Sunday, 27 February 2011
Osborne's decision to pass onto local councils a large proportion of the unnecessary £80 billion-plus cuts he announced in the CSR is a mark of tactical genius, amid economic incompetence.
It means councillors who stood on manifestos on the same day he was elected, obliged to tear up their commitments to their local communities. It means putting councillors in the invidious role of deciding how to implement huge cuts and then defending their decisions (which will often contradict their manifesto commitments) to their supporters.
And it is predominantly the poorest councils (which are more likely to be Labour) that are suffering the greatest cuts. Of the 33 London boroughs, the 8 suffering the greatest cuts are all Labour-controlled boroughs. Of the ten boroughs with the lightest cuts, 8 of them are Tory-controlled.
Despite the protests and lobbies of many anti-cuts campaigners to resist and defy the cuts, all councils implemented cuts. Many Labour councils take a 'dented shield' approach, preserving 'vital services' as best they can.
The Guardian reported in mid-February that 'Labour councils shed 50% more jobs than Tory areas' which shows both the severity of the cuts inflicted on Labour councils, but also the failure of the 'dented shield'.
A recent survey of local government Finance Directors found 81% looking at cutting public library provision, 76% cutting 'back office' roles like finance, IT and HR, 73% looking at leisure provision cuts, 71% considering scaling back capital budgets and the same percentage looking to privatise council property.
None of these measures will increase local demand or revitalise local economies. They will involve cutting jobs and reducing demand. In the areas where stimulating demand would be most effective (i.e. poorest boroughs) the opposite will happen.
Osborne's cuts across the whole of government, and the strong position of the private sector in holding down pay (weak trade union rights and labour laws combined with high unemployment) mean the economy will sink further.
Capital spending was being cut at national level under Darling's prospectus now embellished by Osborne. But locally now too many councils will cut capital spending - reducing opportunities for both public and private sector job creation.
Osborne front-loaded the cuts to councils - with harsher cuts this year than will follow in years two, three or four. Councillors might be breathing a sigh of relief therefore that next year won't be so bad.
However, that assumes economic growth and increased tax revenue in line with Osborne's predictions (not to mention that the cuts are cumulative, further cuts will be from the 2011 baseline, not 2010). If revenues stagnate or even fall, Osborne will be coming back for further cuts.
Thursday, 24 February 2011
Wednesday, 23 February 2011
Oil prices have surged as much as 6% since Monday, rising to their highest since the collapse of demand in the global crash of 2008. If this rise is maintained, it is certain to trigger a renewed slowdown in global production.
Oil companies in Libya are in the process of shutting down the 2% of the world’s production that come from the country. Western oil companies have suspended oil production and BP has started evacuating workers from Libya.
The Libyan mission to the UN is in disarray, the country’s generals are resigning along with many ministers. As in Egypt, the army is going over to the side of the revolution.
Every part of the transnational capitalist class – global corporations, capitalist governments, unaccountable global agencies – is watching events with a mounting horror. They were horrified by the revolution that brought Gadaffi to power in 1969, now they are horrified by the revolution that will end his rule.
Mostly they are desperate to find a way of halting the contagion of revolt against autocratic governments which have provided safe haven for the global oil corporations and built their family fortunes from the proceeds. Nervously they assess the risk of the infection spreading to Saudi Arabia, which is the source of close to 10% of current oil supplies.
Interviewed on Al Jazeera, a former UN official spoke for the capitalists. Now they don’t mind people having rights, they’re even in favour of them having the same “democratic”, “human” rights enjoyed by people in the West. But above all they want stability, they want to see investment, they want people to keep their jobs, they want to see economic growth. They fear a revolution that could end the for-profit system. They are wondering what they can do to stop it.
Any disruption in oil supplies increases the power of the Organisation of Petrol Exporting Countries (OPEC) consisting of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. As of November 2010, OPEC members collectively hold 79% of world crude oil reserves and 44% of the world’s crude oil production, giving them major influence over the global market.
Juan Pablo Pérez Alfonso was a prominent Venezuelan diplomat, politician and lawyer primarily responsible for the inception and creation of OPEC. In 1975 he warned that “oil will bring us ruin… Oil is the Devil's excrement”. He wasn’t far off.
In the 1970s, the inflationary printing of dollars to buy its way out of a historic economic crisis forced the US to abandon the relationship between the paper currency and gold established in 1944. The value of the dollar crashed from $42 for an ounce of gold in 1971 to $800 in 1979. OPEC acted to defend the value of its commodity which was emerging as the essential, cheap and plentiful foundation of the post-war economy. The price of oil quadrupled by 1973.
Four decades later, the situation is very different.
Exponential growth – the global success story of credit-funded huge corporations pouring previously unimaginable torrents of products into the hands of debt-burdened consumers has ensured that the world’s oil is half gone.
Much of it has been used to transform agriculture from a system of food production by millions of small farmers to a global business controlled by small number of corporations whose hunger for profit puts food prices beyond the reach of billions.
Industrialised agribusiness like the rest of capitalist manufacturing is addicted to oil. The burning of oil to fuel the capitalist growth mania has brought the planet to the limits of its ability to sustain life. The revolutionary upheaval now under way brings the possibility of a different future. We have to grasp it.
23 February 2011
Thursday, 17 February 2011
Christiana Figueres told a top-level meeting of defence chiefs and strategists in Spain that climate change-driven drought, falling crop yields and competition for water were fuelling conflict and without aggressive action to reduce emissions causing global warming they would increase. Ms Figueres said:
It is alarming to admit that if the community of nations is unable to fully stabilise climate change, it will threaten where we can live, where and how we grow food and where we can find water... In other words, it will threaten the basic foundation – the very stability on which humanity has built its existence...
All these factors taken together mean that climate change, especially if left unabated, threatens to increase poverty and overwhelm the capacity of governments to meet the basic needs of their people, which could well contribute to the emergence, spread and longevity of conflict.
The world’s food supply is already increasingly fragile, as a result of extreme weather events affecting crop yields. In January world prices rose for the seventh successive month, up 3.4% from December, to the highest level since the UN Food and Agriculture Organisation (FAO) began measurements in 1990.
And more increases are on the way. The FAO issued a special alert this week that provinces of northern China, the country’s main wheat producing area, are suffering a drought that could destroy up to one third of the summer wheat crop. The absence of snow cover and ferociously low temperatures, means dormant wheat will be killed by frost. Not only crops but 2.57 million people and 3 million livestock animals are affected by a shortage of drinking water.
The weather is the same in the US Great Plains and Midwest. Kansas and Oklahoma have had has less than half of normal rainfall in January and there is intense cold. China is the world’s biggest wheat producer but also its biggest consumer. If China starts buying wheat in the world market, prices will be pushed even higher.
FAO economist and grains expert Abdolreza Abbassian warned:
High food prices are of major concern especially for low-income food deficit countries that may face problems in financing food imports and for poor households which spend a large share of their income on food.
But for capitalist agri-business, including companies whose activities are financed by Chinese and Saudi sovereign wealth funds and by investment funds launched by the likes of Goldman Sachs, high food prices are good news.
Delegates attending the World Social Forum at Dakar in Senegal, cheered wildly at news of the fall of Mubarak. The global land grab was their main focus with representatives of peasant and worker movements from across the world reporting on their struggle to hold on to land and livelihoods.
Veteran food campaigner Susan George highlighted the situation in Europe, where unemployment is rising along with food price inflation. Europeans, she said, are beginning to learn what it is to live with an IMF structural adjustment programme.
Of course whilst the UN may find toppling governments a terrifying prospect, the majority of the world’s people would be delighted to get rid of rulers whose ruthless support for the financial system overwhelms any concern for their populations.
People know the priority is neither climate change nor hunger, but kick-starting growth and restoring profitability. The market in food offers one of the best opportunities to do that, since the onset of the global economic crisis. The price of restarting the global capitalist economy by expanding the globalisation of land and farming will be hunger affecting more and more of the world’s population. So help work out alternatives at our “Beyond Resistance” teach-in Kicking capitalism's growth habit - building a sustainable economy on February 26.
Monday, 14 February 2011
The Tories are now embarked on a process dear to their hearts by squeezing the poor, slashing benefits and public services and punishing the people for the crimes of the banks. Their Liberal Democrat co-conspirators are busily trying to persuade themselves that targeting women, children and the poor is somehow “fair”. Neither seems to notice the extent to which companies and those who run them are back in the greed game.
The Government preaches wage and pension cuts for public servants and demands that no one should be paid more than the Prime Minister. Yet no one has the guts to demand the same sacrifices of the private sector, even though private sector excesses are far more damaging to social cohesion.
A recent survey by Income Data Services shows that directors of FTSE 100 companies have seen their pay rise by 55 per cent to an annual average of £4.9 million each. FTSE 100 directors received average bonuses of £701,512 – more than many people collect during their entire working lives. This is an increase of 34 per cent on the previous year. Average wages for the same period rose by 3.6 per cent.
Bankers have brought the economy to its knees, but still get their executive bonuses. Barclays Bank is paying more than £2 billion in bonuses. Goldman Sachs is paying around £8.068 billion in executive pay and bonuses. The state-funded Royal Bank of Scotland has announced a third quarter pre-tax loss of £1.4 million, but will pay out £2 billion in bonuses. The gamblers – investment bankers – will receive an average bonus of £110,000. The new boss of the state-funded Lloyds Banking group is to collect an estimated package of £8.3 million. Lehman Brothers is in bankruptcy but still wants to pay out £20 million in bonuses.
All this constitutes a major scandal. Labour did all too little to check the antics of the fat cats and the resulting social inequalities. The corporate lobby has effectively bought political parties and calls to control it lead to claims that executive pay is the outcome of market forces and set by remuneration committees consisting of independent directors.
The fat cats claim to work long hours to create wealth and feel they deserve more for that. However, wealth creation is a co-operative effort involving the investment of finance, human capital, local communities and social infrastructure. Why should the fat cats gobble a disproportionately large slice of the pie?
The claims of the super-rich must be countered. Here are some pointers.
The old boys’ (and old girls’) networks effectively make the market for fat cats. There are no such things as equal opportunities or free markets when it comes to executive appointments. Workers and representatives of local communities and other stakeholders are excluded from boards. They give their blood, brawn, brains and sweat to generate profits, but have no say in how the financial pie is divided or whether the bosses are worth their large pay cheques. Even the shareholder vote on executive remuneration is only advisory and not binding on company directors.
Executive remuneration is under the control of a small, well-connected economic elite masquerading as “independent directors’ on remuneration committees. These elites are rarely elected but usually handpicked by executive directors. The remuneration handed out to their friends also pushes up their own benchmark salaries. Reckitt Benckiser supremo Bart Becht collected £90 million. His company’s four-man remuneration committee includes Graham Mackay, chief executive of SAB Miller, who took home £13 million.
The mutual back-scratching is demonstrated by Tesco’s remuneration committee, which is staffed by millionaires. These include Karen Cook, managing director of investment bank Goldman Sachs International and president of Goldman Sachs, Europe; former ITV chief executive Charles Allen, who is also chairman of Global Radio, EMI Music, and a senior advisor to Goldman Sachs; Patrick Cescau, former chief executive of Unilever; Ken Hanna, chairman of Inchcape PLC and former director of Cadbury, Dalgety, United Distillers and Avis Europe; Rodney Chase, non-executive chairman of Petrofac Limited and a non-executive director of the Computer Sciences Corporation in Los Angeles, the Nalco Company in Chicago and the Tesoro Corporation in San Antonio; Harald Einsman, a director of the Carlson Group of Companies, Harman International Industries Inc and Checkpoint Systems Inc in the United States. Einsman is also on the board of Rezidor AB in Sweden.
Tesco’s 2010 annual accounts show that the average salary of its 372,338 full-time equivalent employees, inflated by the inclusion of executives, was just over £16,500. The average for ordinary workers is considerably less. Many Tesco employees have to apply for tax credits and social security benefits to keep their heads above water. Yet chief executive Terry Leahy picked up £17.9 million in pay, bonuses and share options. No wonder Sir Terry can contemplate retiring at the ripe old age of 54 and seek comfort in his pension pot of £15 million. His employees do not have that luxury.
Let us suppose that, because of their genetic make-up, fat cats are somehow better endowed with creative and innovative talent. It still does not follow that they automatically deserve huge rewards. Their genetic disposition is purely due to an accident of birth, a lottery of nature. They have done absolutely nothing to create those genes. It is the outcome of centuries of social interaction and not the creation of any single individual, clan or family.
Genetic endowments are the outcome of food, healthcare, water, medicines and many other forms of social support provided by society at large. Since fat cats are not the creators of any genetic advantage, their claims to appropriate the economic benefits can’t be sustained.
Even if we concede that some fat cats have superior skills, they cannot be brought to fruition without the appropriate social arrangements. Bankers speculate on financial markets in order to make money. That is not made by their individualistic endeavours alone. They must enter into financial contracts with other companies. Through the Companies Act, the state is the ultimate creator of all companies. Without due process of the law, companies cannot be created. Corporate contracts need to be enforced with the public provision of courts, the judiciary and the police. Indeed, without particular social arrangements market contracts are not feasible.
Further, society provides education and healthcare for bankers. It provides public transport and social infrastructure to enable bankers to travel and plug their computers in. It tests food and medicines for their nourishment. It even bails out bankers who squander other people’s savings. The profits made by bankers, no matter how clever, cannot be made by them alone. So they have no moral, ethical or natural claim for appropriation of so much wealth. That right lies with society at large.
It could be argued that someone has to be energetic and far-sighted enough to spot gaps in the markets, provide innovative products and services or use social resources to generate new wealth. In recognition of that, society may be willing to give them extra rewards. Yet precisely how much extra must be a matter for public debate. It must have due regard for social welfare.
Thousands of workers are not been made better off by the telephone number salaries of executives. Ordinary people’s freedom to improve their life chances and opportunities for their families are impaired by the grossly unfair distribution of wealth.
The same fat-cattery has also impoverished the pension prospects of workers as, instead of returns to members of pension schemes, the wealth is gobbled-up by executives. Many toil in sweatshops and poor working conditions because executives prefer to collect fatter pay cheques rather than invest in health and safety. Stop excessive rewards and we benefit as customers through lower prices.
Britain’s skewed distribution of wealth damages democratic participation. The wealthy can set up think tanks, control newspapers, radio and television stations and shape public choices through donations to political parties. Apologists frequently defend excessive executive rewards by claiming that wealth will somehow trickle-down. However, no means of achieving this have been identified and managers who have made disastrous decisions continue to collect huge rewards – as happened with the banks.
Nor has any satisfactory way of measuring executive performance been devised. Directors at WorldCom and Enron reported higher corporate earnings. Subsequently these were discovered to be the product of fraud and creative accounting.
The main reason for excessive executive rewards is simple. It is the control of boardrooms by economic elites. That needs to be dismantled by democratisation of companies. Labour must seek to ensure that employee representatives are on the boards of all large companies. Executive contracts need to be publicly available.
Corporate stakeholders, including employees, should be able to vote on executive remuneration. If employees, shareholders, borrowers, depositors and others feel that directors deserve their gigantic pay cheques, then all well and good. However, unless stakeholders are getting a fair share of the wealth they are unlikely to support massive executive salaries.
Democracy may be anathema to corporate barons. But it is the only way of checking their greed and promoting social justice.
This article first appeared in Tribune
Sunday, 13 February 2011
The UK bank bailout was £1.3 trillion. The UK’s big five banks made pre-tax profits of £15bn in the first half of 2010. Let’s estimate the second half of 2010 was as good and their annual profits were £30bn. Bank bonuses were estimated to be over £7 billion last year. Osborne's levy of £2.5 billion (and let's see how much is actually collected) is a drop in the ocean - especially when Osborne is cutting corporation tax every year for the next four years.
Very good analysis in yesterday's Morning Star:
This levy will not do
Judging by the headlines it's been a tough week to be a banker. Not only have they been subject to "Project Merlin," which set minor restrictions on their multimillion pound bonuses, but they also have had the levy on their borrowing increased. Times are indeed tough for the leading members of the top 1 per cent of earners. Or are they?
Chancellor George Osborne slapped - well, more precisely, tickled - bankers with the levy at the beginning of the week following a period of prolonged procrastination by the Treasury over the question of limiting their runaway bonuses.
But far from being a "pre-emptive strike against the City," as the Telegraph exclaimed earlier this week, the levy is tame and easily manageable by the banks.
So what are the facts? Well, the government aims to increasing the levy on banks' borrowing to £2.5 billion this year, an extra £800 million on its previous plan.
This represents an annual tax of 0.075 per cent on the value of all of the debts of British banks.
The coalition is adamant that the levy on bank balance sheets is the best way of making sure companies make a fair contribution to tackling the deficit.
However, despite banks reportedly being "livid" at the levy, unions have described the move as a mere "drop in the ocean."
The £2.5bn figure represents only 10 per cent of the overall profits made by Britain's banks last year.
And when you consider that banking profits were in the region of £25bn, compared to the National Audit Office statistics showing that the financial sector still owes £90bn to the public following the taxpayer-led banking bailout, to say that the banks have got off lightly is an understatement.
Despite this City representatives have suggested that the higher levy calls Osborne's commitment to bankers and big business into question.
This seems odd given the news - as if Star readers really needed it - disclosed earlier this week that more than 50 per cent of funding for the Conservatives' general election campaign came from financiers in the City of London.
Over £11m was donated, according to an investigation by the Bureau for Investigative Journalism, a figure which puts real meaning into the saying: "He who pays the piper, calls the tune."
Unions and even the shadow Labour cabinet have highlighted this link as proof of Osborne's inertia in dealing with the banks and their behaviour.
Left economists have been busy too, providing much-needed analysis and counter balance to the agenda being thrust on the British public over this issue.
Left Economic Advisory Panel co-ordinator Andrew Fisher and left economist Michael Burke point out that, as a result of the coalition's cuts to corporation tax, the rise in banking profits will actually be higher than the £800m increase in the levy that Chancellor Osborne is imposing.
"Corporation tax is being reduced this year to 27 per cent - this would save £1.1bn for the UK banking sector," Fisher tells the Morning Star.
"One also has to look at how banks manage to disguise their balance sheets, for example through subsidiaries and how much the Treasury actually collects."
Fisher adds that the bank levy will only pull in an estimated £10bn over the next four years, while welfare will be cut by £18bn over the same period as the government pushes to slash Britain's budget deficit.
"The poor are paying more for a crisis they did not create," says Fisher.
And scant regard has been paid to any possible and immediate alternatives.
Although differences exist in exactly what to do with the banks, left economists are clear that it is not simply a question of how big the levy is. They argue that the whole relationship between the state and the bank must change.
"The way out of the banking crisis and the economic crisis is the same - instructing the banks, starting with the state-owned banks, to lend for productive investments," says Burke.
"This would both increase their profitability, to the benefit of taxpayers, and boost growth to the benefit of all."
University of the West of Scotland Professor John Foster goes further.
"The only way to get money out of the hands of speculators and into the productive economy is for the retail banks to be fully nationalised - and for the government to close down the centres for unregulated speculative banking and tax avoidance in Britain's crown dependencies," he says.
Update: excerpt from Prime Minister's Questions on bank bonuses. Miliband exposes Cameron's rhetoric, but Cameron's retort is fairly spot on to be fair.
Wednesday, 9 February 2011
The crisis has driven unemployment in Spain to 20%, forcing Spanish workers to compete for work in the huge plastic-covered farms which grow salad and vegetables destined for sale in all the major supermarkets in Britain and other parts of Europe.
As the recession and inflation bites into living standards across the world, and the cost of competition amongst the supermarkets like Tesco and Sainsbury drives their buyers to put the squeeze on the price they pay to farmers, payments to the workers have been reduced to less than half of the legal minimum wage.
Research by investigative journalist Felicity Lawrence and charities reveals that migrants in Almeria, adjacent to the main tourist destination of the Costa del Sol, are now living in unbelievable squalor.
They live in “chabolas”, shelters made from used vegetable boxes covered in plastic, without food, water or work. Increasing numbers are reduced to taking handouts from charities like the Red Cross and groups of nuns just to stay alive.
Spitou Mendy, who was himself an illegal migrant from Senegal until he gained his papers in an amnesty, now helps run Sindicato de Obreros del Campo (SOC), a small union for migrants. He thinks the numbers have swollen to more than 100,000 due to the recession.
In Mendy's eyes the conditions are slavery.
You don't find the sons of Spain in the hothouses, only the blacks and people from former colonies... The farmers only want an unqualified, malleable workforce, which costs absolutely nothing. Only one part of the business is benefiting from this. It's the big agribusiness that wins. It's the capitalists that win. And humanity is killed that way. This is slavery in Europe. At the door to Europe, there is slavery as if we were in the 16th century.Farmers argue that the supermarkets have squeezed their margins even harder during the downturn, while costs for fuel and fertiliser have gone up. They have no choice but to cut wages, which is the one element of their production costs they can control. Farmers trying to employ people legally and at the proper rate find it hard to compete or make a profit.
Wages approaching zero, and declining profits shine a bright light on the unsustainable character of food production using capitalist methods.
Rather than weep for the supermarkets, or try to find solutions to their problems, there has to be another way. Food production is undergoing a dramatic turnaround in Venezuala. The Bolivarian revolution led by Hugo Chavez is establishing a food system free of corporate control, rejecting the free market, capitalist ideology and developing alternative systems of international trade and co-operation.
With a state controlled system, cheap agricultural credit has increased from $164 million in 1999 to $7.6 billion in 2008. In a new system of participatory democracy, more than 35,000 community councils as well as councils of farmers and fishermen are enabling communities to monitor their food needs, shape food policies and take control of their local food systems.
These, and other examples, have to be the way forward.
A World to Win Blogs Slavery behind the food on your table
Saturday, 5 February 2011
Andrew's favourable post of Hugh Radice's Red Pepper article ends with this 'Time for an old, old slogan: workers of the world unite!'
As most may know this is a revised version of the last line of the Communist Manifesto, but in that document Marx and Engels propose more than uniting as a way forward. The last paragraph of the Manifesto reads in full, and it is particularly important as the wave of popular uprisings unfold in the Middle East:
The Communists disdain to conceal their views and aims. They openly declare that their ends can be attained only by the forcible overthrow of all existing social conditions. Let the ruling classes tremble at a Communistic revolution. The proletarians have nothing to lose but their chains. They have a world to win.
Working Men of All Countries, Unite!
But it is important to beware when people refer to Marx or even Keynes .....
Dogma gives Marx a bad name
The merit of veteran Financial Times writer and noted economist Samuel Brittan is that he is not a dogmatist. He may not have all the answers when it comes to today’s crisis. But Brittan believes that summoning the writings or reputations of dead economists to back a policy is hopelessly wrong.
Vince Cable, Liberal Democrat business secretary in the Coalition government, claimed in the January 17 issue of the New Statesman that “Keynes would be on our side”. Two economists promptly called this “foolhardy”. Others, says Brittan, too often cite Karl Marx to justify a view.
“What a reflection all this is on the would-be scientific standing of political economy,” says Brittan who served in Labour as well as Tory governments. He himself was taught by Milton Friedman, the father figure of the monetarist theories of the 1980s implemented by Thatcher and Reagan.
There is indeed no merit in citing what Keynes or Marx (or even Friedman) said at a certain point in history if the aim is to prop up a preconception about today’s world. As Brittan says: “Can one imagine physicists trying to advance their views by showing that they were implicit in some obscure passage in Einstein or Isaac Newton?”
This is true. But any half-decent physicist will know that a modern understanding of the material world would not be possible without the advances made by earlier scientists. Their theories are incorporated into modern physics – not simply rejected as old hat.
So it should be with Marx, a revolutionary communist as well as a political economist. Turning his ideas into a tenet, a dogma to be repeated on suitable occasions, was not the responsibility of bourgeois economists like Brittan. Principal blame for this rests with the Stalinist movement, particularly the bureaucracy of the former Soviet Union. They did this to Lenin too, taking a phrase here and a quotation there to provide a rationale for every twist and turn.
Brittan himself is not averse to throwing out the baby with the bathwater, declaring that if Marx were alive today he would be 193 years old and, therefore, no one could know what he would say. This is indisputable; and the likelihood of Marx returning is not even up for discussion.
What Marx left, however, was a legacy of a philosophical method, an approach to understanding constantly changing reality. Marx himself, in the afterword to the second German edition, could do no better than cite with approval a critical review of Capital in 1872:
The one thing which is of moment to Marx, is to find the law of the phenomena with whose investigation he is concerned; and not only is that law of moment to him, which governs these phenomena, in so far as they have a definite form and mutual connexion within a given historical period. Of still greater moment to him is the law of their variation, of their development, i.e., of their transition from one form into another, from one series of connexions into a different one. This law once discovered, he investigates in detail the effects in which it manifests itself in social life.
This dialectical method enabled Marx to reveal the contradictions inherent within the system of capitalist production. The tendency of the rate of profit to fall, the continuous drive to global expansion, the inevitable formation of monopolies – these and other scientific laws were expounded by Marx. They naturally need verification through a study of today’s conditions. Rescuing Marx from the dogmatists is essential in our preparation to transcend a capitalism that is in its deepest-ever and most threatening crisis.
4 February 2011
Thursday, 3 February 2011
Hugo Radice on the UK's latest GDP figures, and how they relate to the global economic context.
On the face of it, the fall in UK national output (GDP) reported on Tuesday just adds to the mounting bad news for everyone, not least Chancellor George Osborne. Fears about a ‘double-dip’ recession, which would officially arrive if a further decline takes place in the first quarter of 2011, now look considerably more likely. Not surprisingly, most Red Pepper readers will now be concentrating their energies on the fight against the cuts. But for us as much as for employers and the Tory government, it’s important to keep a close eye on current developments in the economy. So what exactly does all the bad news add up to?
First of all, we live in a world in which the financial markets pretty much dictate the government’s policies, or at least their room for manoeuvre. Osborne’s attempt to blame the fall in GDP on the bad weather seemed to cut no ice in the City. There, the pundits and the speculators mostly concluded that the recovery had now stalled, and that the Bank of England would therefore delay the long-expected increase in its official lending rate of 0.5%.
Looking back on the growth recorded for July-September 2010, it now seems all too clear that the sudden boost to construction activity in that period owed more to a rush to complete current contracts before the spending cuts hit local authorities and government departments alike; so the sharp fall in the last quarter was as much a case of back to normal as the result of the big freeze.
In any case, last week’s unemployment figures made grim reading, back above 2½ million, with a particularly big rise in youth unemployment - and this well before the public sector cuts start hitting home in April. What is more a host of recent attitude surveys, among households as well as businesses, have suggested growing pessimism about our economic prospects and therefore a reluctance to make any big spending commitments. Add in the unexpected attack on the coalition’s lack of a growth strategy from the outgoing CBI chief Richard Lambert, and Osborne surely couldn’t maintain for much longer that shiny smile and confident air.
But although there obviously is a Plan B somewhere on his desk – to slow down the spending cuts and encourage the Bank of England to pump more cash into the banking system – the Chancellor is terrified that a change of direction would be seen by his masters (that’s the financial markets, remember, not us) as a sign of ‘weakness’.
Osborne himself has cited the International Monetary Fund’s latest update to its World Economic Outlook, issued on January 25, in support of his policies. The IMF, he said, approved of a robust approach to restoring the public finances. Well, yes, but only up to a point. The IMF update didn’t actually discuss the UK as such, and they qualified their approval of spending cuts by putting them in a wider context:
“A host of measures are needed in different countries to reduce vulnerabilities and rebalance growth in order to strengthen and sustain global growth in the years to come. In the advanced economies, the most pressing needs are to alleviate financial stress in the euro area and to push forward with needed repairs and reforms of the financial system as well as with medium-term fiscal consolidation. Such growth-enhancing policies would help address persistently high unemployment, a key challenge for these economies.” (Update, p.7)
Now the Eurozone governments have, with a lot of delays and haggling, begun to sort out the debt problems afflicting their ‘periphery’ (that is, Greece, Ireland, Portugal and Spain). They have created a Financial Stability Facility which has just successfully issued the first zone-wide Euro bond. The Chinese government in particular is keen on this development, because they want to diversify their own bond purchases away from the USA. But the markets, which as always in an uncertain recovery are particularly prone to rumours, fads and panics, are still worrying away at this issue. Oddly enough this is good news for Osborne, since problems in the Eurozone make British government bonds more attractive to investors.
However, there are two other global issues which we need to keep an eye on. The first is the one raised by the IMF, namely ‘reforms’ of the financial system. Last week (22 January) the chair of the Independent (sic) Banking Commission, Sir John Vickers, gave a lecture on the progress that the Commission is making on this. Given the often-stated views of the Governor of the Bank of England – and most academic commentators – it was hardly surprising that he highlighted the need to segregate the risky activities of ‘investment’ banking (issuing and trading financial assets of all kinds) from the activities of ‘commercial’ banking (dealing with payments and routine borrowing by households and firms).
The British Bankers’ Association spokesperson, Angela Knight, immediately announced that if new regulations were brought in that were too tough on the banks, they would up sticks and relocate abroad. Short of revolution (not a bad idea?) the way to head off this threat is to make sure that pretty much the same regulations are brought in everywhere, and especially in the USA, UK and the Eurozone. In the more than two years since the collapse of Lehman Brothers, progress on this has been painfully slow. In the USA, legislation was finally passed in July 2010 (the Dodd-Frank Act), but implementation is still being delayed, making because the banking lobby made sure that the proposals were incredibly cumbersome and riddled with contradictions. In the Eurozone, progress is also slow, partly because so many banks are massive holders of those dodgy Irish, Greek, Portuguese and Spanish government debt; so any financial squeeze on the banks threatens efforts to calm down the bond markets.
The second big issue is the tensions between China and the USA. Basically, for years there has been a dollar merry-go-round:
- ..... the US runs a big trade deficit with China, paying for the imports in dollars;
- the Chinese government then lends the dollars back to the US – mostly through buying US government bonds;
- the US government uses this money to keep taxes low, leaving households and businesses with more money to spend;
- and they spend it on Chinese imports.....
However, Chinese President Hu’s state visit to Washington last week brought the issue forcefully to a head. Treasury Secretary Geithner yet again called for an increase in the dollar exchange rate of the renminbi, to try to correct the trade imbalance. But the global context has changed dramatically since 2007. While the USA, as well as other major rich economies, have suffered sharp recessions and then slow jobless recoveries, China and other so-called emerging economies like India, Brazil and Russia took a smaller hit from the financial crisis, and rebounded quickly. Even Africa has in recent years experienced much faster growth than the rich countries.
This is a truly world-shaking shift. Back in the 1970s, the newly-confident post-colonial states of the Third World proposed, in the UN and other fora, a New International Economic Order. The idea was to place their development agenda at the heart of the international economic and financial order, using the leverage of their control over the supply of oil and other raw materials. At first the rich states tried to ignore these demands, so when oil prices were indeed raised sharply, they were plunged into inflation and stagnation. But from 1979, led by the UK and the USA, they took their revenge.
New economic policies of ruthless financial stringency plunged the Third World into a massive debt crisis and the ‘lost decade’ of the 1980s. Neoliberalism was unleashed across the globe, forcing debtor states to adopt policies that favoured capital (including foreign capital) over labour and private profit over state initiatives. And after the collapse of the Soviet bloc and the USSR in 1979-81, this leaner, meaner sort of capitalism became the universal norm.
The great irony is that the success of this strategy – from a capitalist point of view, that is – turned out to create formidable competitors. The Chinese and other new capitalist powers are rapidly increasing their share, not only of world consumer markets, but also of available raw materials. New Chinese, Indian and Brazilian transnationals are displacing the tired old US, Japanese and European firms. China has in recent years outstripped the World Bank as a source of so-called ‘development aid’ to Africa (as always, the ‘aid’ comes straight back to the donor in the form of orders for their goods).
In these circumstances, the power structures of global capitalism have become more and more outdated. The role of the dollar; the permanent seats on the UN security council; the inter-state bureaucracies in Geneva and New York; the voting systems in the IMF; these and countless other practices are being called into question.
For the American people, it is especially hard: that famous ‘city on a hill’ is bankrupt and crumbling, unable to be a beacon for anything except xenophobia and lax gun law. With the Tea Party Republicans on the rise, threatening everything from bombing Iran to hanging Julian Assange, there are plenty of reasons to be fearful.
Fortunately, help is at hand. For the great irony is that America’s real rulers – the corporate rich – have invested massively in the new capitalism of the East and the South. Knowing full well that the newly-confident ruling classes of those regions fully share their own ideology and objectives, they will ensure that the new American nationalism remains a matter of rhetoric alone. The dollar-go-round will not be abruptly halted.
How does all this impact upon working people in Britain? Well, it makes the outlook a bit better for exports and unemployment. But under the government’s present policies, Mervyn King told us on 25th January what to expect: declining living standards for years to come. As he said, such a long period of decline hasn’t been seen in Britain since the 1920s. As he must surely know, but didn’t say, this strikes at the heart of the political love affair of the so-called middle classes with consumerism and free-market individualism, a key element in the post-1945 political settlement.
What can the left do about it? Well, obviously fight every redundancy and every pay cut. But also, please, this time round, recognise that workers all over the world are in exactly the same situation. We are being urged to accept pay cuts so that we remain ‘competitive’, that is, put workers abroad out of a job instead. And they in turn are being told just the same thing by their own rulers. Time for an old, old slogan: workers of the world unite!
This article first appeared on the Red Pepper website