Peering into the gloomJanuary 25, 2010
Alex Callinicos has provided a brief summary of the state of the world economy, as revealed in recent statistics:
The National Institute for Economic and Social Research (NIESR) released its estimate for Britain’s Gross Domestic Product (GDP). It noted, “GDP fell by 4.8 percent in 2009. This is a bigger fall than in any year of the Great Depression and is Britain’s biggest contraction since 1921…
“The broader picture of the depression is that output fell sharply for 12 months until March and has not changed very much since then, although evidence of a recovery is starting to emerge.”
In other words, the British economy shrank more last year than it did in any one year of the Great Depression of the 1930s.
Callinicos also notes, however, that the future courses of the British and world economies are ‘shrouded in obscurity’.
He’s right to point out the uncertainties. What has happened in the recent past is, by itself, no guide to the future – as Gordon ‘no return to boom and bust’ Brown has discovered. The red faces in the economics mainstream tell their own story.
Nonetheless, stepping back from the statistical picture, it is possible to discern some shapes.
The most obvious is the pressure on the British economy from the vast costs of bailing out the financial system. Any attempt to substantially repay this borrowing within either the four years that Alastair Darling has offered, or the shorter timescale favoured by the Tories, will drag down the rest of the economy.
It represents a huge transfer from those spending money – either us as taxpayers, or the government through services – to those who save money: from those keeping the economy moving, to those hoarding cash.
Both the main parties are committed to repayment, squeezing workers and public services to please the financial markets. But repaying the debt does not necessarily benefit British capitalism in general. Other sections of capital need a robust domestic market to sell their products to – especially if markets overseas remain depressed, and competitive. Most UK companies do not export. If their domestic market is squashed by rising taxes or public spending cuts, they are in trouble.
So whilst all sections of British capital have a belief in the general necessity of keeping the financial markets sweet, the rate at which that debt should be repaid is a different matter.
Too fast, and domestic demand is squashed. Too slow, and the financial markets get jumpy. No-one can know for sure the best rate. And the different sections of British capital all have their own idea.
As the crisis revealed, no major part of British capitalism is prepared to countenance radical steps to overcome this dilemma – Adair Turner’s remarks notwithstanding. When the City of London was on its knees, the priority on all sides was to help it to its feet, through bailouts. No effort was made to seize the economic reins from the City.
Because the banks and the financial institutions were bailed out, and because there has been no real international agreement on how to discipline them in the future, they are liable to behave in exactly the same way as before: taking risks that could undermine the whole economy.
Combine this with the uncertain rate of debt repayment, and you have the potential for major instability. That’s even before considering the potential for resistance to major cuts. Whichever government is in place could run into a brick wall of opposition.
There is a way out of this bind. But it would mean posing a serious economic alternative to the domination of the City. It would mean building a movement able to do this.