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The Socialist Editorial
British economy heads deeper into crisis
Gordon Brown promised that New Labour would end the cycle of 'boom and bust'. More recently, in his new year message, he claimed that his government is a "rock of stability". Yet the government is being battered by forces of economic recession which become stronger every week. Alistair Darling, the chancellor, was forced to admit: "We are far from through this."
There has been an avalanche of job losses over recent weeks. Nissan car makers in Sunderland announced a devastating 1,200 job losses (out of 5,000 workers). The closure of Woolworth's stores could mean up to 30,000 job losses. Cattles, the mortgage lender, has announced the sacking of 1,000 out of its 5,000 employees. The finance sector has already lost 47,000 jobs as a result of the banking crisis, and another 10,000 are expected to go in the next three months. These figures spell disaster for workers.
In the face of this rising wave of job losses, Brown has announced a £500 million, two-year plan to counter unemployment. The government plans to help 500,000 people into work or training. Employers will be given up to £2,500 for every person they train who has previously been unemployed for more than six months.
Any new jobs and real training will be welcome. But this scheme, in itself, will not stop further job losses or significantly reduce overall unemployment. Most businesses will only take on workers when they see more favourable conditions for profits.
In the second half of 2008, the gross domestic product (the total output of goods and services) fell by 2.1%. It is widely predicted that during 2009 GDP will fall by a further 2.5% (and maybe more). This would mean the worst recession in Britain since 1980 (when there was a 2.1% fall in GDP).
All sectors are being ravaged: manufacturing, construction and services. Unemployment is already over 1,800,000 (according to official statistics which understate the true position). Few doubt that unemployment will soar to an atrocious three million by the end of this year.
Manufacturing is now being decimated. Last November, factory output plummeted at an annual rate of 21.8%. Compared to November 2007, November 2008 factory output was 7.4% lower. Again, this was the worst fall since the deep recession of 1980, which led to a savage spurt of deindustrialisation in the car industry, mining, and other sectors.
Last year, the government poured billions of pounds into the banks, which were at the heart of the financial meltdown which triggered the current recession. So far, this has prevented a collapse of the finance system. However, it has not overcome the credit squeeze. This week, the bosses' organisation, the Confederation of British Industry (CBI), issued a warning that the credit squeeze is still having a disastrous effect on businesses.
The government owns outright Northern Rock and Bradford and Bingley. At the same time, it owns a 58% share of the Royal Bank of Scotland and 43% of HBOS/Lloyds-TSB. As the banks are still refusing to lend on an adequate scale, the government should nationalise the whole banking sector (with compensation on the basis of proven need). Then credit could be made available for businesses, homebuyers and consumers.
Undoubtedly, this would raise the question of public ownership of wider sectors of the economy, taking over key industries, failing businesses, and running them democratically, under a plan of production. This would be the only way to guarantee full employment and a living wage for all workers.
Nationally, house prices last year fell by around 15%. In time, the deflation of the housing bubble could, in theory, make it easier for people to buy houses. At present, however, first-time buyers are finding it even harder to get a mortgage. Although the Bank of England base rate has fallen to an unprecedented 1.5%, most first-time buyers - apart from being required to find a 10% deposit - are having to pay at least 6% interest for a mortgage. Meanwhile, falling incomes and job losses are pushing more and more homeowners into arrears. It is estimated that over 500,000 homeowners will fall into arrears (of over three months) during 2009, and repossessions will soar to at least 75,000.
The pound has suffered a precipitous fall over the last year - 30% against the euro and 27% against the US dollar. This reflects low interest rates and the dismal prospects of the British economy. Under certain conditions, devaluation of the pound could boost the economy by making British exports cheaper. However, the worldwide recession, which has hit the US, Japan, Europe and most of the rest of the world, means that there is little scope for boosting British exports. At the same time, a weaker pound will make imports more expensive. This will have a significant impact in relation to energy prices, which will feed through to household gas and electricity bills.
Brown blames the recession in Britain on the crisis in the global economy. But under Blair, Brown, Mandelson and Co, New Labour enthusiastically embraced ultra-free-market capitalism and globalisation. They championed the interests of speculative finance capitalism at the expense of manufacturing, for which workers are now paying a heavy price.
In his new year message, Brown proclaimed that 2008 would be remembered as the year in which the "old era of unbridled free-market dogma was ushered out". Faced with a deep crisis, the capitalists have turned to the state to salvage their rotten system. Big business welcomes Brown and Darling's rescue package. In this situation, it is Cameron and the Tory leaders, pushing a free-market, do-nothing policy, who are out of line.
During the boom, private profit was sacrosanct. Now there is a recession, they are quite ready to accept the nationalisation of losses and bailouts at the taxpayers' expense. But big business regards this as a strictly temporary policy. They can't wait for a return to business as usual.
But there is a profound revulsion against the ultra-free market capitalism that has plunged us into crisis. It is not the super-rich capitalists (with some exceptions) who will pay the price for the unbridled, greedy profit-hunting of the boom years.
Rather than a sticking plaster for a diseased system we need a fundamental change. Instead of market anarchy, socialist planning under democratic workers' control and management. Instead of the profits of the wealthy, production for the needs of society as a whole. Only a socialist society can eliminate the cruel cycle of boom and bust.
In The Socialist 13 January 2009:
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Socialist Party editorial
Vote for Robbie Segal
Socialist Party youth and students
Socialist Party campaigns
Socialist Party feature
Socialist Party workplace news
International socialist news and analysis
Socialist Party review
Socialist Party feature