Socialist Party documents

Perspectives for Britain and the world 2009

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Keynesianism 'back in fashion'

Keynesianism is 'back in fashion'. A striking expression of this is how the strategists of capital, having previously denounced some policies as 'crazy' now embrace them.

Keynesianism - deficit financing - was unceremoniously thrown overboard following the inflation surge of the 1970s and was supplanted by 'supply-side' economics - boosting profits and investment, building up the financial sector - as opposed to 'demand' measures.

Balanced budgets, in particular, were the new orthodoxy. This was enshrined in the eurozone stability pact with the 3% limit in budget deficits. In a panicky attempt to prevent a slump, that has been completely dispensed with, although 'technically' 'illegal' under EU rules.

Britain could face a deficit of 6%, 8% or even 10%. In the US, Obama has already admitted that there will be a government deficit of $1 trillion in 2009, 9%-10% of GDP.

Some commentators have even contemplated that Britain might even experience a national debt of Japanese or Italian proportions.

Some have invoked the example of the British wartime debt, which exceeded 100% of GDP. It is true that an economic slump is like a 'war', with the 'slaughtering of capital', not least the ejection of the masses from the factories and workplaces.

But it is forgotten that British capitalism paid a heavy price for the Second World War, with a massive accumulation of debt and had to be bailed out by the Marshall Plan, furnished by enormously-strengthened US imperialism.

This, in turn, helped to lay the basis for the boom of the 1950s, 1960s and early 1970s. It allowed British capitalism to avoid a head-on confrontation with the working class in order to salvage its previous position but nevertheless failed to disguise its continued 'inglorious' decline.

There will be no helping hand from American imperialism this time, the biggest debtor nation in the world and mired as it is in one of the worst economic crises in its history.

Ultimately, the bill will be presented to the next and future generations. This will result in a deepening of the class struggle, savagely so, if there is a drawn-out economic agony of British and world capitalism, as there is likely to be.

However, we have to re-emphasise that there is no 'final crisis' for capitalism, as Lenin pointed out.

If the working class fails to take power and carry through the socialist transformation of society, capitalism can, on the basis of an 'unstable equilibrium', re-establish itself.

This, of course, will be at a cost to the working class, with untold misery for the most deprived, poorest sections and a general 'levelling down', from even their present parlous state, of the wages and conditions of the working class.

Before we reach that stage, the bourgeois will do everything to prevent its system toppling over into slump.

Gavyn Davies, now a merchant banker and a former adviser to the Treasury, recently wrote: "By printing money... if you think about this as a process in which the central bank prints banknotes [essentially at zero cost] and gives them to the government to hand out, in tax reductions, you would not be wrong in any meaningful way." He admits that this is "the same tactic so beloved of countless south American dictators"! But to paraphrase Treasury Secretary Yvette Cooper, it is Davies' and the bourgeois's conclusions that, for the time being, this is "the right thing to do".

State intervention

The capitalists are forced to take measures of this character, largely because of the social and political consequences that flow from a 'hands-off' attitude to the prospect of mass unemployment and collapsing industries, but they and their ideologues are very uneasy.

This is because of the conclusions workers could draw from even partial state intervention, particularly if they have a bold political and trade union leadership capable of drawing the right conclusions from these developments.

Will Hutton, a Keynesian capitalist commentator and implacable opponent of Marxism, comments: "Socialisation of the financial system is imperative to save capitalism." Similarly, the president of the US Business Round Table declared: "We are all a bit socialist now!"

As Marxists have pointed out, the total or partial takeover of industries by the state underlines the bankruptcy of capitalism.

If the labour and trade union leaders had remained in opposition to the system, even from a reformist point of view, with the maintenance of distinct workers' parties and organisations, instead of capitulating to capitalism as Brown and Blair did, the working class would be in an immeasurably better state to face the present situation.

In fact, pro-capitalist New Labour leaders and their echoes in the trade unions, by abandoning the class struggle and socialism, reinforced the trend towards neo-liberalism which has resulted in such an impending catastrophe today.

If a class conscious labour movement, a Labour Party dedicated to the eventual realisation of socialism - which the Labour Party enshrined in Clause IV, part 4, of its constitution - had been retained, this itself could have stayed the hands of the capitalists.

They would have continued on their remorseless drive towards neo-liberalism but their 'wilder excesses' may have been curbed because of their need to look over their shoulders at the threat posed to them and their system in the event of the kind of catastrophic failure we face today.

Mass movements challenging the foundations of capitalism would have been on the agenda sooner but will still develop despite the capitulation of the labour and trade union leaders.

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