The economic crisis deepens

The devastating crisis of capitalism that we are currently living through has barely begun to bite, and yet we have seen the toppling of mighty institutions, sovereign defaults, the loss of household names that have been around for a lifetime, such as Woolworths, Lehman Brothers and Bradford & Bingley. Meanwhile, many other well-known brands (Chrysler and General Motors, for example) are clearly marching at breakneck speed towards the exit.

Icons of middle-class opulence like Waterford Glass and Wedgewood Pottery have bitten the dust. Adams, the children’s clothes store, as well as Zavvi (which took over Virgin Megastore) also went into administration in December. The latter has closed a third of the Zavvi stores, with the loss of several hundred jobs.

The ‘real economy’ has now started to feel the effects of what started as a financial crisis, with half a million jobs lost in the US over a period of two months alone, while in Canada so many car workers were laid off for a prolonged Christmas ‘holiday’ that the authorities lacked the manpower to process the unemployment benefit claims.

The prognosis for 2009 is that things will get even worse.

Mighty banks such as Citibank and Bank of America, having had huge blood transfusions in the form of bailouts and loan guarantees running into several hundred billion dollars, are still connected to life support machines. Many European giant banks are in a similar position. No-one can be sure if any, let alone many, of them will survive the present financial, commercial and industrial hurricane.

And if things are bad in the US, in Britain they are worse: indeed, as these words were being penned, it was announced that “a calamitous plunge in the share price of Barclays” has “raised fears for the bank …

“Shares have almost halved in five days from 197p on Monday to 98p, including a 25 per cent fall in the last hour of trading yesterday [Friday 16 January 2009] as rumours circulated about problems at the banking giant.

“Experts warned UK banks – traditionally the powerhouse of the economy – are ‘technically insolvent’ and are ‘living on a prayer’.” (‘Barclays battered’ by Alex Brummer, Daily Mail, 17 January 2009)

And the news about Barclays was quickly overshadowed by even grimmer figures relating to the Royal Bank of Scotland.

Besides this, Monday 12 January was a “dark day for the UK economy”, with the Daily Telegraph recording that no fewer than “3,500 jobs were cut or placed in immediate jeopardy …

“The job cuts were not confined to the retail and manufacturing sectors. Auction house Christie’s said that ‘significant’ staff reductions were expected as part of an internal reorganisation. Meanwhile, publisher Pearson said that around 80 jobs will go at the Financial Times.” (‘Thousands of UK jobs go in bleak day for economy’ by James Hall)

This “dark day” is likely to be the first of many.

“A 10th of London’s 324,000 financial services jobs will go this year, the Centre for Economics and Business Research estimates”, announced the Financial Times on 13 January, as it gave the information that Barclays Bank will be cutting 2,100 jobs worldwide. Other high-profile job losses have included 1,230 redundancies at Marks and Spencer following the closure of 27 branches.

Furthermore, “Experian, which tracks shopper numbers, says average footfall in December was around 3 per cent lower than last year even though many shops started sales early. The group predicts that 440 retailers will fail this year, mainly small independent companies, which operate on tight margins and therefore cannot offer large discounts. There are also likely to be more high-profile casualties.” (‘Conditions on the shop floor look treacherous’ by Sharlene Goff, Financial Times, 10 January 2009)

The crisis is also reflecting itself in housing, with evictions by mortgage companies having risen to a rate of over 50,000 a year – equivalent to one family losing their home every 10 minutes.

In the words of BBC News Online’s Robert Peston:

“There’s next year, and then there’s the next decade.

“Many businesses, especially big ones, will become unviable – and will present the Government with an appalling dilemma of which ones to put on life support.” (‘The new capitalism’, 8 December 2008)

In fact, it is far from certain that the government will be in a position to extend life support for much longer. Such life support depends on the government either having sufficient reserves from which to extend it, or to be able to raise taxes sufficiently in the present or in the future to pay for it. With British businesses on the ropes and individual taxpayers losing their jobs, far from contributing to taxes, people are joining the line in hundreds of thousands to claim benefits.

Even governments do not have endless resources, as Iceland discovered recently. A much-discussed blog post on the Financial Times website, written by Willem Buiter, Professor of European Political Economy at the London School of Economics, pointed to many parallels between the British economy and that of Iceland that make the prospect of British sovereign default quite possible:

“With the pound sterling dropping like a stone against most other currencies and credit default swap rates on long-term UK sovereign debt beginning to edge up, this is a good time to revisit a suggestion I made earlier on a number of occasions … that there is a non-trivial risk of the UK becoming the next Iceland.

“The risk of a triple crisis – a banking crisis, a currency crisis and a sovereign debt default crisis – is always there for countries that are afflicted with the inconsistent quartet identified by Anne Sibert and myself in our work on Iceland: (1) a small country with (2) a large internationally exposed banking sector, (3) a currency that is not a global reserve currency and (4) limited fiscal capacity.” (‘How likely is a sterling crisis or: is London really Reykjavik-on-Thames?’, 13 November 2008)

Clearly, the UK has vastly more resources than Iceland (not least from its imperialist superexploitation around the globe), but still, were the country to end up unable to meet its international debt obligations, and have to apply to the IMF for support, that would be the end of any question of putting any of its multinationals on life support. They would have to sink or swim on their own merits.

Public expenditure would have to be reduced to a minimum, which would probably spell death to the National Health Service, and result in the loss of almost all welfare benefits.

And why would we be living in destitution and want? Because we have produced too much. In fact, our situation would be worse than most because we have been living off the ‘overproduction’ of Asia, Africa and Latin America.

Much of our productive industry has disappeared (only the armaments industry is significant), while the mega-losses of our financial institutions mean that our bourgeoisie has a much reduced claim on what is produced abroad and is repatriated to the UK to pay interest on loans or as dividend on imperialist investments in those countries.

Using China and India as examples of countries where, thanks to the UK’s imperialist control of capital, the UK was able to lay claim to a vast mass of products, Robert Peston summarised what has been going on in the following terms:

“To put it in crude terms, for much of the past decade, millions of Chinese slaved away on near subsistence wages and still managed to save, both as a nation (China swanks £1,400bn in foreign exchange reserves) and as individuals. And to a large extent they were working to improve our living standards, because they made more and more of the stuff we wanted at cheaper and cheaper prices – and clever bankers took their savings and lent the cash to us, so that we could buy the houses we cherished, the cars we desired, the flat-screen TVs [and a great deal of our food and all our textiles come from abroad as well!].

“This imbalance – between the savings of China, India, Japan and Saudi and our indebtedness, between their massive trade surpluses and our deficits – was never sustainable …

“Tragically, they toiled for our prosperity – or we lived high on the hog while they fattened the pigs for us – for too long. Which is partly why the return to equilibrium, to a more balanced global economy, is happening in a horribly painful way that’s impoverishing millions of people.”

Because, in the interests of capitalist profiteering, Britain has lost a great deal of her productive industry, there is very little, other than ‘financial services’ (ie, capital), that Britain can supply to producers of the necessities of life in order to acquire their products. This is a disaster for them because they have too few buyers, and it is a disaster for us because we can acquire much less of the means of subsistence than we need. Such are the wonders of capitalism.

Despite losses, Britain is still an imperialist country and can still exploit the countries of Asia, Africa and Latin America, even in its weakened state. Yet it cannot make good the shortfall in its acquisition of means of subsistence by imperialist exploitation abroad by means of setting up more production at home, thereby reducing the UK’s parasitism and dependence, because to do so is unlikely to be profitable – the essence of the crisis is that it is a crisis of overproduction (too much has already been produced in relation to people’s ability to buy).

It might seem self-evident that the answer then must be to increase the purchasing power of the masses of people in order to enable them to buy – but imperialism would not be imperialism if it were capable of doing that! On the contrary, every single capitalist is trying to save himself by cutting his wages bill, ie, reducing workers’ incomes, which has the knock-on effect of reducing the government’s tax revenues, which cannot but cause reductions in public spending.

Governments are in any event being required to slash public spending wherever they are turning to financial institutions for bail-outs. This is the inescapable logic of capitalism, the reason it has outlived its usefulness, and the reason it has to be overthrown.

Therefore, when we think of solutions to the crisis, of ways of alleviating the misery in store for the masses of workers as the crisis bites deeper and deeper, capitalist solutions really have to be ruled out. There aren’t any, other than letting the crisis run its course and take whatever suffering it involves. As a result, the working class has no way out except to fight for socialism and win.

After a period of degeneration of the working class movement, “the wind of history is blowing in our sails again”, to use the words of Gennady Zyuganov, leader of the Communist Party of the Russian Federation .

The working class, even in the imperialist countries, must prepare itself to overthrow capitalism, expropriate the capitalist class that owns and controls the important means of production, and take charge of establishing and running a planned economy to meet the needs of the people for food, clothing, shelter and culture.

Those able and willing to lead the way in directing the movement of the working class towards this end, and away from diversions set up by the bourgeoisie to protect their class rule, such as chimerical promises of reforms within the system or the fomenting of strife within the working class through racism, need to join our party and work with us to this end.

In the short term, we can and should fight against redundancies, public service cuts, housing repossessions and pension reductions, but in the long term, the working class still has no solution to its problems other than socialism. The crisis provides us with the opportunity to rebuild the revolutionary movement for socialism, and this movement needs to bring in thousands of energetic, hard-working people if it is going to be able to deliver socialism to the masses in the face of the stop-at-nothing efforts of the bourgeoisie to hang on to their economic and political control come hell or high water.

It is not enough to understand society – the point is to change it!

> Editorial The fight back begins – February 2009

> Industry matters no capitalist solution for capitalist crisis – February 2009

> Economic crisis – no escape under capitalism – December 2008