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Published online by Counterfire, 14 May 2010.
Copied with thanks from the Counterfire Website.
Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
The Bankers’ Party did not stand any candidates, but it won the British General Election. It does not depend on votes and seats. It deals in currencies, bonds, and shares.
It has rarely been so clear that, behind the democratic façade, it is finance-capital that rules.
When a Lib-Lab ‘rainbow’ coalition looked possible, stocks and sterling slumped. The market, we were told, wanted a Cameron-Clegg alliance. It wanted a stable right-wing government committed to cuts. So when it looked uncertain, the bankers started dumping British financial assets.
We have been here before. In 1975–76, the City, the Treasury, and the US-based International Monetary Fund collaborated to engineer an economic crisis that would force a U-turn by a Labour Government committed to limited social reform.
‘The people in the Bank of England and the people in the UK Treasury knew what had to be done,’ recalled then US Treasury Secretary William Simon. ‘While they would never say it… I think they were secretly rooting for us, that we would hold fast our ground.’
International bankers started a run on the pound in early 1976. The Bank of England did nothing to stop it. The run accelerated. In July, Chancellor Denis Healey forced a £1 billion cuts package through cabinet in an effort to ‘restore confidence’.
It was not enough. The pound continued to fall, and in the autumn the Government faced a full-blown ‘sterling crisis’. Now, the price of market ‘confidence’ had become a loan from the IMF. The terms were massive cuts in public spending. The IMF’s opening bid was for £5 billion. They finally settled for another £2 billion on top of July’s £1 billion.
The British ruling class had got what it wanted: the Labour Government’s wholesale abandonment of the social reforms it had been elected to enact two years’ earlier.
The political cost was catastrophic. Unemployment doubled. The real value of wages fell. Poverty soared. And Labour lost the 1979 election as disillusioned working-class voters abandoned it.
The choice in the 2010 election was but a faint echo of that in 1974. Denis Healey had promised in 1973 that Labour would ‘bring about a fundamental and irreversible shift in the balance of power and wealth in favour of working people and their families’. There would be ‘howls of anguish from the 80,000 rich people’.
In 2010, the only questions were the balance between higher taxes and spending cuts, and whether to cut sooner or later. The Tories wanted immediate spending cuts. Labour and the Lib-Dems wanted more tax rises in the mix, and a delay of a year to safeguard economic recovery. But this difference was enough, coupled with the parliamentary weakness of any Lib-Lab coalition, to give the Cameron-Clegg option a landslide in the City.
The Bankers’ Party has been celebrating since the announcement that the Cameron-Clegg deal was done. ‘Business wants to see a stable government with the authority to take tough decisions,’ explained CBI Director-General Richard Lambert. ‘We particularly welcome the significant reduction of the structural deficit and the plan to achieve it through reduced spending rather than increases in taxation.’
J.P. Morgan’s Malcolm Barr agreed. A full coalition was an encouraging sign that the deficit would be dealt with and confidence in the markets upheld.
Equally enthusiastic was Simon Walker of the British Venture Capital Association. The Cameron-Clegg commitment to begin cutting spending immediately was ‘much to be applauded’. The new government is ‘manifestly preferable to either a single-party minority administration that might fall at any moment or a multi-party ‘rainbow coalition’ which would have been even more insecure.’
Not least welcome is the commitment to a five-year parliament. This, according to credit-ratings agency Fitch, would reduce the risk of a short-term government with less incentive to tackle the budget deficit. Democracy, it seems, is a luxury we can ill-afford in times like these: the less, the better, when there are ‘tough choices’ to be made.
Bank of England Governor Mervyn King was equally forthright. Observing that the financial crisis was ‘far from over’ and that ‘the banking crisis has turned into a potential sovereign debt crisis’, he demanded ‘clear and credible measures to deal with the fiscal deficit’.
The arrogance of these pronouncements reflects the absence of effective opposition. The global banking system was turned into a gigantic casino of speculation and greed by the super-rich. The result was the greatest crash in the history of the system. The profits had always been private. Then, suddenly, in the blink of an eye, as boom turned to bust, the losses were nationalised.
But that was not the end of it. The state, having bailed out the banks, has become ‘a potential sovereign debt crisis’. The very same bankers who were bailed out (now paying their mega-bonuses out of public money) complain that they have lost ‘confidence’ in the debt-laden state. If it is not restored, they will create a financial whirlwind by selling pounds, bonds, and shares.
The super-rich, bailed out at workers’ expense, are now demanding that their debts be paid off immediately. The Cameron-Clegg cuts programme amounts to an open declaration of class war on behalf of the bankers and the bosses they represent.
It would be wrong to say that the Lib-Dem leaders have sold their souls to get their legs under the cabinet table. They are bourgeois career-politicians committed to the defence of the system. They have no souls to sell.
Not so millions of Lib-Dem voters who think of themselves as liberal and progressive. Not so hundreds of thousands of young voters who backed the Lib-Dems thinking them the radical alternative. The discovery that a Lib-Dem vote is a vote for Tory cuts is sending a shock wave through the British electorate.
Clegg has not only capitulated on the key question of the cuts, backing the Tory demand for £6 billion off public spending this year. He has also neutered any attempt to regulate the banks and the bonus bonanza.
Vince Cable’s fate symbolises the cauterising of liberal sentiment. A mild critic of banks, bonuses, and the worst excesses of neoliberal economics, the new Business Secretary’s well-founded anxieties about premature cuts have been ignored, and any role he may have in framing future legislation to regulate the banks has been minimised.
What is now in prospect is not only cuts on the scale of the 1930s, but cuts that could plunge us into another great depression.
Cuts are deflationary. Public-sector workers get sacked. That means they can no longer afford to buy much. So fewer goods and services are sold. Therefore, more workers lose their jobs. And so on. This can become what some mainstream economists have called ‘an economic death-spiral’.
It is what happened after 1929. Drastic cuts were not the immediate response to the Great Crash. But the economic orthodoxy was ‘balanced budgets’, and when the global economy nosedived in 1931, politicians panicked.
In Germany, with one in four workers already unemployed, Chancellor Brüning deflated further by imposing massive wage cuts and tax rises. In the US, President Hoover denounced programmes for large-scale spending, and was soon lecturing his successor-elect, Franklin D. Roosevelt, on the virtues of ‘sound money’ and ‘balanced budgets’.
In Britain, a minority Labour Government elected in 1929 was under siege by finance-capital. As unemployed soared, dole payments were to be cut to satisfy ‘the vital need for securing budget equilibrium’.
One cabinet minister later recalled:
‘One of the memories that abides with me … is that of 20 men and one woman, representing the government of the country, standing one black Sunday evening in the Downing Street garden awaiting a cable from New York as to whether the pound was to be saved or not, and whether the condition would be insisted upon that the unemployed [rate] would be cut [by] 10%.’
The condition was insisted upon. The bankers wanted the impoverishment of the unemployed as a token of the Labour Government’s total submission. They also wanted unanimity: the whole cabinet was to vote it through. Otherwise the Government was to resign.
‘So it is the financiers, British and American, who will settle the personnel and the policy of the British Government,’ wrote leading Fabian socialist Beatrice Webb in her diary. ‘The dictatorship of the capitalist class with a vengeance!’
The cabinet split. The government resigned. Former Labour Prime Minister Ramsay MacDonald then headed up a reactionary, deficit-cutting ‘National Government’.
Protectionism and deflation locked the world into a decade of economic slump and mass impoverishment during the 1930s. Hitler was the political victor in Germany. The Second World War was the final outcome. And it was only then, when war production took off, that the Great Depression ended.
Radical economists like John Maynard Keynes had argued that governments needed to do the opposite. By spending on public works, they would generate demand, stimulate the economy, and foster the wealth-creation necessary to pay off debts.
That is what ‘Keynesian’ economists argue today. The danger is that the capitalist class – the bankers and the bosses – wreck the economy in a mass sell-off of shares, bonds, and pounds.
The Left has to offer clear answers. The bankers and the markets create nothing. We do not need them. Workers create the wealth of the world.
Finance-capital may have bankrupted the capitalist system. We cannot now let it cripple the world economy for a generation.
We should fight every cutback. We should demand a massive expansion of investment in new jobs and services. And we should advance the anti-capitalist alternative of a democratically-controlled and rationally-planned global economy producing to satisfy human need, not to feed private profit and the greed of a few.
Neil Faulkner is a freelance archaeologist and historian. He works as a writer, lecturer, excavator, and occasional broadcaster. His books include A Visitor’s Guide to the Ancient Olympics and A Marxist History of the World: from Neanderthals to Neoliberals.
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