THE FIRST THREAT MENTIONED BY JOHN is a run on the pound. A run on the national currency is presented in economics textbooks as the automatic working of the market. In fact it acts as a discipline imposed by the capitalist system. It is profoundly political. This pressure is intensified by the International Monetary Fund (IMF), the ‘financial sheriff’, as we shall see.
Labour in 1974-79
After Labour was elected in 1974, a series of runs on the pound caused sterling to reach a record low exchange rate against the dollar. This in turn forced the government to go cap-in-hand to the IMF for a monster loan of $3.9bn to stem the continued outflow of money. The IMF demanded cuts in welfare spending as the price of their ‘help’. According to Cabinet papers, “the IMF crisis reinforced a change in policy orientation away from full employment and social welfare towards the control of inflation and expenditure.” This imposed austerity led to Labour’s electoral defeat in 1979, when Thatcher came to power. Labour, under Wilson and Callaghan, was not trying to challenge capitalism – just to create more jobs and better living standards for the people who elected them, by reflating the economy. The ‘markets’ (world capitalism) didn’t like it, and they got their way. The pressure on Labour was not confined to the economic. The defence correspondent of the Times threatened that the use of troops to break strikes could lead to a situation where “normal legal administration is impossible and the only authority left is the military commander.” Rumours of coups and conspiracies were in the air.
Up till 1979 most countries had exchange controls to help protect their currency. There were limits to the amount of money that could be taken out of the country at one time. One of Margaret Thatcher’s first acts on becoming Prime Minister was to scrap exchange controls. These days we are told we are hapless prey to the merciless forces of globalisation. But it was the state under Thatcher that imposed abject dependence on these market forces by scrapping exchange controls. What the state can do, the state can undo. Many states still maintain exchange controls.
Without exchange controls, the markets decide whether the pound will go up or down and can dictate to governments in this way. Markets can impose austerity in hard times because it loads all the hardship on the backs of the working class. A run on the pound is highly likely if a reforming Labour government tries to break out of the straitjacket imposed by capitalism.
Refusing to lend to the government
Governments can raise interest rates to make holding sterling more attractive. The trouble is, that involves yanking up the rate of interest throughout the economy. That makes borrowing by firms and consumers more expensive, and is likely to harm economic growth. So that’s another constraint on national governments in the face of global capitalism.
The government’s debt is nearly a whopping £1.8trn. The government is rolling over the debt all the time by issuing new bonds. How much interest does it have to pay? That depends on the all-powerful markets. If they decide there’s a risk (to capitalism) they’ll jack up how much they charge. Even the mild Wilson/Callaghan Labour government of 1974-79 was faced with a ‘gilt strike’, a refusal to buy government bonds, till they came to heel.
How Mitterrand met his match
So there can be a run on the currency, a refusal to lend to the government and finally capitalists can refuse to invest in the country - a flight of capital. The capitalist resistance can operate with a combination of all three sanctions. The Mitterrand Socialist government was elected in France in 1981 on a more radical programme than Labour had in 2017. Twelve industrial conglomerates and 38 banks were taken over. Good stuff, but the bosses didn’t like it. There were three runs on the French franc leading to three ‘currency adjustments’. Each time Mitterrand devalued, the run on the franc intensified.
In addition business came to a standstill and refused to invest. In March 1983 Mitterrand turned tail. French austerity in turn led to increased unemployment and cuts in public services, all in the name of fighting inflation.
Greece and Austerity
Austerity – making the working class pay the price of the Great Recession of 2008 – has been the worldwide policy of the capitalist class. Nowhere has this been more blatant than in Greece.
Greece after 2009 suffered an economic meltdown as severe as the world crisis of 1929-33. Greece’s national debt had swollen to 179% of Gross Domestic Product by 2014.
The first Greek ‘bailout’ in 2010 really just salvaged the French and German banks which had incautiously lent so much to the Greek government - at the expense of the Greek people. The monstrous debt was not written off but transferred to the Troika - the IMF, European Commission and the European Central Bank (ECB). The Greek people continued to pay. Despite being unelected, the Troika dictated policy in the form of continual austerity programmes imposed upon successive Greek governments.
The Greek people were the first to rebel against the wretched austerity regime imposed by world capitalism after the onset of the Great Recession in 2008. In January 2015 the radical Syriza government was elected with a mandate to fight austerity.
It was brought to its knees, partly by exorbitant interest charges on its national debt – another ‘gilt strike’ like that which struck the 1974-79 Labour government. Of course the rise in interest rates made it even more difficult for the Greek government to keep up the payments on the debt that was strangling the economy.
The ECB actually organised a flight of capital to lay the radical government low and impose vicious austerity upon the Greek people. The ECB was deliberately creating chaos in order to bring down an elected government.
In June the Syriza government was presented with the tenth (!) austerity package by the Troika. Syriza called a referendum and got a magnificent 61% support to defy the authorities. The fighting spirit of the Greek people was not replicated by Tsipras and the leadership of Syriza. The government capitulated the following month.
Where will the money come from?
What can we do to fight the saboteurs? When people ask about money, they actually mean – where will the resources come from? The resources, people and material, are already there. Money is just needed to oil the machine.
Between 2009 and 2012, in the teeth of the economic crisis, the Bank of England created £375bn out of thin air – it’s called quantitative easing (QE). What did the Bank do with it? Effectively it gave it to the big banks by buying their bonds. This was supposed to reduce interest rates. Corbyn has argued that the Bank of England could create the money - people’s QE - for useful public investment in infrastructure, rather than just bunging it at the banks.
All governments borrow, and they usually borrow mainly from the rich who have the money to lend. There is an acute danger that a radical government will be faced with a threat to turn the money taps off or to wind up interest rates so high as to deliberately sabotage the elected government’s reforming plans.
We Can Win
Phew! A strike of capital sounds scary. Can we do nothing to break out of this prison? Of course we can.
One lesson is that we must take over the banks. They are not only the creators of the crazy speculation that triggered the crash in the world economy in 2008. They are also the monetary conduit by which a run on the pound and capital flight are conducted.
A government aiming to represent the working class cannot be dependent on the goodwill and the lending of the rich and big business. People’s QE is one way of financing the resources to transform the country in the interests of working people and bypassing a strike of capital.
In Greece the vice in which the government was held was the debt. Syriza should have simply refused to pay. That would inevitably have led to further outflows of capital. The only response to that would be for bank workers and the whole working class to be mobilised against capitalist sabotage.
The entire machinery of the establishment will be thrown against a Corbyn-led Labour government. It doesn’t matter that Labour’s programme doesn’t actually call for the abolition of capitalism. We will be threatening their right to rule as they think fit. The Wilson and Callaghan governments were still sabotaged in 1974-79, for all their moderation.
We can’t just leave it all to Jeremy and John. They have already come under fantastic pressure. They are bound to come under so much more. They will need our support. There must be a mass mobilisation of the working class against the capitalist establishment.
It will be us or them. We will be confronted by the full-scale resistance of the ruling class. If they come for us, we must come right back at them.