- Created: Wednesday, 02 September 2009 15:18
- Written by David Yaffe
FRFI 210 August / September 2009
How ironic that, at this time, there should be a call by London Citizens, an alliance of community organisations, for a campaign to reinstate historic usury laws, repealed in the nineteenth century, restricting interest rate charges made by financial institutions. After all, British capitalism, as we have argued over a long period of time, with its bloated and usurious banking sector sustains the high standard of living of its citizens precisely through the income generated by the financial services sector of the economy and the ‘gigantic usury capital’ of its parasitic banks and financial institutions based in the City of London.1 DAVID YAFFE shows that the deepening crisis has not altered this, with the imperialist banks clawing their way back to business as usual.
In a recent article (The Guardian 9 June 2009), George Monbiot argues that the current political crisis facing the government in this country arises because our economic system can no longer extract wealth from other nations. He says that: ‘The great British adventure – three centuries spent pillaging the labour, wealth and resources of other countries – is over.’ It is because we cannot accept this, he argues, that we seek ‘revenge on a government that can no longer insulate us from reality.’ It is almost unheard of for a columnist in a mainstream British newspaper to point out the imperialist and parasitic nature of British capitalism. For this reason Monbiot’s article is to be welcomed. We also have pointed out the vulnerability of British capitalism to external financial shocks, given its dependence on the earnings from its vast overseas assets and particularly its parasitic banking sector. However, Monbiot underestimates the determination of the ruling elite to ensure that the British economy remains a ‘world centre of finance’ (Alistair Darling, Budget April 2009) in order to sustain its imperialist interests. So the great British adventure is not yet over – at least not without an almighty and undoubtedly bloody battle to resolve the crisis and maintain Britain’s imperialist position at the expense of both the working class in this country and the masses in the oppressed nations throughout the world.
That is why Bob Ainsworth, Labour’s Secretary of Defence, could tell us on 8 July that there were ‘compelling reasons’ for Britain’s war in Afghanistan. He said that: ‘It goes to the heart of this country’s national security and to the core of our national interests…The entire region in which Afghanistan sits is of vital strategic importance to the United Kingdom.’ On 19 July Lord Mandelson added defence (meaning war) to the list of ‘essential frontline services’ that Labour will protect from spending cuts.
Banks return to business as usual
The result of the financial crisis, government bail-outs and mergers of banks has been a much higher degree of concentration in banking. The investment banks are back on the make. In New York Goldman Sachs and JPMorgan Chase are making vast profits from trade in bonds, credit default swaps and other derivatives. Goldman Sachs reported record earnings of $3.44bn for the second quarter of 2009 on revenues of $13.76bn, a 65% rise on the same quarter last year. If that growth is maintained, its staff could share total pay and bonuses of $22bn (Financial Times 15 July 2009). In London, Barclays and Nomura are hiring and poaching staff and paying out high bonuses again. Barclays is paying tens of millions of pounds to its investment bankers as a result of huge profits from trading government debt, derivatives and foreign exchange. Barclays Capital, the bank’s investment arm, has become so profitable that it could account for around two-thirds of Barclays’ overall profit for 2009. Barclays is expected to announce an interim six-month profit of £3bn in early August. Despite these results, Barclays will scrap the final salary pension scheme for its banking employees and has cut hundreds of jobs since the financial crisis broke out in 2007. The union Unite is organising a ballot for strike action. The Royal Bank of Scotland (RBS), 70% owned by the British government, is offering a potential payout to its chief executive, Stephen Hester, of £9.6m, on condition that certain shareholder return targets are met and the share price returns to 70p within three years. RBS lost £36bn last year.
The banks, however, are not lending to households and businesses on anything like the scale needed for economic recovery. Despite government ministers pleas with banks to increase their lending, net bank loans to businesses contracted by £3.4bn in May after a fall of £6bn in April. Businesses filing for bankruptcy increasingly blame the banks. The banks are rebuilding their balance sheets and restoring profitability, so they steer away from lending to companies they see as uncreditworthy. Over the year to June 2009, mortgage lending was down 48%. Monetary policy in all its various forms, from near-zero short-term interest rates, massive liquidity injections into the banking system, to quantitative easing have, so far, had little impact on the production of goods and services, or on reviving the housing market.
Banking capital – the engine of British imperialism
Given the score-settling between the political parties, the dispute between the Bank of England and the government, and the differences between the European Union and Britain over regulation of the financial sector and banking capital, it is important to restate some fundamental points about financial capital and British capitalism.
• The massively increased role of financial capital, increasing speculation, and the ever expanding credit bubble built on a relatively declining productive base, which were the forerunners of the crisis, were the result of the overaccumulation of capital in the heartlands of capitalism. ‘Financialisation’, to use fashionable terminology, is the product of a crisis of profitability in the capitalist system, the lack of profitable investment opportunities for capital. The expansion of the financial sector does not produce additional value but appropriates/ plunders a greater and greater proportion of the value produced by the productive sectors of economies throughout the world.
• Britain’s relative industrial decline has been combined with a dynamic, aggressive imperialist expansion of commerce and finance overseas. This development has now reached unprecedented levels.
• This crisis of capitalism has seen the underwriting of the debt of the banks and financial institutions by the state on a scale like never before. The process has entered a new phase. The City of London has always been at the heart of the British state. The crisis has strengthened this bond to a new level of intensity. The result of the crisis has, therefore, seen a further consolidation of finance capital and the state – that is, the further development of state monopoly capitalism (imperialism).2
This is the context in which to understand British government policies with regard to banking capital and its opposition to serious regulation and control.
At the end of 2008, more than a year into the present crisis, Britain’s overseas assets reached a staggering £7,135bn, an increase of 11.75% on 2007 and 47% on 2005. These assets were an unprecedented 4.9 times Britain’s GDP. 59.7% of these assets, £4,261bn or 2.95 times Britain’s GDP, listed under ‘other investments’ are mainly loans and deposits abroad by UK banks – a gigantic usury capital.
Britain’s foreign assets are nearly matched by foreign liabilities of £7,042bn, giving overall net assets of £93bn.3 Net earnings on Britain’s international investment account were £27.6bn, a 28% increase on 2007.
In 2008 Britain had a balance of payments deficit of £25.1bn, spending 1.7% of GDP more than it earned. The deficit on trade in goods reached a massive £92.9bn in 2008, 6.4% of GDP. Without the large surplus on services trade of £54.5bn, with financial services responsible for more than 70% of this, and the income flow from the international investment account, the standard of living of British people would have significantly fallen.
Is it not surprising, given this reality, that Alistair Darling and the government rule out any radical changes to the financial institutions based in the City of London demanded by the opposition parties and the Bank of England. There are around one million people working in the financial services sector in the UK, and in the past nine years the sector has contributed tax receipts of £250bn. There will be no caps on bankers’ pay or breaking up the largest City institutions. In addition it is clear that the government will resist regulations from the European Union aimed at cutting the City of London down to size.
The crisis deepens
The crisis is already hitting the most vulnerable sections of the working class both in this country and elsewhere, especially in the underdeveloped nations. The World Bank says that the world’s poorest countries will see $1,000bn drained from their economies this year. Underdeveloped countries are expected to grow by only 1.2% in 2009 after 6% growth in 2008. If China and India are excluded, growth in the remaining countries is expected to contract by 1.6% in 2009. Hundreds of millions more people in those countries will be driven into abject poverty.
Britain experienced the worst fall in output for 50 years when GDP fell 2.4% in the first quarter of 2009. The second quarter to June saw an additional fall of 0.8%. Recent revisions to statistics now show that the recession began in April 2008, and that the British economy has suffered five quarters of negative growth, a cumulative fall of 5.7%, almost on a par with a comparable period of the 1930s slump. A fall in output in the manufacturing sector has reduced factory production to its lowest level for 17 years. Manufacturing output is 13% lower, and industrial production is down 12.3% in the first quarter of 2009, compared to the same period in 2008. The number of workers in manufacturing continues to fall, down 201,000 in the past year to an all time low of 2.67 million. Fewer than 10% of workforce jobs are now in manufacturing. Such are the characteristics of a parasitic capitalism.
Unemployment rose by 281,000 in the three months to May 2009. This is the largest quarterly increase since records began in 1971. 7.6% of the workforce are now unemployed. Unemployment among 18 to 24-year-olds is at a 16-year high of 726,000, a rate of 17.3%. 528,000 workers have been unemployed for more than 12 months, the highest level for 11 years. Jobs in education, health and public administration have actually increased by 2.1% over the past year. This reality, however, will rapidly change after the general election, when the real cuts in public services demanded by international investors get underway, no matter who wins the election.4
These then are the features of British capitalism, where banking capital will be sustained and promoted by the government as the dominant sector of the British economy at the expense of the working class.
1 See David Yaffe ‘Britain: parasitic and decaying capitalism’ FRFI 194 December 2006 /January 2007,
2 All these points have been made in a series of articles on Capitalism in Crisis accessible on our website at www.revolutionarycommunist.org/crisis_statement.html
3 This is a significant change on previous years, when Britain’s external account was in deficit. The fall in the pound against other currencies, the revaluation of assets resulting from the ongoing crisis and the withdrawal of foreign investments from the UK have led to this change. All statistics come from the relevant UK national statistics and are provisional for the latest years and tend to be revised over time.
4 See David Yaffe ‘Years and years of austerity ahead’ FRFI 209 June/July 2009. On our website at