The Revolutionary Communist Group – for an anti-imperialist movement in Britain

Capitalist crisis no way out

FRFI 208 Apr / May 2009

Ed Balls, Labour Minister for Children, Schools and Families, expressed the fear that is at the heart of government in Britain when he blurted out, at a Yorkshire Labour Party meeting in February 2009, that we are in the midst of ‘the most serious global recession…for over a hundred years’. That would mean more serious than the 1929 Great Depression, when US industrial production fell by 50% and its economy declined by 25% between 1929 and 1932.

Could Balls be referring to the crisis that led to the first imperialist war in 1914? That crisis only ended after world war, depression, fascism and world war again had resolved temporarily inter-imperialist rivalries with the domination of US imperialism after the Second World War.  Whatever he meant, his statement created outrage among the political class – it was far too close to the truth. This was, after all, the period that led to the Russian Revolution and the creation of the Soviet Union. DAVID YAFFE reports on the political and economic impact of this global crisis.

The international financier George Soros expressed something similar to Ed Balls when he argued, on 20 February 2009 at a Columbia University dinner in New York, that the world financial system has effectively disintegrated, and that there is no prospect of a near-term resolution to the crisis. The turbulence is more severe than the Great Depression and there is no sign that we are at the bottom of the financial crisis.

Martin Wolf, chief economic commentator of the Financial Times, reminds us of the results of the Great Depression. ‘This transformed capitalism and the role of government for half a century’. It led to the collapse of liberal trade, strengthened the creditability of socialism and communism and shifted policy towards import substitution as a development strategy. The period also saw the growing influence of the Nazis in Germany, whose vote increased from 18% in 1930 to 37% in 1932 at the height of the Great Depression. Wolf says that there has been a move towards the national and away from the global, especially evident in the financial sector. This protectionism is likely to be extended to other sectors. He warns that confidence in local and global elites, in the market and even in the possibility of material progress will weaken ‘with potentially devastating social and political consequences’. Globalisation might be reversed. He reminds his readers that the integrated economy of the decades before the First World War collapsed.  ‘It could do so again’. He draws comfort from the belief that ‘unlike in the 1930s, no credible alternative to the market economy exists’ (Financial Times, 9 March 2009).1 

This crisis is global. No part of the world can escape its consequences. It originates in the main centres of imperialism and has already had a devastating impact on much of the underdeveloped world, including the ex-Soviet bloc countries. It will eventually lead to dramatic economic, social and political changes even in the imperialist countries.

Global meltdown
The Asian Development Bank warned in early March that financial assets worldwide could have fallen in value by more than $50 trillion, equivalent to a year’s global output. Asian and Latin American economies have been battered by the financial crisis with losses in Asia, excluding Japan, having reached $9.6 trillion and in Latin America $2.1 trillion.  In the main imperialist countries, banks and financial institutions are being ‘nationalised’ as governments take controlling stakes to prevent them from going bankrupt and devastating the imperialist economies. On an unprecedented scale, public funds are being used to buy up and insure trillions of dollars of ‘toxic assets’ held by the major imperialist banks. The market values of what were the largest financial corporations in the world have been decimated. Citigroup, worth $255bn in the second quarter of 2007, is valued now at around $13.7bn. RBS’s value has fallen from $120bn to $17.5bn; Barclays from $91bn to $14.4bn and one of the strongest banks today, HSBC, from $215bn to $78.3bn over the same period.2 AIG, once the biggest insurance company in the world and now nearly 80% owned by the US government, after the biggest loss in corporate history of $61.7bn, is worth $1.2bn (share price 42 cents) compared with around $131bn a year ago (share price $46). AIG operates in 130 countries, has 74 million customers and covers/insures some $2 trillion financial products, half of this for 12 global banks. Its far-reaching international operations determine that it is too big to go under.

The main imperialist centres are facing a deep recession. The US economy fell 6.2% at an annual rate in the last quarter of 2008. Eurozone countries face the worst recession for 50 years with a fall of 1.5% in the fourth quarter of 2008 (an annual rate of just under 6%). Japan has experienced the largest economic fall for 35 years of 3.3% in the fourth quarter – an annualised fall of 12.7%. Its exports fell 46% in January 2009 from a year earlier. The International Monetary Fund has said that world output will fall in 2009 for the first time since the Second World War. The World Trade Organisation sees the volume of world goods trade plunging by 9% in 2009, the largest drop since 1945. Global trade has, in fact, been in freefall for more than four months, contracting at a greater rate than during the Great Depression (Financial Times 2 March 2009).

The less developed countries are being devastated by this global crisis. The Institute for International Finance predicts that capital flows to emerging markets will be only $165bn in 2009, less than half the $466bn inflow in 2008 and less than a fifth of the $929bn in 2007. This predicted decline in capital flows is equivalent to about 6% of the combined GDP of these countries, far worse than the decline of 3.5% which occurred during the Asian crisis of 1997/98 with its devastating social and economic consequences in that region. The less developed countries have $1,440bn of bank loans coming due in 2009. Central and Eastern Europe, predominantly the ex-Soviet bloc, with foreign loans mainly from western European banks of $1,656bn, will see a decline in GDP for the first time in a decade. Without significant international aid, in the present global situation, many of these countries will have no alternative but to default on their debts. UNESCO estimates that 390 million of the poorest people in Africa will see their already meagre incomes drop by 20%. The falls in commodity prices and decline in investment flows mean sub-Saharan Africa will lose around $18bn or $46 per person, leaving millions more at starvation levels.

The International Labour Organisation is forecasting a dramatic increase in unemployment this year, 18-30 million additional unemployed and more than 50 million if the situation continues to deteriorate. The latter increase would mean 7.1% of the world’s labour force would be unemployed or 230 million jobless – a clear underestimation of the real unemployment situation.

The World Bank has warned that a wave of social and political unrest could sweep through the world’s poorest countries if the G20 summit does not come to their aid. Kofi Annan, former secretary general of the United Nations said in January, in suitably diplomatic language: ‘I believe we are also facing a crisis of governance at a national and international level’. Hence the desperate attempts to find some common global economic policy – to prevent trade protectionism, to have more regulation of banks and tax havens, etc – at the G20 conference in London on 2 April, while in reality the major imperialist powers are riven by both external and internal conflicts and are forced to protect their own national interests at the expense of everyone else. The lead-up to the G20 meeting has exposed a growing split between the US and Europe. The US is calling for another larger co-ordinated fiscal stimulus to lift the world out of recession, with Germany and France resisting this because of concerns over the scale of their public deficits and the potentially inflationary consequences. Europe is putting the emphasis on regulating the banks, outlawing tax havens and bank executive bonuses, viewing this as fundamental to averting repeated meltdowns.

Britain’s Prime Minister Gordon Brown is hosting the summit and is attempting, with increasing difficulty, to keep a foot in both camps. At the end of 2006, FRFI asked how long the British economy could sustain itself outside Europe, with Britain becoming more and more dependent on the parasitical dealings of the City of London.3 The international financial crisis and the dramatic collapse of major British banks are beginning to provide an answer. On 20 March 2009 Brown agreed to a significant tightening of European financial regulation, measures that he had firmly resisted during his 10 years as Chancellor of the Exchequer. On 24 March Brown gave an uncharacteristically pro-European speech to the European parliament, which suggested that Britain would enhance its global influence through the European Union. He insisted that Britain’s place ‘was not in Europe’s slipstream but firmly in its mainstream’ (Financial Times 25 March 2009). The significance of these developments will take some time to become clear. The British ruling class is deeply split on the issue of Europe and those divisions will fester over the coming period. The global crisis is however forcing the issue.

For the present we can be sure that the major imperialist powers will take all the measures necessary to protect their own national interests. A World Bank report published on 18 March found that 17 out of the 20 countries attending the G20 summit had already adopted 47 measures aimed at restricting trade since October 2008.

British capitalism
British capitalism, we have argued over a long period of time, with its bloated and usurious banking sector, is the imperialist economy most vulnerable to external financial shocks. Britain, the oldest imperialist country, sustains the high standard of living of its citizens 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. That is why this crisis of the world capitalist system threatens the economic foundations of British capitalism.

On 5 March, interest rates were cut to the lowest level ever of 0.5%. The Bank of England is buying assets, particularly government bonds from banks and financial institutions, by initially creating £75bn of new money over the next three months to try and kick start the British economy – so-called ‘quantitative easing’. The hope is that the sellers of these assets will use the extra funds on other investments or lend them to businesses and households. If the injection of £75bn, equivalent to 5% of GDP, does not appear to be working, an additional £75bn will be made available. With traditional monetary measures having little impact, such an unconventional measure taken by the Bank to stimulate the economy is a desperate last resort. It could eventually have serious inflationary consequences. The outlook for the City of London and the financial sector is, to say the least, very bleak.

Britain is already heading for the biggest budget deficit among the G20 countries in 2009-10 of nearly 13% of GDP, around £180bn, way above the record 7.7% deficit set by the Tories in the 1990s. The national debt has already reached £717bn, 49% of GDP. This could more than double once the estimated liabilities of RBS and Lloyds are put on the government’s books. The failure of a government bond sale to raise £1.75bn on 25 March underlines the serious state of public finances. Investors are questioning the government’s ability to pay for the bank bailouts and fill the gap left by dramatically falling tax revenues over the coming years. The Centre for Economics and Business Research has said that the tax take alone from the financial services sector will fall to £39bn in 2009-10, down from £67bn in 2006-07. The day before the bond sale failed, Mervyn King, the Bank of England Governor, was warning that Britain could not afford ‘another significant round of fiscal stimulus’. This will make it very difficult for Brown at the G20 summit to side with the US and call for an even larger co-ordinated fiscal stimulus in the face of European and Bank of England opposition.

The UK economy is forecast to shrink 3.8% in 2009. Unemployment already at 2.03m, will rise above 3m over the coming year, and, with the dramatic fall in the financial services sector, will begin to affect significant sections of better-paid workers and the ‘middle class’. One third of London’s 4.2m jobs are supplied by finance and business services. House prices have fallen some 18%, 46,750 homes were repossessed in 2008 and repossessions could rise to 75,000 this year. With Labour’s privatisation agenda unravelling, pension and savings income collapsing, serious economic, social and political problems are inevitable. This rapid deterioration in the economic situation is creating the material conditions once again for an anti-capitalist alliance between the poorer sections of the working class and sections of the ‘middle classes’ confronting proletarianisation.

This is the background to the outburst from Superintendent David Hartshorn in February 2009, warning that middle class anger at the economic crisis could erupt into violence on the streets. Hartshorn is Britain’s most senior police officer with responsibility for public order. He raises the spectre of a return to the riots of the 1980s with people who have lost their homes or savings becoming foot soldiers in a wave of potentially violent protest. He talks of ‘known activists’ returning to the streets, claiming they will foment unrest with these new foot soldiers joining the protests. It is an interesting thought, but for it to come to fruition, a new anti-capitalist, anti-imperialist movement has to be built in this period, strong enough to push aside the traditional opportunist forces of the British left. The traditional left will do its utmost to control any such movement and direct it into respectable channels to prevent it becoming a movement for serious radical change – as we saw with the anti-war movement and more recently with the demonstrations in support of the Palestinians.

The roots of the crisis
It is important to understand that we cannot explain the crisis by what precipitated it – for example the role of sub-prime mortgages and their impact on the banks. We have to ask what drove such lending in the first place. Yes, bankers are corrupt and greedy and government regulation of their activities was almost non-existent. It is morally obscene that Sir Fred Goodwin received a £16m pension pot and now has a yearly pension income of £703,000, despite overseeing the collapse of the RBS. Yes, Lord Myners the City Minister allowed this to happen, unsurprisingly as he spent 26 years working for investment banks where large payouts and bonuses were accepted as part of banking culture. But all this was brought to our attention after the crisis broke out. It was exactly the same in 1929 when incorrect government and central bank policy decisions were blamed for the depression. What is being said is that the crisis is due to wrong policy decisions by bankers and governments. If that is the case it can be overcome by more adequate policies and better regulation and control of the banks. This is subterfuge; an ideological position which is saying that the crisis is not systemic to capitalism and that its roots do not lie in the contradictions inherent in the capitalist economy. But they do.

The tasks that lie ahead
In an important contribution in Granma International (8 February 2009) ‘Crisis of capitalism with no way out’, Raul Valdes Vivo, President of the Party School of the Cuban Communist Party, argued that there were three ideological positions on the present global crisis. The first is ‘capitalism’s advocates, who attribute the crisis to bad management by bankers and governments, believing it surmountable’. The second is ‘capitalism’s opponents, for whom the crisis is systemic. Among the latter, some believe it is the latest of the cyclical crises of the system of the modern system of exploitation, which will end up overcoming it and which will even strengthen it, despite its extreme gravity, like in 1929’. Many of the intellectuals on the British left – if they mention imperialism at all – hold to a version of this position, some seeing a shift in the balance of power internationally towards Asia as the outcome of the present crisis. Valdes Vivo continues that there is a third position: ‘There are those of us who believe that the only way out is to establish a communist means of production, whose first moment is socialism, after a non-capitalist way of development’.

For the opponents of capitalism what is decisive, he continues, is not quotes from theorists but practice. He warns: ‘Any combatant against capitalism can fall into the utopia of thinking it will automatically fall, without a struggle that will have the most contradictions, progress and defeats and that will be the most difficult ever waged by the human species, and which if it is not won in a historically brief period of time, will end up disappearing’. The choice is clear: ‘socialism or barbarism’.

This is the period when the vast majority of the world’s population is confronting the barbarity of imperialism. For millions it has become a life and death struggle for an alternative. It is also the period when social and economic developments are creating the conditions for building a new socialist movement even in the imperialist countries, and that means in Britain as well. A crisis of this order is going to change the political landscape. As a first step we have to join the resistance to imperialism. We have to join with the oppressed people of the world by resisting imperialism right here in the heartland of a parasitic and decaying capitalism.    

1 What a reversal! In 2002 (Financial Times 4 September 2002) Wolf asked if the second era of global capitalist integration would end like the first, which went into reverse between 1914 and 1945. His unequivocal answer was no, as conditions were very different this time. In an article ‘The world economy facing war and recession’ in FRFI 171 February/March 2003, we argued that he was wrong and that ‘globalisation has gone into reverse’ and that ‘the movement to war [against Iraq] is an expression of the global crisis of capitalism’. See www.revolutionarycommunist.org/ frfipages/171/FRFI_171_eco.html

2 Share values are volatile and so the market values of these financial institutions today are constantly changing around these very low levels.

3 See ‘Britain: parasitic and decaying capitalism’ FRFI 194 December 2006/January 2007. www.revolutionarycommunist.org/downloads/FRFI194_07_10_parasitic.pdf

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