Britain is particularly exposed to the economic storm which is unfolding. Iceland was a country effectively acting as a hedge fund. This country is not much different, as the FT commented: “The UK is in many respects comparable to Iceland.
It is bigger of course, but still tiny in relation to the global economy.” The financial meltdown has severely impacted on Britain, with an exodus of capital from the City of London and a severe run on the pound.
The shadow of the IMF and its bail-out of the British economy in 1976, at a massive social cost, cuts in jobs and services, looms as one of the possibilities inherent in the present situation.
However, in the short term, the Brown government expresses more accurately than the Tory opposition the preparedness of capitalism to sanction Keynesian measures to avoid a depression or a slump.
Like President Richard Nixon in the 1970s, the credo of the bourgeoisie today is “We are all Keynesians now.” In reality, the boom of 1950 to 1975 was not the classical condition for Keynesian policy, which was originally designed more accurately to soften the effects of a serious economic crisis.
Keynes himself specifically ruled out that his policies would avoid a slump. He wanted to mitigate the more dire consequences and provide a springboard for capitalism from which to rebound.
His chosen methods were tax cuts and increases in public expenditure, the very measures introduced by Brown and soon by Obama.
The ‘economic stimulus’ in the US could be at least 2% and possibly 4% of GDP, if not more. In Britain, 2% of GDP – £20 billion – is suggested as the limit by Keynesian economists, such as Will Hutton, for Brown to introduce.
This is unlikely to stimulate a quick recovery. Brown’s 2.5% cut in VAT is puny if not laughable compared to the scale of the crisis. His stimulus package is, as yet, also minimal. Cameron and the Tory leadership have denounced Brown, finding themselves in an unholy alliance with the SPD leaders in Germany who had Keynesianism as the cornerstone of their policies in the past.
Yet in late 2008, the social democrat finance minister in the German government, Peer Steinbrück, accused Brown of “crass Keynesianism”.
A more accurate description would be ‘mouse-like Keynesianism’. To the charge of his opponents that this would store up future problems – the forerunners of the ‘Cameroons’, today’s Conservatives – that his policies would fuel inflation in the long term, Keynes replied, “In the long term, we are all dead.”
Merchant bankers Merrill Lynch says that the UK economy will shrink by 3% in 2009 – outranked only by the US and Ireland, where growth could slump by more.
Government ministers are no longer prepared to pretend, as Brown and Darling both did, that Britain will escape the worst effects of the economic tsunami.
Olympics minister Tessa Jowell has even admitted that the government would probably not have bid to stage the Games if the decision had come in the midst of the current economics downturn.
The present plight of Greece must give even Brown pause for thought. In place of the celebrations of the Athens Olympics just four years ago, the city’s streets, and those of the rest of Greece, are filled with protestors.
Rocks thrown at the police are sold for €1 a time! The police have run out of tear gas and were reportedly trying to import further stocks from Israel – before it was engulfed in military conflict – amongst other countries.
Echoing Keynes, austere monetarist economists such as Samuel Brittan of the FT have urged the government, in extremis, to resort to the ‘printing press’, that is to inflation.
By implication, he denounces not just the Tories but Brown himself for even dealing with the ‘long term’.
Brittan argues that the problem is so vast now that government money and measures must be thrown at the problem with worries about the future postponed till then.
It is a classical example of British empiricism, dealing with the ‘here and now’ and letting posterity take care of itself!
Depression or slump
The situation facing the world bourgeois was perhaps best summed up by a French economics professor at a conference organised by the Financial Times and ‘Friends of Europe’ when he stated: “We should not try to avoid 1929.
We have already failed. The best we can do is to avoid 1930, 1931 and 1932. It will depend on the quality of our policy responses whether we succeed.” In fact, it is not just a question of the actions of governments but the severity of the present economic situation which flows from the consequences of past economic developments – particularly unrestrained capitalist globalisation.
At the very least, there could be severe depressionary features in the period ahead.
Depression is usually associated with what happened in the US between 1929 and 1933 when gross domestic product fell by 29% and unemployment rose to 24%.
The effects of that crisis for countries like Britain, for instance, were ‘milder’ but nevertheless still devastating.
In Britain, production fell by 5% and unemployment rose from 10.5% to 22.1%. The whole period of the 1930s for Britain was characterised by economists at the time as a slump. If there could be any doubt as to the possibility of such a development now, just look at the US’s position today in comparison to 1929.
The burden of debt – households, companies and government combined – amounts to 350% of the US GDP! This is higher than the 300% reached in 1929 or the 150% on average that existed in the 1950s, 1960s and 1970s.
The plight of Japan in the 1980s is a cautionary tale for the capitalists confronting a similar situation now but on a world scale.
Moreover, like leaden boots, the consequences of the deflationary trap of the 1990s are dragging down the Japanese economy once more.
There has been no real overall increase in living standards for 20 years, homelessness has increased rapidly, one third of jobs are part-time and the very poor may not have any social security cover because they cannot keep up payments into the insurance schemes.
Japan has the oldest population of the advanced industrial world with the highest national debt of 160% of GDP.
An additional factor that could enormously aggravate the economic downturn would be protectionism. It has been the cornerstone of modern capitalist economic theory that the protectionist measures of the ‘beggar my neighbour’ 1930s, particularly the Smoot-Hawley Act in the US, prolonged the slump of that decade.
Notwithstanding the clear recognition of the dangers inherent in this situation, recently a series of protectionist measures have been taken with even more serious actions contemplated by various national governments.
The ‘guarantees’ to bank depositors undertaken by Ireland and initially denounced by different European governments including Britain were nevertheless followed by European-wide imitations.
Notwithstanding all declarations for ‘free trade’ at the G20 economic summit in November 2008, Russia took measures immediately afterwards to protect its own industries.
Any projected ‘bail-outs’ of the car industry, in Britain for instance, are in violation of the ‘free trade’ credo of the European union and the US.
Tensions between the dominant economic powers were spelt out by the outgoing US Treasury secretary Henry Paulson when he accused the Chinese government of emulating the ‘Smoot-Hawley Act’ by its refusal to revalue its currency the renminbi.
So concerned is the US government to overturn what Marx called the ‘jamming’ of the system that it has thrown half the GDP – $7 trillion in bail-outs and ‘guarantees’ – at the problem.
Not all of this has been used or will be injected into the system but it is a measure of the concern, particularly of the incoming Obama regime, at the daunting economic tasks before it.
From a financial crisis, this has now developed into a classic crisis of capitalism, of overaccumulation – overproduction – in decisive sectors of the US and world economy.
There is a ‘glut’ of cars, of steel – where China’s spare capacity is equal to the total annual steel production of the US – and of many other industrial products.
This is a world phenomenon but is particularly striking in the US and in Britain.
Automotive industry
The collapse of the US car industry is inconceivable as even the dying Bush regime has demonstrated, with its $15 billion ‘bail out’ to prevent the complete bankruptcy of the ‘Big Three’ car companies, which would result in three million workers in both the industry and ancillary industries thrown out of work.
On a smaller scale, the same applies in Britain but with the added twist that the car industry here is foreign-owned.
It is also a feeble shadow of its former prowess but if it collapses, there will be considerable repercussions involving the direct loss of almost 40,000 jobs according to Unite joint general secretary Tony Woodley.
The effects, however, could be much wider as an estimated 800,000 manufacturing jobs in ancillary industries are dependent on continued car production.
It is therefore no exaggeration to say that if car production ends in Britain, it could virtually finish off the country’s manufacturing base.
The projected bail-out of the US car industry is itself a ‘national’ response by the government. Its ramifications, however, are felt internationally, particularly in Britain. The US car giants hold out the begging bowl to their own government but have specifically ruled out any received largesse being used to help their British car factories.
The British government must pick up the tab – if the car industry and workers are lucky. Unless this happens, there is an implied threat that factories and jobs will go under or be ‘relocated’ to a cheap labour country in a further massive race to the bottom.
This confirms the analysis the Socialist Party has made of the short-sightedness of British governments – of Thatcher and, in particular, the Blair-Brown government of the past 12 years – in their acceptance of the ‘Wimbledonisation’ of Britain.
It is not important who wins the Wimbledon tennis tournament, so the theory goes, as long as the international ‘stars’ play here.
It was argued in the past that the ‘open-door’ policy of allowing foreign firms to gobble up British industry did not matter so long as they ‘played’ here.
Both we and bourgeois critics of this policy argued that this would prove to be costly in the event of a serious crisis like the present one.
The ‘parent’ company would be prepared to sacrifice their satellites and withdraw capital to their home nation, with the cost borne by foreign workers.
If the government steps in to rescue the British car industry, with its present foreign-based owners, this would in all probability provoke a ‘nationalist’ backlash from other industries and workers: “Why help foreign firms when British industry is biting the dust?” A similar nationalist backlash was seen in Britain in previous crises.
We counterpose to this a socialist and internationalist approach. No state hand-outs to those who have ruined industry – both British and foreign bosses – who sacrificed the industry on the altar of profits.
Nationalise the car industry! Nationalise the banks with compensation to small shareholders only on the basis of proven need! Where have all the profits accumulated over decades gone? Open the books to inspection by shop stewards and trade union committees! For a fully state-organised integrated car industry, including components, on the basis of a democratic socialist plan, involving workers’ control and management!
There must be no fatalism in the struggle to save jobs. There is no inevitability that the car industry in Britain will collapse or be severely reduced by the mass shedding of labour.
It all depends upon the fighting capacity of the union leadership, particularly that provided from below by the shop stewards committees based on a socialist alternative, whether or not workers will successfully resist.
This is why the meeting initiated by the National Shop Stewards Network in February is so vital. At stake is not just car production but the very fate of Britain as a manufacturing country.
