A common-sense strategy

[Thinking Man's Idiot]

A common-sense strategy

(Friday 21 November 2008)
ROBERT GRIFFITHS sets out a socialist programme that will give the people of Britain a fair and secure future.


THE banking and financial crisis is far from over. It's fuelling the recession that's under way in leading capitalist countries.

Earlier estimates that 6,000 City workers would lose their jobs by the end of the year now look hopelessly optimistic.


Times Online is now running a redundancy payments calculator, a sure indication that the future is bleak.


The government has poured up to £550 billion in Treasury bills and share purchases into the failing banks, a figure that represents more than a third of Britain's annual gross domestic product.


We should remember that the new Labourites who can find this sort of money to bail out the City banksters are the same bunch who could not find £1 billion to meet NHS hospital trust deficits a few years ago, preferring to shed thousands of hospital beds and jobs instead.
These are the people who would not find a quarter of a billion pounds a year to keep vital post office branches open.


Nor would they find a tiny fraction of the bankers' £550 billion - one-4,000th to be precise - to keep 30 Remploy factories open and 2,500 disabled workers in work.


Even by Gordon Brown's exaggerated estimate, the £22 billion cost of taking the railways back into public ownership is chicken feed compared with the bankers' banquet.


There will, of course, always be money for wars of occupation or for a new generation of weapons of mass destruction to replace Trident.


Banks are still reluctant to lend to one another even though public money has been pumped in, so the credit crunch continues unabated for householders and small businesses.


Lenders are ruthlessly pursuing home mortgage defaulters and none more so than Northern Rock, which is shameless in evicting householders whose taxes bailed the bank out in the first place.


To preserve their whopping dividends and bonuses, banks such as Barclays prefer to go begging to Arab dictators and sovereign wealth funds rather than submit to a measure of public ownership or accountability.


Through their own greed, City bankers have made the most eloquent case for full nationalisation of the finance industries.


This is the only way to safeguard public money, ensure the availability of mortgages and credit, put an end to unfair home repossessions and rationalise the banking industry while taking into account bank workers' interests.


However, nationalisation of financial sectors will not be enough to prevent future financial crises.


The banks did not crumble because working-class US citizens could not keep up their mortgage payments or were "unsuitable" to be given loans in the first place. Nor was bank failure solely down to unregulated capitalism allowing too much elbow room for spivs and speculators.


At the root of the financial crisis is the explosion of what Marx identified as "fictitious" capital, which represents an entitlement to the real value being produced in the real economy by real workers.


Today, fictitious capital mostly takes the form of overpriced stocks, shares and, most of all, financial derivatives.


Derivatives are financial contracts and options to buy or sell commodities, currencies, mortgage and insurance agreements. They also include contracts and options which gamble on the movement of share, commodity, currency and derivative prices. In reality, the derivatives market is a trade in betting slips.


Across the capitalist world, the value of financial derivatives has been growing at four times the rate of the real world economy.


According to the Bank for International Settlements, they are valued at around $681 trillion, compared with the world economy's gross domestic product of $61 trillion.


This is clearly an unsustainable position. Not everyone in the casino can be a winner because the value of the chips in circulation is far greater than the value of the cash in the casino's cashier station.


It was only a matter of time before rumours began to circulate about the real value of the chips and whether some of them could be redeemed at all.


When it became evident that banks had bought complex derivatives in which unsecured mortgage contracts had been bundled up into "strategic investment vehicles" and "collateralised debt obligations," the sky fell in for our capitalist Chicken Lickens.


No wonder that currency speculator George Soros told the US Congress that he avoids dealing in derivatives because "we don't really understand how they work."


The only answer is to outlaw gambling and speculation in the commodity, foreign exchange and financial markets.


Only those who intend to take end-use delivery should be permitted to buy products or insure against adversity. Short-selling, leveraged buyouts and other rackets should be swept away.

'City bankers have made the most eloquent case for the full nationalisation of finance.'

Credit and liquidity controls must be reintroduced, limiting the capacity of banks to extend credit beyond a percentage of readily available assets, and of mortgage providers to extend credit beyond a percentage of deposit and repayment income.


Repealing Thatcher's 1986 Building Societies Act and 1987 Banking Act would restore the separation between domestic banking, mortgage and money market operations.


But none of these measures can prevent Britain slipping into a cyclical economic recession.


Until recently, demand within the British economy was artificially sustained by private, household and government debt, which postponed recession by six or seven years.


Brown had boasted of abolishing boom and bust, for all the world a cross between King Canute and the emperor with no clothes. There he sat on his throne at the water's edge, in the invisible robes made for him by swindlers, assuring us that the tide would never come in again.


Only Marxist economists dared to point out that he was naked.


Now Brown proposes to counteract cyclical economic crises through lower interest rates, higher government expenditure and tax cuts to boost private spending.


He seeks international action along the same lines, combined with a new system of international regulation of the financial markets.


But such a programme is little more than a mirage. International regulation is only as effective as the national systems within it.


Higher government and private spending will not pump fresh demand into the economy if it goes into the coffers of the capitalist monopolies who have caused the economic crisis in the first place.


New public spending projects need to be concentrated within the public sector, where they can create jobs and wages, not be siphoned away in fees, profits and shareholder dividends as occurs under private finance initiatives or public-private partnerships.


Local councils should be given funds to build new council houses incorporating the latest green technologies. The green economy would create growth and jobs.


Immediately linking the state pension to earnings, restoring its full value, would also boost economic demand, as would indexing the national minimum wage, ending the discrimination against young workers, and enforcing equal pay for women.


But the benefit of lower interest rates, cheaper investment and higher spending will be dissipated if the monopolies are allowed to transfer capital overseas without limit. That is why capital controls should be reintroduced and the major tax havens under British jurisdiction shut down.


Price controls for household and motor fuel, transport and basic foods would ensure that higher spending is not simply swallowed up in higher prices and profits.


How should extra government expenditure be financed? New Labour, the Tories and Liberal Democrats propose tax cuts. But this approach will increase government debt, drive down the value of sterling and drive up the cost of imports, exerting upward pressure on interest rates.


It's far better to tax the 10 per cent of the population who own 71 per cent of Britain's wealth and the quarter of the biggest monopolies who pay no corporation tax. A wealth tax is needed for the super-rich and a windfall tax on monopoly profits in the energy, rail and retail food sectors.


Mass redundancies in viable enterprises should be outlawed, with the option of taking failing enterprises into public ownership along with vital strategic sectors such as energy and public transport.


This is the kind of Left Wing Programme around which the trade union movement could help mobilise masses of people in their workplaces and local communities.


Battles to save jobs and services, to extend purchasing power and challenge the prerogatives of big capital would also provide the basis on which the labour movement could begin to resolve its crisis of political representation. They would clarify the need for the labour movement to reclaim or re-establish its mass party of labour.

Robert Griffiths is general secretary of the Communist Party of Britain.

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[Thinking Man's Idiot]