A perfect storm?
AT PRESENT BRITAIN IS IN POLITICAL CRISIS, but economic crisis seems far away. The world economy is recovering at long last from the Great Recession of 2008. Still, there are storm warnings. The recent International Monetary Fund Report on Global Financial Stability records that, in the G20 economies, non-financial debt (government and household debt plus the debt of non-financial corporations) is running at 235% of those countries’ GDP. Is this a bubble about to burst?
The link between a financial crash and the deeper causes of capitalist crisis are complex. Often a financial crash can act as a trigger for a general crisis of capitalism, as occurred in 2008.
In the UK household debt alone is over 150% of household incomes. Millions are way over their heads in debt. The reason is not far to seek. Workers’ wages have fallen over the past ten years. People are desperate to maintain their living standards.
That is the background to why Britain is in political crisis. Theresa May is a “dead woman walking,” to quote George Osborne. May’s government is propped up by the DUP in a cynical and unstable alliance which could collapse at any time. The only reason she is not under immediate challenge from Tory rivals is because nobody wants her job.
As the Brexit negotiations proceed it becomes clearer every day that the Tories are unprepared and clueless. Talks on the British side are not conducted according to any strategy. Theresa May twists this way and that in an attempt to throw bones to the different factions within the Tory Party. That is no way to represent ‘the interests of Britain’ in negotiations, as they claim to be doing.
Capitalism since 2008 has been on life support. Till November the Bank of England has kept interest rates at 0.25%, the lowest level since the Bank was founded in 1694. They really can’t go any lower. As Keynes said you can pull on a piece of string (raising interest rates can affect the economy) but you can’t push on a piece of string.
With the rate of inflation approaching 3% the monetary authorities face a dilemma. There is no incentive to save when the rate of interest is so much lower than inflation that it is effectively negative. So the Bank has now raised interest rates. That could help choke off borrowing for investment and will definitely hit millions of mortgage holders.
In desperation, all the major central banks have resorted to quantitative easing (QE), in effect printing money.
The Bank of England lent £375bn to the commercial banks. Evidently there was no appetite within the capitalist class to borrow this money to provide jobs and help build up the country. All this huge sum of money was blown on buying financial assets. Hence the apparent glow of health shown by the bulging stock exchange and inflated property prices is actually a danger warning.
Since 2010 the Tories have proclaimed their principle aim is to eliminate the state deficit, the fact that the government is spending more than it is getting in and borrowing to make up the difference.
Socialists don’t accept that is the priority. It means never-ending austerity. The policy is really an attempt to dump the burden of the crisis on to the backs of the working class and has been a failure in its own terms.
Chancellor Osborne aimed to eliminate the deficit by 2015. He screwed up. The Institute for Fiscal Studies reckons that the deficit may rise further to almost £70bn in 2021-22. The reason that the deficit is not being paid down is because the British economy is crawling along. Of course austerity is also a shackle on economic progress.
Productivity has been virtually stagnant for the past decade. Bosses prefer to take advantage of workers desperate for jobs, imposing a proliferation of zero-hours contracts and casual and precarious employment conditions, rather than investing in output. But no economy can deliver higher living standards in the longer term unless it can deliver the goods.
Government-imposed austerity is making the situation for working people worse. Education spending has fallen in real terms. NHS staff are bracing themselves for another health crisis this winter. The situation is getting desperate.
The Tories have flopped all along the line. Jeremy Corbyn’s team are a government in waiting. We don’t know when they will be able to take office, though we’ll all strive every muscle to get them there. On top of the mess the Tories will leave for them to clear up - the political crisis - there may well be an economic crisis about to blow. If so Corbyn’s Labour will be greeted by a perfect storm.