out by lending them a vote at the next election and certainly not on the spurious ground that the Tories “will be worse”.

As for voting Lib Dem, well the party has swung so far to the right under Nick Clegg that even a forensic scientist would be hard-pressed to tell them apart from David Cameron’s Tories.

Over the last couple of decades not only have the three main parties have coalesced while the capitalist state, including the Parliamentary system, now openly rather than covertly functions in the service of economic and financial elites, as the bank bail-outs demonstrated.

So where does that leave us? What is certain is that the economic crisis is set to get far worse over the next six months, that whoever wins the election will be faced with an immediate political crisis and that we will have to produce some unconventional solutions to find a practical way forward.

In an interview with the Financial Times today, Michael Geoghegan, chief executive of HSBC, warns of a second downturn in the coming months. One of the better capitalised banks, HSBC is holding off from expansion plans in the expectation of a W or “double-dip” recession.

Geoghegan has no doubt studied the latest unemployment figures from the United States, which show that 7.2 million people have lost their jobs since the beginning of the current recession in December 2007. The total population of the unemployed in America is now 15.1 million. One estimate is that about one-in-six employable Americans are without a job.

Meanwhile, California – the eighth largest economy in the world – is bankrupt. Thousands of public sector workers are losing their jobs and having their pay cut. Students are revolting against plans a mid-year increase in tuition fees. This is the kind of crsis that the Tories, or whatever political formation comes out of the election, will face. Not some cuts here and there but ruthless, savage, drastic and draconian cuts in the midst of a recession. And beginning the day after the election.

So to answer the question about how to stop the Tories, it means building a movement that recognises what’s at stake. A World to Win’s People’s Charter for Democracy suggests how economic and political power could be transferred out of the hands of the powerless majority. The way forward, in our view, lies beyond putting a cross on a ballot paper for a Parliamentary system that masks the need for the state to dispense with democratic niceties in order to impose the crisis on ordinary people.

Paul Feldman
Communications editor

'Ugly political backlash' warning

Some economists are saying that the recession is officially over. Well, we know these same “experts” were caught with their trousers down before last autumn’s meltdown, (being re-enacted on television tonight) even while lesser mortals like A World to Win were warning about the collapse of the financial house of cards.

And, evidence has emerged about how near things came to within a squeak of complete financial breakdown. According to insider Hector Sants, chief executive of the Financial Services Authority, the FSA was ready to close RBS and HBOS cash machines and stop the banks taking deposits or allowing withdrawals.

But what about now - is it true that “the UK economy is on course for positive growth”? Here is the reasoning advanced by the National Institute for Economic Research, for example and other so-called experts.

• Manufacturing output has risen. But this is boosted by government subsidies to people who trade in their old bangers, and it cannot last.

• Big mergers and acquisitions in the City. Well, yes, some people in the boardrooms may be happy, but mergers are inevitably followed by huge job losses and they are a sign of weakening markets.

• The housing market “has stabilised”. That’s no comfort to those who can’t keep up their mortgage payments because they have lost their jobs and young people who can’t find an affordable home.

Underneath the small rises in output and spending is a massive black hole of debt and soaring unemployment. The UK budget deficit will reach £175 billion by this March, the biggest shortfall since World War II and among the worst in the developed economies.

Moody’s the financial ratings agency, has spelled out the need for a “severe adjustment of fiscal policies” if the government is to be able to continue to borrow on the money markets without punitive interest rates. In plain English, this is a call for massive cuts in public services, and government spending of all kinds. Which will affect the poor, the young, the elderly and the vulnerable most of all.

The underlying economic conditions which lay behind the financial meltdown have in no way improved. The manufacturing powerhouse of the global economy, China, has already cut back dramatically resulting in huge job losses and political unrest.

It used to be said that if America catches a cold, Europe comes down with pneumonia. Well, nowadays, it’s China which has a fever and the rest of the global economy goes into depression. And the UK is worst positioned for recovery, due to its emphasis on the financial sector and service industries

The political consequences? They are being spelled out behind the scenes at the exclusive Ambrosetti forum, the Italian version of the Davos club of businessmen and political leaders. The meeting is held annually in a luxury villa on the shores of the beautiful Lake Como. Some participants didn’t mince their words:

“Rising unemployment, the return of bankers’ bonuses public spending cuts, could provoke an ugly political backlash next year 2010 – we risk a real revolt on the part of our people”, said one participant.

Conservative leader David Cameron is busy fastening on widespread popular contempt for Parliament by trumpeting Tory plans for real cuts in major services, which will provoke the resistance that the gathering on Lake Como is concerned about.

It is this scenario which lies behind New Labour effectively throwing in the towel and will let the Tories romp back into government. We have been warned and better get ready for the tumultuous, unstable political and social landscape that is certain to emerge in Britain and other countries.

Corinna Lotz
A World to Win secretary

Counting the cost of the meltdown

While the International Monetary Fund suggests that the recession has bottomed out, all the signs merely indicate a pause in the crisis before a further lurch towards slump in the coming months.

The recession continues to deepen in Chile and South Africa, for example. Further shocks are to be expected as commercial property values decline, and rising unemployment forcing more workers to default on mortgage and credit card debt adds another twist to the downward spiral.

Germany’s economic ministry is working with its central bank on measures to deal with a second credit crunch expected early next year. Hartmut Schauerte, the economic state secretary says firms with weak balance sheets may struggle to roll over loans as they come due in coming months. Negotiations with banks could prove "very difficult", he admits.

The UK government’s gamble with quantitative easing, its last-ditch largely failed attempt to restore the flow of credit by printing money, is looking dangerously inflationary and is leaving buyers of government bonds increasingly jittery.

The costs of slowing the decline to slump, let alone any return to growth, are appearing in many forms. Alongside short-lived government sponsored scrappage schemes designed to clear millions of over-stocked cars, billions have been poured into “restructuring” the industry worldwide – the costs of mothballing factories and sacking workers.

Where workers have resisted – as in the now ended 77–day occupation of Ssangyong’s plant in South Korea – the price included the mobilisation of state forces in scenes evoking dystopian medieval pitched battles, with besieged workers armed with slingshots and bamboo staves taking on company thugs, helicopters dropping teargas and taser-wielding riot police.

UK tax income has fallen as economic activity has shrivelled and, at best, will continue at low levels for the foreseeable future while government borrowing to bail-out the banks will result in huge cuts in public sector spending in every area, whoever wins the next election.

It’s already beginning in at least 12 of the 50 states in America, and many more of its counties and cities. They have begun slashing services and forcing unpaid holidays on their employees as revenues from sales taxes, property taxes, investment income and service/building fees continue to plummet.

California's economy, the world's eighth largest, is expected to register a jobless rate near an agonising 13% next year. That state's attempt to reduce its massive $24 billion budget deficit includes three unpaid days a month for state workers to save $820 million. The unemployment figures leave out many of the illegal migrant workers from Mexico on whom the economy depended in the boom times. The loss of remittances is having a devastating impact on the families they left behind.


Michigan, home state of the bankrupt car industry in Detroit, has scheduled six days – a day a week- on which it won't pay about 37,400 employees to save $21.7 million by September 30.

The corporate-sponsored backlash against Barack Obama’s modest proposals for a state health insurance scheme in parallel with the existing for-profit schemes run by insurance companies are the palest of indicators of the political struggles to come.

Obama’s crisis also signifies that this is not the period when capitalism is prepared to grant reforms. Quite the reverse is true. For the mass of the world’s population there can be no acceptable solution to the deepening crisis without a wholesale transfer of productive resources to common ownership subject to democratic control.

Gerry Gold
Economics editor

Time to cut the losses

In the last week, stock markets the world over have been showing the classic signs of bipolar disorder, but in the most concentrated form. Euphoric, manic, hysterical highs followed by the deepest depression. Much of it, say some of the commentators, is internally generated, the result of speculators feeding off each other’s panic.

But as everyone else knows, there are clear external causes. The soaring highs are the direct result of a renewed series of injections, by governments and central banks, of credit – the same stuff that the world’s financial system became addicted to and wholly dependent on during the “long boom”. It doesn’t help. Yesterday, the two largest Swiss banks UBS and Credit Suisse were obliged to seek new capital in a further attempt to prevent them turning into non-banks, ceasing to exist, becoming, as Monty Python had it, dead parrots. When the Swiss banks fall, there’s nowhere safe left for your money.

The stock market lows – a five-year retreat reached in the UK and back to the 1980s in Japan – are the result of an avalanche of indications that the recession is not only with us, but will last for years. Giant corporations are bankrupt, jobs falling off a cliff, house prices dropping like a stone. Even the price of oil has fallen back, as the speculators move their money elsewhere. China, which has powered the global economy, is cutting back and shutting down factories.

The Brown-led government, which has taken on the role of street-level pushers, are looking to raise the money that they are guaranteeing to the banks by issuing more debt to the investment markets. But there’s a limit to what can be raised. The rest will come from an assault on government spending, public services, the elimination of the legal guarantee for public sector pensions, and last but not least, any measures to deal with climate change – irrespective of Miliband the Younger’s pronouncement on an 80% emissions reduction by 2050.

Early signs of the brutal reality that will result came from the news that under Brown and Darling’s control, Northern Rock has been foreclosing, repossessing and evicting at double the rate of the rest of the industry. So much for the benefits of “nationalisation”.

Brown knows that the bankers’ bail-out won’t stop the rot, so he’s promoting a restructuring of the world’s economy, along the lines of the Bretton Woods arrangements that laid the basis for the post-war recovery and the boom years. The Financial Times says this is premature, adding:

“Lest we forget, Mr Brown himself was in charge of the IMF’s ministerial steering committee for a large part of the past decade and yet signally failed to implement the ideas he is parading. During this time, it was repeatedly explained to him that every early warning system devised by the finest minds in international economics, including those at the fund, either predicts crises that never arrive or misses those that do.” The paper of business is correct. The basis for restoring stability after a decade and a half of the Great Depression wasn’t Keynes’s proposals, but the massive destruction of surplus productive capacity and human lives during the second world war.

A much easier, less destructive way out of the mess would be to cut the losses, admit the capitalist system is bankrupt and make the transition to a new kind of economy altogether. One based on not-for-profit production, social ownership, self-management, planned production for need, distributed via an intelligent market informed by democratic processes and expressed preferences. That’s what we will be discussing tomorrow at the Stand Up for Your Rights festival. Be there!

Gerry Gold
Economics editor

Escape from Neverland

New Labour’s crisis deepened over the weekend, with the Chancellor Alistair Darling’s open admission about the seriousness of the credit crunch. He said today’s economic times are “arguably the worst they’ve been in 60 years”, causing the pound to fall against the Euro and the dollar.

As the government’s popularity – and with it Brown’s status - sinks ever lower, Darling decided it was best to go for broke and admit the truth that everyone else had already known, and in doing so, steal a march on the Prime Minister.

After a year of denial, the Chancellor pricked the bubble of New Labour’s fantasies, to shock all around. Like his namesake Wendy Darling in the fairytale world of Peter Pan, he preferred telling stories and fantasising to the mundane everyday world of real life the rest of us have to deal with, but at last he has been forced to admit that there’s a big problem. “I think it's going to be more profound and long-lasting than people thought", he told a Guardian journalist.

He claimed that when he first became Chancellor, “we knew that the economy was going to slow down”, but he did not have “any idea” that there would be a major financial crisis: “No, no one did. No one had any idea,” he claimed. But to any serious observer of the global economy, it was already clear back then that a huge financial crisis was starting to blow as the US mortgage market went into tail-spin.

A World to Win warned about its effect on the British economy well over a year ago:

‘The contagion is certain to spread as there are very many over-borrowed, over-stretched corporations - not just financial institutions - as well as the millions upon millions of individuals who find themselves in trouble in every country. The British economy is particularly vulnerable... Some observers are comparing the situation to 1929, when the Wall Street crash led to a world-wide slump...’

Now, as house prices have fallen by over 10% in a year, widening the gap between the mortgage debt millstone millions of people are struggling to repay and the value of the property they are trying to buy. More than 30% of all UK borrowers – around 3 million households - are expected to be caught in the negative equity trap if prices drop by a further 30%, as many are predicting.

Even the remaining mutual Building Societies, like the small but successful Swansea, which has continued to lend only against the money its savers have deposited, are caught up in the vastly overblown finance fantasy.

Whilst banks and financial institutions are free to simply write down the declining value of the assets they have accumulated, no such freedom exists for those who are stuck with impossible levels of mortgage payments. In the US, around 1 in 5 of the population are already in negative equity, and many who are unable to sell their houses in an already oversupplied market are simply walking away.

Our solution? Rather than passing the buck to local councils to take over a portion of the debt – effectively using even more taxpayers’ money to shore up the private usurers - investors and borrowers should take control of the mortgage lenders without compensation to shareholders and, following the banks’ example, write down the value of the property as prices fall, and recalculate outstanding loans based on the now much lower value. Simple. But not something New Labour can countenance whoever the leader might be.

Gerry Gold
Economics Editor

Global economy goes belly up

When the debt-fuelled boom came to an end a year ago, official pronouncements from every part of the world assured us that the economic fundamentals were sound. Gordon Brown was to the fore in his confidence that after ten years in his care, the British economy was better placed than most to weather what he and others told us was as a temporary problem affecting the world of finance dubbed the "credit crunch".

How different things look today. After months of falsely optimistic denial, the grim spectre of global recession is showing up in statistics from the US, Europe, the UK and practically everywhere else. So-called experts are playing catch-up in their hopelessly inadequate attempts to predict the course of this multi-dimensional crisis. Every day brings new surprises which force them to revise their forecasts of the severity, extent and duration of “the downturn”, which, it is now hoped, will bring its own silver lining to the clouds of inflation.

Those who are sticking with the dominant theories of the last few decades admit that the coming period will bring much painful “adjustment”. They say, however, that this is necessary to restore the economy to health and must be allowed to take its course, with hundreds of banks closing, production going into freefall and unemployment rocketing.

As the scale of the catastrophic crisis forces itself into brains dulled by the capitalist mantra “There is no alternative”, the chorus of calls for more and better regulation has given way to a plethora of more or less emergency proposals. As Larry Summers, Harvard professor, and former Secretary of the US Treasury has pointed out, chaos in the economy is reflected in cacophonous policy debate, with policymaking that is “increasingly reactive and erratic”.

There are many, fearful of the consequences of economic freefall, who are promoting a variety of contradictory, partial interventions to be made by central banks and governments acting either alone, or in unison. The interventions, it is claimed, could shore up the housing market, minimise soaring inflation, increase credit and debt, or restore “the balance” between corporate power and the strength of labour. With nothing better to go on, some with a sense of history are turning to the experience of previous crises for inspiration. Comparisons are being made with the 1990s, the 1970s and with the Great Depression of the 1930s.

But the reality is that there is no historical precedent for the present crisis brought on by unprecedented corporate expansion. As everyone knows, overproduction has led to the climate changing as a result of over-exploitation of the planet’s resources. Left to continue, diseases of overconsumption, like obesity, will worsen. Inequality will increase in leaps and bounds as the recession turns to crash. Wars for the world’s resources of oil, water and food will escalate. Let the war between Georgia - acting as America’s proxy - and Russia be a warning in this respect because the question of energy supplies is not far from the surface.

In reality, none of the policy actions being taken or being proposed to restore health to the economy can do anything but make things worse. What’s needed now is to bring the broken profit-chasing system to a conclusion. We should not aim to "rebalance" the 200-year old power struggle between capital and labour but to break the power of the corporations and to replace it with a new motivation – to identify and meet the needs of the majority with a new unified social, economic and political system which can restore the health of the planet.

Gerry Gold
Economics editor

The credit crunch one year on

In the shadows of the opening ceremony of the Beijing Olympics, the effects of the slow-motion implosion of the global capitalist economy one year on from the start of the credit crunch are becoming apparent in China. Whilst many factories have been shut, apparently to reduce pollution for the period of the Games, there are questions whether many of them will reopen when the medals have been awarded.

China’s double digit growth rate of recent years, which has driven up world prices for raw materials including metals and oil, has slowed in each of the past four quarters. Six out of 11 economic measures including new orders, export orders and output indexes have seen record lows while 14 out of 20 industries have reported a contraction in output. The recent, rapid decline in the value of the dollar against the Chinese yuan has raised the costs of exports to the US. And profits are falling as Chinese workers press for increases in their ultra-low incomes.

In opening its borders to foreign investment – it surpassed the US as the top destination in 2003 - China provided a seemingly limitless supply of cheap labour to globalising corporations. The result was an overabundance of manufactured commodities. The Chinese government was obliged to fund the US foreign debt that enable American consumers to buy from China what they had previously made at home. Now exports to the US and Europe are in decline.

The end of the globalisation boom – which had been interrupted by an accelerating series of global financial crises throughout its 30-plus years – became apparent from 2004 onwards when hard-pressed American consumers reached the limits of their ability to service the spiralling debt. The resultant credit crunch - when banks stopped lending to each other exactly one year ago today - is no more than a sign of a much, much deeper malaise.

In the UK, the Bank of England’s Monetary Policy Committee remains paralysed by the crisis, unable to reduce interest rates to stimulate the economy for fear of adding to already spiralling prices. New Labour’s hints of measures to breathe life into the housing market seem likely to have the opposite effect – stopping all activity until the October budget statement makes Alistair Darling’s intentions clear. In the UK, household debt is accelerating whilst house prices have fallen by almost 11% over the last twelve months.

Niall Ferguson, the right-wing and revisionist economic and political historian, is certainly not holding his breath about the future. Writing in the Financial Times credit crunch anniversary number, Ferguson notes that US house prices have fallen faster than any time since the Great Depression of the 1930s. Despite capital injections of about $300 billion, shares in at least 40 US banks are down 70% or more and many are set to fail.

“One year on, what began as a US crisis is fast becoming a world crisis. Small wonder only a handful of global equity markets are in positive territory relative to August 2007, while more than half have declined by between 10 and 40 per cent. The US slowdown will also affect many emerging markets less reliant on exports than China. At the same time, the global slowdown is about to kick away the last prop keeping the US recession at bay …. But, as in the 1930s, the critical phase is not the US phase. It is when the crisis goes global that the term ‘credit crunch’ will no longer suffice."

It is not “when” it goes global. Recession is already a global phenomenon beginning to show up in necessarily retrospective statistics. Germany, France and Japan look set to join the lengthening list of economies heading downhill, which already includes the US, Canada, Spain, Ireland, Italy, the UK, the Baltics and New Zealand. As the sub-title of our book A House of Cards, published a few months into the credit crunch, reads, it is a matter of moving “from fantasy finance to global crash”.

Gerry Gold
Economics editor

Policies for the crisis – housing

The worsening recession is taking an increasing toll on jobs, mortgages and home ownership, and threatens to bring down the entire banking system at the same time. Housebuilders are laying off workers, mortgages are virtually unobtainable while many owner-occupiers cannot afford to maintain payments and face the prospect of repossession.

Mark Clare, chief executive of Barratt Developments, one of Britain’s biggest housebuliders, says the company will lay off 1,200people out of its 6,700 employees. Yesterday, he warned that job cuts across the industry could reach 60,000 out of 300,000 people employed in the sector. The 20% fall in building jobs is only part of the story as it does not take into account the secondary effect on the supply chain, comprising manufacturers and suppliers of kitchens, solicitors, mortgage advisers, and estate agents.

Add in a free-fall in house prices – they are predicted to slump by up to a third – and you can see why the disintegration of the entire British banking system is gathering speed. The banks are loaded with bad debt, the result of playing fast and loose with the global financial system and giving mortgages to anyone who asked, irrespective of whether they could make the payments. Now the banks are finding it virtually impossible to raise new capital to shore up their balance sheets and are staring at the abyss. In the US, shares in major mortgage holders Freddie Mac and Fannie Mae have slumped to their lowest level since 1991. They hold a half of all American mortgages.

As the onset of recession turns to slump on a scale unprecedented in history, some are invoking the ghost of Lord John Maynard Keynes, who among other things advocated the printing of money by governments to stimulate growth. They despondently call for a unified approach by the world’s governments and central banks to reflate the economy by reducing interest rates, reintroduce controls on capital movements and "rebalance" the relation between capital and labour.

This is simply not going to happen under conditions of a fully globalised economy and financial system, which operates to a great extent outside of the control of central banks and governments. Just witness the paralysis at this week’s G8 in Japan for verification. The Bank of England’s Monetary Policy Committee yesterday ignored the frustrated Keynesians, and sat on its hands, unable to raise interest rates for fear of worsening the recession, or lower them for fear of accelerating the prices spiral. No solution can be found that won’t worsen the already desperate state of the economy.

Fortunately, the citizens of the United Kingdom include many millions who have lived their lives following different objectives. Those who have worked in the NHS, in education, in the social services, even the BBC, and, before they were privatised, the railways, buses, electricity, gas, post and telecommunications - and the rest of us who have used their services are aware that things can be organised differently to meet needs rather than make profits for shareholders.

It is to those millions to whom these policies are addressed, both individually, through their communities and the many campaigning organisations including unions, to which they belong.

* No-one should lose their home through mortgage payment default.

* Housing should be built and used to satisfy need rather than as a source of income or profit for developers, speculative builders, investors and landowners.

* Development land including crown and church holdings should come under the control of Community Land Trusts.

* The funds of all mortgage lenders should be transferred to existing or new mutual organisations under the democratic control of committees elected by and accountable to savers and borrowers.

* The titles to all mortgaged properties should be transferred to local authorities or housing assocations and placed under the control of committees including occupants’ elected representatives.

* All mortgage debt should be cancelled and renegotiated as either affordable rents or repayments determined by the cost of new building and the ability to pay.

In the meantime, we should campaign for a collective refusal to pay what amounts to mortgage debt blackmail. It’s time to turn the tables on those responsible for the credit crunch by crunching back.

Gerry Gold
Economics 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 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

Brown's fantasy world

The Bank of England’s inflation report makes grim reading. Bland assurances about the strength of economic fundamentals as the credit crisis erupted in the autumn have been replaced, superseded with expectations of soaring inflation – “above 3% for several quarters”, and recession, with governor Mervyn King declaring: “The central projection is for growth to slow sharply in the near term, reflecting the squeeze on real incomes.”

All of this is explained by the anodyne “rebalancing of the economy”, as if things were under control. Nothing could be further from the truth. In reality, the UK, which under Gordon Brown’s 10 years as Chancellor had become entwined in and dependent on global financial markets is, like all other countries, being sucked into unprecedented economic storms.

Brown’s promise that New Labour will show that it can “manage” the economy to avoid recession is fantasy talk. For example, the £50 billion thrown at the banking system in a bid to unlock the credit freeze has made no impact whatsoever. According to the European Central Bank, the banks are using liquidity schemes like this simply to offload risky assets, while the Financial Times reports that the banks are looking at sums closer to £90 billion from the Bank of England. It’s a case of pick a number, then double, treble it or simply add loads of noughts!

The credit crisis, which deepens by the day in its impact on jobs, repossessions and consumer spending, marked the end of four decades of free floating currencies which began 40 years ago, on March 15, 1968. Then, the dollar was in crisis as the Tet offensive by the National Liberation Front and North Vietnamese Army turned the tide against the US. On that day in March, the American mint stopped the buying and selling of gold and ended the fixed dollar-gold exchange rate which had been at the foundation of the Bretton Woods post-Second World War arrangements set up in 1944. Three more years of running the printing presses later, on August 15, 1971, US President Nixon severed the dollar-gold link altogether, releasing a period of inflation that saw oil prices rising to historic levels to compensate for the declining value of the dollar.

For those familiar with the philosopher Hegel’s dialectic, the dollar-gold separation was the first negation of the post-war boom. It heralded the start of the period of globalisation – credit-led growth personified in world-straddling multi, then transnational and global corporations. Their vastly expanded, ecologically-destructive production of cheap-labour commodities could only be absorbed by consumers supplied with seemingly limitless debt funded by the promise of property prices rising without end.

Inevitably, as in all processes, finite limits were reached and opposite tendencies began to take over. By 2004, US consumers in particular were “all shopped out”. Consumption peaked. The second negation – the negation of the negation - marked by the sudden paralysis in credit markets last August, brought the ballooning of fictitious capital to a halt and ushered in a new period of unprecedented economic, social and political upheaval.

The contradictions inherent within capitalism, which were left unresolved by the incomplete process of 1968, have matured and deepened in the 40 years since. Food riots in more than 30 countries, and mass demonstrations by farmers against agribusiness corporations in India coincide with a growing movement against debt, foreclosure and repossession and strikes in as homes are lost, jobs are destroyed and incomes and pensions are hit by the deepening crisis.

These actions are coalescing into a new revolutionary possibility which demands the building of an independent revolutionary movement that can inspire and lead the challenge for power. The objective must be to replace a failed economic and social system based on profit with a new socialised system designed to satisfy needs identified through a greatly expanded democratic process.

Gerry Gold
Economics editor

American dream in tatters

The first fall in US household wealth in five years reveals the growing impact of a financial and economic crisis that will be felt by every person on the planet. World prices for oil – now over $100 dollars for a barrel of crude, gold nearing $1000 an ounce, food driven skywards by demand for biofuel, and many other basic commodities are spiralling, whilst the warning signs of recession, including declining retail sales are appearing everywhere.

Many US consumers, already burdened with debt, are being ruined. High-powered salespeople first seduced them with low rates of interest - soon to be replaced by punitive, impossibly high mortgage repayments – thus pushing many over the edge. The US Mortgage Bankers Association said yesterday that the "mortgage delinquency rate hit its highest since 1985 in the final three months of 2007. While the rate of failing loans swelled across most mortgages, it was led by a growing wave of sub prime borrowers unable to make payments". In addition, the number of workers claiming unemployment benefit has remained at its highest in nearly two and a half years.

The property sponge is now being squeezed out, and the world’s financial, stock and commodity markets are in turmoil. New outlets must be found to house the inflationary growth of credit fed by the central banks’ desperate attempts to reduce the impact of recession by injections of liquidity and reducing base interest rates. Despite the actions of impotent governments the cost of credit is increasing. The managers of accumulated oceans of currency in sovereign wealth funds are scouring the planet for profitable enterprises into which they can sink some loot.

As repossessions mount, and demand for housing and all associated goods and services are falling, house prices are tumbling. In America, just as in the UK and in many other countries, private property – both housing and commercial, absorbed the inflationary expansion of credit and debt that made globalisation possible. This fantasy finance – Marx called it fictitious capital – paid for the American dream. It kick-started the growth of transnational corporations that subcontracted unsustainable production to Latin America, China and India to provide cheap commodities, corporate profits and the legacy – climate change. The worst of all possible future consequences are laid bare in The Road, Cormac McCarthy’s dystopian nightmare of the few remaining inhabitants of a dying planet.

It doesn’t have to be like this. Another world is possible.

At the top, refugees from the nightmarish world of fantasy finance have been pitching up as advisers to New Labour. Gordon Brown’s office has welcomed flawed expats from Goldman Sachs, one of the world’s biggest investment houses. Now their advice and the scandals they bring with them are weakening the government’s grip. Good news.

From the bottom, and across the world, broadening social movements like the Transition Town initiative are exploring different ways of living, ways which are not dependent on fossil fuels. For such experiments to become truly effective however, it will be necessary to remove the profit incentive that motivates the extraction of oil, gas and coal. And that means bringing the corporations into social ownership.

Gerry Gold
Economics editor

Fear and panic greets Davos elite

The fear and panic stalking the world’s stock markets is the surest expression that a global economic recession is under way with the potential to become a catastrophic, full-scale slump. What shape this will take is impossible to predict, but it would clearly involve the destruction of capital and assets on an unprecedented scale throughout the global capitalist economy.

The developing crisis also has dramatic political implications because it is self-evident that actions at state or even multi-national levels have small to non-existent impact on the underlying problems. These revolve around the classic capitalist tendency to over-produce which, on this occasion, is accompanied by vastly inflated financial assets whose foundations resemble a house of cards.

In Britain, for example, New Labour is so desperate to prevent the Northern Rock bank from collapsing that it is essentially giving it away as a present to political friend and entrepreneur, Sir Richard Branson. Taxpayers are being tied into the deal to the tune of £50 billion with absolutely no guarantee of getting their money back. All this to try and prop up a relatively minor bank. There are absolutely no prospects of this operation being repeated on a wider basis as bigger banks run up the insolvency flag. Government finances are already in a parlous state, with a record borrowing deficit of nearly £8 billion in December alone.

So when the world’s economic and political elite meet in Davos tomorrow for their annual conference, they will have plenty to think about. Instead of congratulating themselves for being masters of the universe, they confront a global economy that is unravelling before their eyes and which they can do little about. For example, a Credit Suisse research note says: ““What we are seeing now has the hallmarks of both a financial shock and the beginning of a [US] recession, or at least of growth grinding to a halt.”

Despite the dramatic falls in share prices, many believe there may be worse to come. “We believe the trough is not reached yet,” said Teun Draaisma, European equity strategist at Morgan Stanley. Justin Urquhart-Stewart, of Seven Investment Management, warned: "There is a very good chance of a retail-led recession and, although the market will recover, trying to judge when it turns is like trying to catch a falling knife.” Even the usually optimistic International Monetary Fund described the global economic situation as "serious".


Economic crisis always results in social and political changes too, usually for the worse if corporate and financial power has the say. For working people it will mean cuts in living standards, unemployment and a loss of public services. Politically, the danger is of a turn towards even more authoritarian, anti-democratic rule accompanied by nationalist and racist rhetoric as the old ways of rule prove ineffectual.

In the 1930s, following the 1929 Wall Street crash, the slump created the conditions for the rise of Nazi Germany and led inexorably towards World War II. The horrific destruction of lives and productive capacity became the basis for the subsequent post-war economic revival. Humanity cannot afford to allow a similar process to work itself out. The economic recession cannot be prevented but the road to slump and political reaction can be averted by popular mass action. This will involve a thorough-going revolutionary process to extend democracy in new ways. It requires a strategic plan to remove economic and financial power from the Davos-style elites and the transfer of political rule into the hands of ordinary people. To paraphrase Margaret Thatcher and Tony Blair – there is no alternative.


Paul Feldman
AWTW communications editor

Banks’ losses threaten action on climate change

Despite Government loans and guarantees in the region of £55billion and the sale of a choice part of its assets to J P Morgan, (perhaps coincidentally the first of Tony Blair’s private sector income streams), Northern Rock’s problems are not easing. It isn’t making enough to repay the penal interest rates charged by the Bank of England. Plans for a state takeover – nationalisation -are well-advanced.

For the Government, as reported on epolitix.com, a private deal is the preferred option, but potential bidders Virgin and Olivant are reported to have had troubles in securing financing for the deal as a result of the global credit crunch.
Asked if ministers had any concerns about offshore ownership of the bank, the Number 10 spokesman said: "The priority here is to protect the interests of taxpayers, depositors and savers." The chancellor told MPs that the government had put guarantees in place to protect savers, not shareholders.

Reassured? Not if you’re one of the huge number of people with mortgages from the former building society. No mention of their interests. And interest is what they will be paying in shedloads whoever ends up owning their debt. With many holding up to 125% of the value of the property when they bought it, house prices on the way down, food and fuel on the way up, defaults are sure to mount.

The £25billion or so already lent to the failing bank comes at a price. It isn’t money transferred from another budget somewhere. It’s another injection of invented billions to add to the crumbling mountain of credit and debt issued at an ever faster rate to sustain global growth over the last few decades. And the whole shaky pile is founded on the expectation of increasing wealth generation and the consequent ability of wage earners to repay their mortgages at interest rates high enough to generate a profit for shareholders.

But there’s a recession on the way, so it won’t work any longer. It won’t work for Northern Rock, and it won’t work for Citigroup, the world’s largest bank, which yesterday revealed a 40 per cent dividend cut, a $9.83bn fourth-quarter loss, $18bn in subprime-related credit writedowns and remaining exposure of $37bn to subprime mortgages. Neither will it work for Merrill Lynch which is due to report this week. A form of transfer into state hands – some call it state capitalism – is underway for both of them too. Only the funds are coming from elsewhere: governments - and private investors - in the Middle East and Asia, representing the biggest-ever single transfer of capital to US banks from abroad, in exchange for a stake in the business.

Next week, the World Economic Forum meets in Davos. Up for discussion is Global Risks 2008, a report written for the event by a team of collaborating organizations. It is hardly reassuring to know that Citigroup is top of the team. In the light of the ongoing and rapid economic deterioration that has come out into the open since the report was finalised, it makes pretty chilling reading. With uncertainty about the short- and medium-term future and about who is responsible for dealing with global risks ‘Action to mitigate climate change, for example, may be put in danger should the global economy weaken substantially – even though many of the political, economic and investment decisions which will shape the future path of global climate will need to be made in the next five years.’

In other words, attempts to ensure the survival of the capitalist world economy will take priority over action on climate change.

You won’t find a better or more urgent reason for joining us in building the means to put capitalism on the compost heap where it belongs.

Gerry Gold
Economics editor

The system’s broke – and Larry can’t fix it

Any lingering doubts that the global financial crisis of 2007 would presage a deep, worldwide recession evaporated as 2008 opened for business with a quick-fire salvo of bad news for the economy. US manufacturing slumped to its lowest since April 2003, and global manufacturing growth slipped closer to negative territory – contraction – adding to fears that the US recession is spreading.

Despite slowing growth, prices paid by factories worldwide for inputs to their production rose to a six-month high. And that was before the key input, oil, breached the psychological barrier of $100 for a barrel of crude as news of increased tension in Nigeria, a major producer, added to the pressure of increasing global consumption led by China and deepening concerns about the approaching global peak of production.

As the news piles up, house prices drop, food fuel and mortgage repayments rise, where can you go for some explanation, forecasting and even advice? Surely Larry Elliott, The Guardian’s economic's editor for 11 years must have a good handle on events? After all he spends his working life studying these things, no doubt with considerable help from the paper’s staffers.

In a long article uncertainly titled “Is this the Big One”, Elliot takes us on a dance through the contradictory views and opinions of a select group of politicians, accountants, business advisors, professors, bankers and sundry experts about the likelihood that current problems will coalesce into “a perfect storm” in 2008.

Elliott is either confused or he is hedging his bets. Maybe both. Nowhere in the article will you find a hint of his own analysis, if he has one. In the face of so much contradictory evidence and opinion it seems as though Elliott just hasn’t got a clue. Advice for the government? None. Suggestions to the Bank of England? None. Like most of those convinced by the argument that capitalism is the only game in town, he is left floundering when reality departs far from the theories of how it is supposed to work.

But just in case, Larry’s got some advice for us on “How to survive a recession”. And he’s trying to divert your attention from any new ideas for solutions we, or anyone else can come up with. He’s got a copy of A House of Cards. We sent it to him. But, so far, he’s ignored it. His ideas are, in comparison, disappointing. Its all about personal survival. He says: “You and I can't do much more about the economy than we can about the weather.” All we can do is live within our means, minimise our debts, spend less. Fat chance!

The Financial Times looking out through its rosy pink pages, is at least calling for more of the “financial liberalisation” – by which the paper means easy credit - that facilitated the globalisation process, after a survey of economists predicted a dire year for capitalism.

One thing anybody with half an eye on events can see is that the system’s broke and nobody seems to know how to fix it. Most kinds of regulation having been dismantled in the last half-century to remove barriers to corporate profitability. Governments and central banks can do little more than tinker with interest rates and move credit and debt around from one balance sheet to another. And the old medicine just seems to make things worse.

But help is at hand. Just as the previously “alternative” energy principles and technologies have become mainstream in the face of climate change, so our proposals for composting capitalism are beginning to make sense to a lot more people. Join us in London on January 24th for a discussion about creating sustainable alternatives to the market economy.

Gerry Gold
AWTW economics editor

Central bankers go for broke

The unprecedented intervention in the financial markets by the world’s five largest central banks is the most dramatic illustration yet of the scale of the credit crisis. Already, doubts are surfacing about how effective the decision to pump billions into money markets will be because the underlying problems remain.

There is an air of desperation about the plan to make $100 billion (a comparative drop in the ocean) available to banks that are facing massive losses or that are unable to borrow on money markets and face collapse like Northern Rock. Earlier this week, both the Federal Reserve in the US and the Bank of England cut interest rates in a bid to restore confidence. They failed. Shares fell and mortgage companies were in no hurry to pass the cuts on to borrowers. So the central banks have gone for broke with their new plan.

The largely symbolic intervention by the banks drew a mixed response. Julian Jessop, the chief European economist at Capital Economics, said the move did “not address the underlying imbalances threatening the world economy - notably the impact the US housing slump will still have” while Julian Jessop, chief international economist at Capital Economics, concludes: “Risk premia are likely to remain permanently higher after the excesses of the last few years. The world economy is still facing a marked US-led slowdown in 2008.”

The pro-business Daily Telegraph for one is not sure whether the banks’ intervention will work because the problem is not one of liquidity – financial institutions are, according to the paper, “flush with assets”. The reason they won’t lend to each other is because no one really knows the extent of sub-prime losses competitors carry. For example, only this week, Swiss bank UBS took a $10 billion sub-prime hit and the Federal Home Mortgage Corporation (Freddie Mac), America's second biggest guarantor of mortgages, revealed $12 billion in losses. Some estimates suggest that a total $3,000 billion in sub-prime debts is lurking in the global financial system.

Says the Telegraph: “There is a nagging fear that we have seen only the tip of the sub-prime iceberg and until a clearer picture emerges of the scale of exposure, banks will continue to sit on their hands, and their assets. Given that capitalism is built on bank lending and lending has always involved an element of risk, how is that lost confidence to be restored?” That’s a good question.

Behind the intervention is the worry that the credit crunch is now affecting the economy in general. US investment bank Morgan Stanley this week forecast a deep recession in America. Consumer spending is falling everywhere as mortgage and credit conditions get tighter. And that is the real crisis for capitalism. If people won’t and can’t spend on credit, the products of the global corporations stay on the shelves and this will trigger a worldwide slump. This is the process we are bang in the middle of now.

In Britain, repossessions are forecast to soar in 2008 as millions on low, fixed-rate mortgages face steep rises in repayments. House prices are falling throughout the country in the absence of buyers. Profit warnings are coming thick and fast as retailers fear poor Christmas sales. What the Telegraph calls a “credit craze fuelled by cheap and plentiful money which underpinned the boom” is over. The wheels have come off the global capitalist, profit-driven economy, with threatening consequences for jobs, homes and international stability. There are, however, not-for-profit alternatives which we outline in our new book, A House of Cards. Make sure these receive the widest circulation and discussion.

Paul Feldman
Communications editor