Exploitation on the rise as recession deepens

Today’s forlorn protest by the TUC designed to put “pressure on chancellor George Osborne to change course” as he puts his final touches to next week’s budget will fall on deaf ears.

Prime minister Cameron last week insisted that the austerity programme would continue. It was brought in to deal with the spiralling increase in government debt which became unsustainable when the financial system crashed and recession followed.

The aim is to pass the burden of the debt on to backs of millions of ordinary people who have no say in government policy, not any influence on the contents of the budget.

Naturally, the austerity programme has failed. The debt has continued to soar as a result, claims Cameron, of external factors beyond the government’s control, like the ongoing crisis in Europe. But the Office for Budget Responsibility also made clear that deep spending cuts had contributed to the recession in the UK.

Despite extreme, unconventional measures taken by governments and central banks, the world economic system – aka global capitalism – shows no sign of recovering to anything like its pre-crash level. The sharp decline in UK manufacturing reported yesterday is a case in point.  

An almost covert, but massive devaluation of the pound has driven the cost of imports up but had minimal impact on exports. The Bank of England, unable to explain declining productivity, is abandoning its duty to keep inflation below 2%. By “looking through” the target, it is admitting that continuing with the attempt to slow price increases threatens to tip the economy into a new, more catastrophic slump.

Instead it will focus on its attempts to stimulate the economy, with low interest rates, issuing itself with the money to buy more government bonds and more lending. It is encouraging the government to do the same, even though the ConDems Funding for Lending scheme has flopped.

The BoE has floated the idea of negative interest rates, whilst those to the right of the ConDem coalition are pushing for even more stringent cuts. The Tory right want to intensify the current programme which, designed with absurdly optimistic expectations of a return to growth, is not even a third of the way through. People like Liam Fox have health and welfare budgets in their sights, combined with tax cuts. It’s all adding to the pressure on Cameron, whose political future looks less rosy by the day.  

But the real story is that the recession is deepening, confirmed by the so-called “productivity puzzle”. The mystery is that productivity measured both by output per worker, and output per hour has fallen by as much as 14% since the crash.

The pre-budget report from the Institute for Fiscal Studies thinks it has an explanation. In a simplified form it is clear that in the wake of the crash, investment in capital goods has fallen because, with no sign of a return to growth, investors are holding on to their cash.

Wages have fallen as unemployment has risen, but unemployment hasn’t increased as much as might have been expected.  Employers have forced wages down, turned to cheaper labour associated with part-time working and more labour intensive forms of production.

In summary then, the capitalist imperative of increasing productivity is operating in reverse. In terms that Marx might have used, the rate of exploitation of labour is increasing. And as the crisis worsens the impoverishment of the masses is certain to increase.

So the TUC’s shock headline figure, that within two years, almost 7.1m of the nation’s 13m youngsters will be in homes with incomes judged to be less than the minimum necessary for a decent standard of living, will prove to be a monstrous understatement. As for the TUC itself, fewer words and action against the government is needed if we are not to conclude that Congress House is actually a mausoleum.

Gerry Gold

Economics editor

Young people need a future beyond capitalism

Britain is failing young people on every front and you have to wonder if the state has any concern for their future at all. From massive unemployment to deaths in prison, to the impact of the cuts – young people are victims of a massive onslaught.

One in five young people are unemployed and youth unemployment is rising faster here than in other European Union member states; only Greece and Spain have higher rates of joblessness among the new generation. For many, it’s a choice between workfare – modern-day slavery – or face losing meagre benefits.

Local councils in England and Wales on the look-out for ways to implement the cuts slashed spending on youth services by a quarter in the year to 2012, and in some places total destruction is on the cards. Southampton and Newcastle plan to cut 100% of council spending on youth services.

Derby Council is eliminating 83% of the grant that helps young people who have been in care or homeless to cope on their own. This support is being slashed across the country, though not everywhere so brutally as in Derby.

The number of homeless young people is rising. Figures collected in mid-2012 by the charity Broadway, showed the number of rough sleepers aged under 25 in London increased 158% in 12 months. There were 638 young people verified as rough sleeping in 2011/12, compared with 247 in 2010/11.

Many young homeless  people suffer from a treatable mental illness, A recent Cardiff University report found that 93% of young homeless on the streets showed signs of mental illness. Over 40% were suffering from clinical depression and 35.5% from Post-Traumatic Stress Disorder.

The UK locks up more young people than any EU country apart from Spain, and a recent report from the Howard League for Penal Reform reveals a shocking increase in deaths and self-harm in the criminal justice system.

Twenty-three children died last year, three of them in prison and 20 while being supervised by youth offending teams in the community. Two were murdered, the others either took their own lives or died in accidents.

Incidents of self-harm in youth prisons increased by 21%, to 1,700, that's almost 33 reports a week. Almost half of all children in custody have mental health problems and these are not being properly treated or taken into account, says the charity Young Minds.

It's a grim picture, but young people are clearly ready to fight back. There have been youth protests against cuts in Birmingham and Southampton. In Redbridge and Newcastle, the Youth Councils are organising opposition to cuts. Youth Councils are not exactly centres of radical action but they offer a voice and young people are using it.

The riots that shook cities across England in 2011 were another kind of resistance, caused by a deep sense of injustice at unfair treatment by police and growing anger at inequality and lack of opportunity.

You might think there's a million miles between the rioters and the well-spoken Youth Council members but young people share a great sense of solidarity with each other.  The student fees protests of 2011 brought together young people of all classes and all social and racial backgrounds.

We should campaign for and support the creation of local youth Assemblies that organise against cuts and unemployment but also set out to draw up a positive programme. Young people most of all need to see a future beyond capitalism, a future of without repressive prisons, and with jobs, housing and opportunities for all young people. Assemblies are the place to develop just such an horizon.

Penny Cole

Osborne caught in glare of global recession

For the global economy, the only way is down. Britain shows where things are heading. A  deepening recession intensified by austerity has created a spiral of decline in public finances. More brutal assaults on living standards are sure to follow.

Unusually low tax receipts from North Sea oil and gas production sent the UK government’s finances further into the red in July. With manufacturers reporting falling orders, it marked a further deterioration to add to nine months of recession. The rapidly worsening crisis has turned public sector finances from a £2.8 billion surplus in July last year to a deficit close to £600 million.

The decline in tax income is a self-inflicted blow by the Coalition’s chancellor, George Osborne. It is the opposite to what he’d intended in last year’s budget when he fished for a £2 billion tax rise from producers. They responded by cutting production in the already aging fields.

This contradictory outcome neatly shows the limits of political power in the global recession. Despite the ritual claims that austerity is needed to cut the deficit and bring about a return to growth, the ConDems are forced to submit to the powerful forces of contraction which have been at work in the global capitalist economy since the 2007-8 crash.

The UK has now joined the club where managing contraction is de facto policy. Spending cuts are as much about keeping borrowing costs down as anything else (yesterday the government  sold £1.35 billion of 17 year inflation-proof bonds at effectively below zero interest). Naturally, austerity measures only deepen a recession that engulfs every economy.

Japan's exports slumped in July as sales to Europe and China dropped. The 8.1% annual fall far exceeded economists' 2.9% forecast. Exports to the European Union tumbled by 25.1% from a year earlier.  

"Europe's debt crisis is the first factor to pull down exports, and the pace of decline is striking. This is comparable to the post-Lehman situation," said Masayuki Kichikawa, chief Japan economist at Bank Of America Merrill Lynch in Tokyo.

Exports to China, Japan's largest trading partner, fell 11.9% from a year earlier, the biggest decline in five months, due to lower shipments of semiconductors, electronics and car parts. "We hoped domestic demand in China would support Japan's economy, but the story is different," said Kichikawa.

Reflecting the sharp decline in overall exports, the Ministry of Finance figures showed Japan swung to a larger-than-expected trade deficit of 517.4 billion yen ($6.5 billion).

Japan is not alone. China has shown economic growth failing to pick up after six straight quarters of decline despite two interest rate cuts and reductions in banks' required reserves.

Exports from Taiwan, a key part of the global technology supply chain, fell for a fifth straight month in July. Orders for Taiwan's exports, a predictor of demand, slumped 4.4%  in July over the previous year, far more than expected. And South Korea, home to major carmakers, computer chip and flat-screen producers, recorded its sharpest fall in exports in July in nearly three years.

The deepening slump in Asia is intensifying competition for declining markets in the region. It is adding to the simmering tensions between Japan and China over the disputed Senkaku/Diaoyu islands and has provoked the biggest anti-Japan protests in seven years in cities across China in recent days.

Labourites like former chancellor Alistair Darling, backed by business and trade union leaders, are calling on Osborne to abandon austerity and “go for growth”. Wilfully or otherwise, they completely fail to grasp the systemic nature of the crisis.

There is a global surplus of productive capacity. In this context, contraction and not growth is the absolute tendency which neither Osborne’s austerity nor Obama’s spending programmes can overcome. The system of production for profit is the problem and no amount of tinkering will change that.

Gerry Gold

Economics editor

Hang on to your vote on May 5

At last year’s general election, we argued that a vote for any of the major parties would be a wasted vote. Subsequent events proved we were right and on May 5 we again urge people to withhold their vote in the national and council elections and in the referendum.

In 2010, none of the mainstream parties were honest about the spending cuts they would make and the election was therefore a fraudulent one. The ConDem government has since made savage cuts in public spending, raised tuition fees to unaffordable levels and attacked the NHS.

Councils, many of them Labour-controlled, throughout Britain have implemented the cuts at local level. Whatever councils Labour may take control of on Thursday, they are certain to uphold exsiting cuts budgets and implement new attacks on jobs and services in 2012. No point in voting for Ed Miliband’s crowd then.

As for the referendum on the voting system, it really amounts to no choice at all. Under first past the post (FPTP), New Labour won huge majorities with the backing of only one in four of registered voters. The alternative vote (AV) system would enshrine coalition politics and make it almost impossible for smaller parties to win a seat in Parliament.

As a previous blog said: “Surely the point is that an unfair voting system reflects a broken political system. Traditional bourgeois politics is more about managing state structures on behalf of corporate and financial interests, than offering real choice.”

The experience in of elections to the Scottish Parliament, where a mixture of proportional representation (PR) and FPTP prevails, is salutory. PR does not increase the power of voters, but significantly increases the level of horse-trading and jobs for the boys and girls.

Since 1999, first Labour, then the SNP, have led minority governments, and none of them have been able to change the reality that one in seven Scots lives in dire poverty, or prevent youth unemployment soaring. Currently more than 20% of 18 to 24 year olds are out of a job, the highest level since comparable records began in 1992.

Labour leader Ian Gray claims that if elected this time, they will “eradicate youth unemployment”. This is nothing more than hot air and is rich coming from a party that, when in office, presided over the conditions that led to the current job crisis.

In the televised election debate, all the main parties refused to say how many public sector jobs they would cut in the course of the next parliament. One in four Scots work in the public sector. Finance Secretary John Swinney has admitted that 30,000 jobs are likely to go. The axe is already falling in the NHS and in voluntary sector organisations who deliver care services for councils.

The SNP have promised time and again to hold a referendum on independence but it is again retreating into the future. Polls have told them that people won’t vote for it while the economic situation continues to be so desperate.

The Welsh Assembly elections are an irrelevance for most voters. In March, by an almost two to one majority of the 35% of people who voted, a referendum gave the Welsh Assembly Government new primary law-making powers.

But it does them little good.

Successful candidates still don’t have any power over the economy – the single most important concern to most people. Wales remains entirely dependent on Westminster for a block grant, so, like the councils of England, Assembly Members are reduced to arguing over how to allocate the cuts in education, health and every other part of public sector the ConDem coalition has decided are needed to deal with the national debt.

At a hustings in Carmarthenshire East, the main parties’ candidates – Plaid Cymru, Labour, Liberal Democrat, Conservative were asked whether a referendum, similar to that in Iceland, should be held to allow the people of Wales to vote on the decisions to implement cuts in services. All hid behind the parliamentary system falsely claiming that the forthcoming election gives voters the opportunity to express their opinion.

And that’s about right. An “opinion” that counts for very little indeed. Another good reason to hang on to your precious vote on Thursday.

A World to Win editorial team

Portugal: another triumph for the bond dealers

As Portugal declares state bankruptcy, after its Socialist Party government failed to get an austerity package through parliament, it’s another triumph for the dictatorship of the money markets and bond dealers.

Now, even though Portugal is without a government, the price demanded by Germany and the richer EU countries for an €80 billion bail-out is even deeper cuts in public spending than were first proposed. The upcoming general election is definitely one to lose.

Portugal’s finances collapsed because its budget deficit grew rapidly following the onset of the global recession. But the money markets drove up interest rates until Portugal was borrowing at over 8.5%, adding to the total deficit at a rate which made it impossible to repay.

In the last year, Greece – which still has a “socialist” government and Ireland, which saw the ruling party wiped out at the recent general election, have suffered the same fate. Does the “contagion” stop at Lisbon, or is Madrid next?

Spain’s government – yet another one that claims the rubric “socialist”– is confident it can avoid Portugal’s fate – because it says it’s already making deep cuts in public spending! Youth unemployment is running at over 40% as a consequence. Meanwhile, Spanish bank assets are worth far less than before because of the collapse in property values and refinancing is increasingly expensive and hard to come by.

As the United States today desperately tries to avoid a shut-down of government activities as deadlock looms on reining in a federal budget swelled by endless borrowing, it is clear that capitalism is in a global bind.

You can cut – as the Coalition is doing in Britain – to avoid higher borrowing rates but that only deepens the recession. Spending more would leader to higher borrowing raters, which the banks won’t like. Why? Because in the perverse world of capitalist finance, the value of the government bonds, which they hold as assets, depreciates as rates rise.

At the same time, British banks are steadfastly refusing to resume rates of lending last seen before the credit crunch of 2007. That’s because their balance sheets remain toxic and full of bad debt. Even the right-wing press is fed up with the banks.

On Monday, the Independent Commission on Banking set up by the government reports and no one expects it to suggest any fundamental changes. The Daily Telegraph’s Jeff Randall, who is deeply pessimistic about the report, remarks: “The banks have captured our money twice over: as cash in their vaults and investments in their shares. We own all of Northern Rock, most of Royal Bank of Scotland and nearly half of Lloyds Banking Group. We rescued them – and in so doing became their prisoners.”

But this is not a new problem. By the outbreak of World War One, the banks and the monopolies had formed an unholy alliance against ordinary working people and elected governments alike. After creating the Federal Reserve – America’s central bank – President Woodrow Wilson declared:

I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilised world. No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.

In the recent period of corporate-driven globalisation, the tensions and contradictions between the capitalist state and capitalist finance have deepened to the point where governments tread warily. The only way to sort that out is to put an end to the power of the bond dealers, banks and money markets and create a new, socially-driven financial system. It doesn’t need me to tell you that bourgeois governments are not capable of such a revolutionary change.

Paul Feldman
Communications editor

Bigger state no answer to 'Big Society'

David Cameron’s crusade for the “Big Society” should compel its opponents to question and reconsider the role of the state in our corporate-owned, profit-driven society. Unfortunately, it has done nothing of the kind.

Though difficult to pin down, the BS project could be understood as Cameron’s libertarian response to a top-down, bureaucratic state that vast swathes of the population despise and want nothing to do with.

Perhaps Tory prime minister Cameron understands that should this attitude to the state continue unchallenged, there’ll come a time when it loses remaining legitimacy. And that point, anything could happen, as events in Egypt have shown.

So the Coalition’s plan is to shed the state’s responsibility for things like forests and involve the unelected, unaccountable “third sector” of charities and the like to bid for services currently provided by local councils. Other community projects will be able to access funds from a BS bank and the rest of us simply have to volunteer.

Labour and trade union leaders like Brendan Barber have simplistic responses which reveal much about their fondness for the capitalist state and litle else. Labour crudely says the BS is a “cover for the cuts”, which is a bit rich for a party implementing the government’s draconian policies at local level without any resistance.

Just for the record, the previous New Labour government contracted out huge chunks of formerly state-provided services at vast cost to the taxpayer. Private Finance Initiative (PFI) schemes became a licence to print money for companies building hospitals and schools while Londoners are weighed down by the cost of rescuing a failed Tube modernisation contract.

Now it turns out that 25 for-profit Independent Sector Treatment Centres created by New Labour to do non-essential operations on behalf of the NHS have been overpaid by up to £250 million in the five years to 2010. This is because they were paid a fixed sum, even though the centres carried out fewer operations than the contract specified.

So the Coalition is deepening a trend set by Blair and Brown, which makes the claims that Cameron wants a “smaller state” more than slightly ludicrous. Barber, general secretary of the Trades Union Congress, who bizarrely says the BS will create a failed state like Somalia, favours the Scandinavian approach, consisting of a massive (and oppressive) state apparatus and a welfare system paid for by taxing ordinary workers at around 50% of their incomes. (If he cared to check he would find Scandinavia is moving towards market states).

But we should we allow ourselves to be placed in a position of defending the role of the existing state (Scandinavian or otherwise) in opposition to the BS project? The present state reinforces the capitalist status quo, with its gross inequality and exploitation. It sanctifies profit by legally obliging corporations to put shareholder interests first. The “welfare state” in turn legitimises the notion of the deserving poor, forever dependent on the charity of the state.

Other parts of the state apparatus supply judicial and police powers to control the population lest they resent what passes for democracy, fitting up activists where necessary as they did over the Nottinghamshire power station action. So who’s for a bigger version of this wretched state? Only Ed Miliband and Barber because access to the state gives them privilege and limited power without ever having to challenge how things are.

We are obliged to develop concrete ideas for an altogether different system of ruling, one that does not sit above society while operating on behalf of the powerful and the rich. What is wanted as an alternative to the BS and Labour’s love of the state is a thoroughly democratic system based on a network of People’s Assemblies as a transition to real self-rule. At the heart of such a democratic system would be co-ownership and control of all society’s resources, including land, banks and corporations. Then we could truly say that society was much, much bigger than it is today.

Paul Feldman
Communications editor

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

Groucho says it how it is

Perhaps John McDonnell could draw some comfort from Groucho Marx after his exclusion (for a second time) from the contest for leader of the Labour Party. Groucho once quipped that he wouldn’t want to belong to any club that would accept him as a member.

McDonnell could only have secured the required 33 nominations – he ended up with about half, including two right-wing mavericks Kate Hoey and Frank Fields – with the active support of the anti-socialist, New Labour majority that runs the party. It wasn’t going to happen.

They were never going to lend McDonnell their votes precisely because he has systematically struggled and campaigned against them, inside and outside parliament, on picket lines and in rallies. By all accounts, he did not pull his punches on Monday evening when he challenged the main contenders over New Labour’s record.

McDonnell has also argued for a genuine socialist alternative to corporate globalisation, taking up the theme that another world is possible. So if he didn’t get on the ballot, it’s because of his principles which New Labour is consciously opposed to.

In 13 years in office, lest we forget, Blair and Brown – with the help of the two Milibands, Ed Balls and Andy Burnham – turned Labour into a management team for global capital. They gave political blessing to the generation of a gigantic financial bubble which has now burst, leading to massive spending cuts. And, make no mistake, if New Labour had won the election, they would be announcing major cuts as well.

The New Labour establishment has lent support to TV personality Diane Abbott to provide themselves with a cover of respectability. There is no other way to explain the last-minute rush to nominate her led by David Miliband. This followed McDonnell’s decision to withdraw under pressure from Abbott’s supporters, even though she had fewer nominations at the time.

It was ironic indeed that a black woman MP secured her 33rd vote from Phil Woolas. His anti-immigrant rhetoric as a minister in the outgoing government was music to the ears of the far right. Nevertheless, Woolas was given a big hug by the raging opportunist Abbott – who sends her son to a private school – after signing her papers. Steve Bell just about summed it up with his “Diane and the Tokens” cartoon in today's Guardian . Another Groucho Marx quip might be appropriate here: “Those are my principles, and if you don't like them... well, I have others.”

For all the media speculation about who succeeds Gordon Brown, the future will be decided on the streets and in communities and not in the House of Commons. We are moving into the territory of extra-parliamentary action as the Lib-Tory coalition prepares to cut wages, raise VAT and destroy whole areas of public services. This will be class war with a vengeance and – just as in the Thatcher period – Labour will oppose militant resistance to workers being made to pay for the crisis of capitalism.

The mass opposition to Cameron and Clegg that is on the horizon will need a dramatically fresh political perspective. Any idea of returning to New Labour is a nightmare too far and would, in any case, only be a change of management!

There is something in the coalition’s declaration that the “old politics” is dead. Why try and breathe new life into a corpse when the opportunity is there to create a revolutionary, democratic politics in its place? McDonnell and his supporters have an essential role to play in the discussion about where we go from here politically which they should not pass up.

Paul Feldman
Communications editor

Bankrupt, which ever way you look

Britain is bankrupt – and not just financially either. The obscene bidding war that is going on about public spending cuts confirms that all the major parties have gone bust too as they fall over themselves to offer more pain than their rivals.

The Liberal Democrats are, of course, neither liberal nor democrat but a version of Toryism that goes back to the 18th century. So leader Nick Clegg can pledge “savage spending cuts” while Vince Cable wants a public sector pay freeze.

New Labour’s Ed Balls is offering up deputy head teachers galore as ministers begin to wield the axe while the Tories say they will take drastic action to stabilise public finances if they win the forthcoming general election.

Now the election could produce a hung parliament, with the possibility of a Tory-Lib Dem coalition the outcome. How this might work out in practice is being rehearsed in Leeds, where the city council is under the control of just such a coalition. The council leader is Lib Dem Richard Brett.

The council is cutting the wages of refuse collectors by up to £6,000 a year. More than 500 refuse and street cleaning workers have vowed to strike indefinitely against the plan. The council is presently using private contractors to try and break the strike.

Behind the panic over spending cuts is the fear of the ruling classes that the British state could become insolvent. The Sunday Telegraph yesterday spelled out the disaster scenario, noting that the national debt was equivalent to more than £25,000 for every family in Britain. Interest payments alone are heading towards £60 billion every year.

The paper held out the prospect of a Lehman Brothers debacle where the investment bank went bust after lenders refused to extend further credit, warning: “Something similar could easily happen to Britain. If foreign investors lose confidence in our ability to repay our colossal debts, we will go bust .. Such a crisis, if it happens, will make the present one look positively kind.”

So what’s on offer is a nothing less than an alliance between the state and the bankers to punish working people for the madness of capitalism. The state under the Tories and then New Labour embraced wholeheartedly the creation of an unsustainable debt-driven economy. When this crashed last year, the banks that stoked up fantasy finance were bailed out with taxpayers’ money. Now services and pay have to be slashed to the bone so that the same bankers can stay in business.

Yet none of this will do the trick anyway. As George Parker, the Financial Times’ political editor, remarks today: “No other big country has seen its public finances wrecked by the financial crisis in quite the same way as Britain. The next election will be dominated by questions about when and where to cut a deficit amounting to one-eighth of the country’s income.”

In other words, the sums are simply too huge for a cut here or there to make a difference. At the same time, the financial system itself is on life-support. The magnitude of debts still out there mean that most banks are insolvent, lacking the assets to cover loans that are “non-performing”.

What is unfolding is an historic crisis of the capitalist state and the financial system which won’t be solved by a general election. What is demanded is a total reconstruction of the political and economic system along democratic lines, which involves the repudiation of debts to bankers and the closure of financial markets. Campaigning along these lines would have the merit of seizing the initiative rather than leaving it to Brown, Clegg and Cameron.

Paul Feldman
Communications editor

Bankrupt - economically and politically

So now we have it – Britain is officially on the verge of state bankruptcy. And we’re not just talking high finance here but politics as well. This coincidence of the gravest economic and financial crisis of capitalism with the constitutional impasse at Westminster is truly an explosive cocktail.

The assessment by ratings agency Standard & Poor that the British state could lose its top AAA rating because its borrowing levels are too high, sent shock waves through the markets yesterday. This was the despite the fact that S & P’s assessment was based on figures already made known about public debt, which goes to show just how fragile and nervous the financial markets remain.

They have good reason to be. Figures published by the Bank of England almost at the same time as S & P was delivering its judgement, show that printing money in a bid to ease the credit crunch has had little or no effect. The Bank's Trends in Lending report showed that lending by Britain's major banks to businesses and households actually slowed in April. It seems that the £125 billion injected into the system by the Bank has disappeared down a financial black hole.

It’s the same story across the Atlantic, where that other great debtor nation in the global economy has just witnessed the collapse of another major bank, BankUnited in Florida, which was declared insolvent by the Federal authorities. The closure came just hours after Alan Greenspan, former chairman of the Federal Reserve, the US central bank, warned that the global banking crisis was far from over. Greenspan, of course, presided over – no encouraged – the untrammelled, unregulated explosion of the financial system until it became a world of fantasy finance.

The consequences of the ongoing crash are all too obvious. Thousands more British Airways staff are set to be fired as a result of the company’s catastrophic £400 million losses for the year, with chief executive Willie Walsh saying he saw "no signs of recovery anywhere". Others are more dramatic in their assessment. Martin Wolf, the Financial Times’ senior commentator, said the “the fiscal costs of this crisis will be comparable to those of a big war”, adding: “Thursday’s threatened downgrade by Standard & Poor’s is a reminder of those costs. Loss of jobs and incomes will also scar the lives of hundreds of millions of people around the world.”

As far as the S & P verdict is concerned, there is no doubt that huge public spending cuts are on being prepared – whoever wins the next election – because no way is the economy going to “recover” anytime soon and produce the increased tax revenues that would reduce the debt that itself results from bank bail-outs and a slump in economic activity.

The combination of a state edging towards bankruptcy that is planning to slash services and a political system that is rotten to the core, is not only dangerous – it is unacceptable. There is an urgent need to reorganise both the economy and create a new democratic politics, because action on jobs and spending can only be achieved at the level of the state.

Clearly, however, the present capitalist state system is increasingly paralysed by its own crisis and where it has acted in terms of bank bail-outs and printing of money, has made no essential difference in preventing economic meltdown. The background danger is that sinister forces lurking in the background will act of their own accord unless we can mobilise a viable challenge to the status quo with a view to carrying through a fundamental transformation of a failed economic and political system.

Paul Feldman
AWTW communications editor