UK economy: whatever happened to those green shoots?
Once again, says James Turley, it has not been a good couple of weeks for Alastair Darling and Gordon Brown
On October 23, to widespread surprise and consternation among the British ruling class, the first figures for third-quarter GDP growth were released by the office for national statistics. Expectations were high that the UK had pulled out of recession; however, GDP shrank between July and September by 0.4%. This is the sixth successive quarter of recession, making it the longest since records began (records beginning, in this case, in the 1950s).1
Meanwhile the US announced figures that confirmed its own period of recession was over – for the time being.2 Gordon Brown’s claim that Britain was “better placed” to weather the global crisis now looks remarkable ill-advised, as it is the only imperialist power still in recession – at least according to official statistics.
Of course, those US figures are not all peaches and cream either: it is widely believed that GDP and consumer spending numbers have been artificially inflated by well-targeted government initiatives, notably the car-scrappage scheme that subsidises the purchase of new vehicles. On the same day, it was revealed that consumer spending had actually fallen by 0.5% in September (the car scrappage scheme ended in August), boding ill for the important Christmas period – a trend likely to be exacerbated by a continuing rise in unemployment, now at around 9.9% in the States. Stock markets were shaken by the news, particularly in France and Germany, where there were one-day losses of around 3% on the Cac 40 and Dax stock indexes.3
The FTSE 100 got off relatively lightly, with a 1.8% drop, but it was again under fire on November 2. The context this time was the announcement in parliament of the immediate future of Lloyds TSB and Royal Bank of Scotland, both currently part-nationalised. Significant parts of both are to be sold off. This is likely to hit RBS hardest, as it could well lose several profitable insurance companies. The government was touting it as a way to get money back for the taxpayer – until it turned out that another £29-37 billion is to be pumped into the ailing institutions.
The not so hidden hand here is the European Union – its various rules regarding the financial sector and anti-trust regulations demand that significant restructuring be imposed on banks in receipt of large-scale public investment. At the bottom of the food-chain, 900 branches are to be sold off – equivalent to 10% of the country’s high-street banking outlets. The union Unite warned that 25,000 jobs could be at risk. The Guardian specifically blames EU competition commissioner Neelie Kroes, an “activist official” intent on meddling in the rescue packages4 – but the truth is that it maps onto an older division between the continental European powers and the Anglo-American alliance, a division which has surfaced repeatedly during this crisis.
Coupled to this is something in the way of an attack on bonuses. Lloyds and RBS are now prohibited from awarding cash bonuses to anyone on a salary over £39,000, with ‘moral pressure’ being applied to other banks to match that commitment. If the government can sell it right, this prohibition may yet reflect well on them – not only is it an attack on the ‘fat cat’ bankers so abhorred by seemingly everyone apart from their good selves: it also makes a show of ring-fencing the lower-paid retail employees’ £2,000 Christmas cash injection. It is slightly undermined, however, by the fact that many of these workers are likely to be made redundant in any case in the branch sell-offs; and in the absence of any serious attempt to enforce some kind of bonus moratorium on the banking sector as a whole, ‘moral pressure’ is worse than useless, and simply amounts to open season for HSBC and the rest to poach any Lloyds/RBS staff they want.
From a naive point of view, it is simply astonishing that the government is so timid on bonuses. Labour is in a real mess, after all, badly trailing the Tories in poll after poll – and bashing bankers is easy money, politically speaking. The problem is that big bonuses are not simply a ludicrous extravagance on the part of a narcissistic financial sector. They amount to an immense recycling operation: finance capital tends to hypertrophy periodically, producing a great volume of fictitious money values. By paying out billions in bonuses, investment banks can count on much of that going back into stocks and financial products; the rest is absorbed safely in luxury commodities. Capital, even fictitious capital, only functions in motion.
We are not, of course, now in boom times; yet the truth is that the rescue packages of the major imperialist countries have had the principal effect of suspending the ‘natural’ tendency for all this fictitious capital simply to be wiped out – understandably, given the social chaos this typically unleashes. It is still the case that an awful lot of derivatives are changing hands, making money that does not really exist – it is still the case that this money needs to go somewhere.
Seriously to tackle the ‘bonus culture’, then, requires bourgeois politics to commit itself to far more radical reorganisations of the economy – not just a reactive flip into rescue packages, but a full reorientation away from the various neoliberal models of capitalism to something like Keynesianism. Whether this is possible in the current conjuncture is another matter, and in the last analysis a political question – but hitting bonuses across the sector is apt to trigger a domino effect that would preclude, for a start, any reprivatisation of RBS and Lloyds for many years.
Some ideas about more lasting changes to high finance are knocking around – most prominently the arguments for reviving some form of the Glass-Steagall Act, a New Deal-era American law, still in force until its repeal under Clinton, that forbade any business to operate both as a retail and an investment bank. The context of its enactment first time round was the great depression, in which waves of bank failures wiped out the savings of millions, which had been invested into dodgy stocks. The Glass-Steagall Act played the role of partially ring-fencing the assets of private citizens from the predatory stock market.
It should not be imagined that this is some kind of panacea, however. Glass-Steagall did not prevent the stock market crash of 1987, for instance, and did not prevent its effects filtering out of the high-finance ziggurat into society at large. The first seven years of Reaganomics had done more than enough to make its strictures a dead letter.
And the broader political omens are not good. We know that, in Britain, all the main parties tout the notion that the huge public debt is a problem that needs to be solved immediately by cutting public expenditure; the Tories cut the most threatening figure in the axe-wielding stakes, but Labour and the Liberal Democrats have also done their share of hand-wringing over the issue. Taken completely seriously, this amounts to the Hoover response to 1929 – ie, knuckle down and wait for business to ‘sort itself out’.
Yet it is unlikely that significant support can be withdrawn from the banks in the immediate future; this accounts for a much larger proportion of the public debt than can be recouped from the cuts to public services we are currently seeing and are being proposed. The potential revenues from carving up Lloyds and RBS are, as we have seen, cancelled out by another cash injection. There is also the small matter of a rather resource-hungry military engagement in Afghanistan.
The consequences are double-edged – on the one hand, the suicidal character of retreating from certain aspects of massive public investment makes a new 1929-type crash somewhat less likely. On the other hand, public service cuts will hit tax takings for as much as they save, and will dent consumer spending power. Many more will be thrown out of work. Any ‘recovery’ under these circumstances will be faltering.
The necessary political background to this is the absence of any kind of working class political formation capable of forcing significant concessions – a power that comes with taking on the basic tasks of class organisation. In Britain the Labour Party has intermittently played this role, and the ‘official’ Communist Party did so more consistently until its slow suicide was formally concluded in 1991. The rise of labour bureaucratic politics as a necessary ‘corrective’ in the functioning of capitalism was one of the earliest features of capitalist decline. The marginalisation of this aspect of bourgeois politics, however, has not produced some kind of return to rude capitalist health – rather it amounts to a further stage in that decay.
It is the duty of the workers’ movement to break from the defunct politics of Labourism, and organise to overthrow the system rather than tweak it with banking regulations. In the meantime, the present course of bourgeois politics will leave us with no shortage of tasks simply in organising and supporting defensive struggles.