Anglo-American solutions and imposing discipline
Peter Manson spoke to Hillel Ticktin about the economic crisis
There is currently much speculation about the ‘bottoming out’ of the recession. What is your view?
It is a question of ideology and a question of confidence. Last year there was a major fear that the system itself would break down. The meltdown of the financial system was acknowledged, but it was possible that things could go further than that. These fears were not elaborated, but they were real enough.
However, once it was realised that the monetary crisis had been overcome, confidence rose, as did the stock exchange. Now the banking system has more or less stabilised through nationalisation and so on - not very well or on a permanent basis - but there is no longer talk of a meltdown. It is true that so-called toxic debts are still hanging over the banks, but control has been re-established.
The treasury select committee says that financial regulation is still in “a muddle”.
That is true, but it is a completely different point. There is the issue of how to avoid the same thing occurring again. That is not so much about the downturn, but about the growth of credit and derivatives.
What is going on is a conflict between finance capital and capital as a whole. Finance capital cannot really be finance capital unless it is dominant, but because of the crisis capital as a whole cannot allow this. That means that countries where finance capital is less important - France, Italy, Germany and so on - are opposed to Anglo-American solutions and are demanding a much greater degree of regulation.
However, because Britain is so dependent upon finance capital, it is not prepared to go down that road. So the fight over control of the banking system is on one level between the US-Britain and the continent, but on another level it is between different sections of capital, and it is one that might take some years to resolve. It is unlikely that finance capital will be able to hold its own, since it has failed so spectacularly. On the other hand, there is no alternative form.
As to the so-called ‘green shoots’, there really is not a lot to go on. This has been played up by some of the more reactionary sections of the press, as far as I can see. But, as the Financial Times points out, what has transpired is really not very much - US figures show that production is 13.6% down on this time last year, which does not really demonstrate that the recession is ending.
In fact in Britain the downturn has been tracking the same path as in the great depression. In this context one really has to make a distinction between a cycle and a crisis. Capitalism has always had cycles, but not every cycle becomes a crisis. Following a downturn, companies eventually begin to make a profit once more and are able to reinvest. However, in the great depression that did not happen, which was a reflection of the fact that there was a general capitalist crisis.
It is not openly stated in the press, but this is also the case today - we are in a genuine medium to long-term crisis. What that means is that in cyclical terms there will be a tendency over time for the economy to expand. That is almost automatic, because in the first period (eg, last year) industrial production falls very sharply and firms cut their prices and sell off stock very quickly. Industrial production falls sharply. Prices also fall, but there is still demand, albeit at a lower level, so there will be a rise in production once old stock has been sold. This does not indicate very much other than a continuation of the cycle. The sharp fall in production has now been succeeded by a more gradual fall …
It is now claimed that the fall in production has come to an end.
What they are actually talking about is the fact that the drop in production has slowed. In America, for example, new orders for what are called durable goods have declined by 2.5%. However, in April and May there was a rise within that overall fall. In other words, one cannot really derive a trend from one or two months - quite a lot depends on particular items. It is true, for example, that industrial output in Japan went up by 2.4% in June and that was the fourth monthly rise. But you would expect a certain rise after the previous very sharp falls.
The first phase of the crisis is the monetary one, but the most important is the change in industrial production. That is only now really showing itself, with mass unemployment and continuing cuts in wages. It is difficult to believe that there can be a sustained increase in output alongside an increase in unemployment and ever lower wages. So it is obvious that whatever ‘green shoots’ there are will be cut back.
In both Britain and America unemployment has risen very sharply even according to official figures and will continue to rise. In the UK, when one adds those on incapacity benefit and part-time workers, it is probably around 20% or six to seven million people. It is quite obvious that unemployed people cannot buy very much with the benefit they receive.
There will, of course, be an upturn in the cycle, but the overall projection is that it will be relatively weak. Finance capital cannot act as before and the previous strategies cannot operate either. There is a long-term crisis and that means low levels of growth and high unemployment.
The second point to make is that in Britain it will be made a whole lot worse by cuts in the public sector. While Labour’s cuts are bad enough, they go nowhere near as far as the Conservatives’ would. Only a lemming would vote Tory today.
There will be quite a lot of lemmings at the next election.
Well, yes. It is a real issue that the left ought to discuss - why would anyone vote for the Conservative Party today? I can see why you would not want to vote Labour, but that is not the same thing.
The public sector accounts for roughly 30% of GDP. Anybody who works in that sector would be an idiot to vote for a party that promises to cut and cut (except those well paid top managers, whose jobs seem secure). The Conservatives also say they will cut benefits and pensions, so the same applies to those people too. Labour will also make cuts, of course.
What alternative have either Labour or the Conservatives got if they want to reduce government debt?
They do have the alternative of continued high borrowing - nothing terrible would happen if they pursued that policy.
It is often said that one has to cut in order to avoid inflation. But at present the conditions are those of deflation. The point is, while we are in a deflationary period, inflation is hardly a major worry. A rapid rise in prices is highly unlikely. But even if inflation did result, so what?
People like Sam Brittan of the Financial Times - not a friend of the left, of course - have explained why there is no reason why public sector debt should not be allowed to rise. Brittan has pointed out that in the past it has risen much higher than it is set to rise today - in wartime, for instance.
Isn’t the problem that both parties have to go through the motions of planning to balance the books?
It is not necessary to do that. A large public sector debt is perfectly sustainable if a slump is to be avoided, and the debt will start to be paid off as the situation improves. The government starts to buy back the securities it has sold. That is to be anticipated and there is no reason why it cannot be pursued.
Quite a lot of the current debt has, of course, been incurred as a result of the bail-out of the banks. It is said that a high level of public debt means huge interest payments, which eat into other elements of the budget. But if the rate of interest is low, as it is today, then that is not a significant factor.
But once the recession ends, not only will the tax base increase: the banks will become more firmly stabilised and will start to repay the government bail-out. So the end result is not what it has been painted to be. This debate is being conducted among certain sections of the establishment.
In fact the desire to make cuts in the public sector is an indication of something else: the downturn is being used as an opportunity to discipline labour. It is also an opportunity to introduce so-called private enterprise into the public sector. Taken together, it is an attempt to impose an historic defeat on the working class. That is not just the position of the Conservative Party in Britain, but of the Republicans in the United States too. But both Labour and the Democrats have been very strongly affected by this agenda.
As a result Obama has been unable to put nearly enough money into the US economy to allow it to reflate. One of the casualties of this has been his health programme, which was very weak in the first place.
So there is a contradiction between the need of capital to stimulate the economy and its need to discipline the working class?
Yes, that is true. If capital was not conscious of the struggle with labour, then it could allow the public sector to expand and wait for the economy to recover. But a very firm line is being taken, which can only extend the length of the downturn.
Do you think that the majority of the ruling class is really so conscious of this latent threat from labour?
I think they have been very frightened for the last two years. It is not that they necessarily believe capitalism will be succeeded by socialism, but they fear breakdown, disintegration and working class resistance. But one of the failures of academia is that it never discusses ruling class options in those terms.
Of course, there is a contradiction between big capital on the one hand and the petty bourgeoisie and small companies on the other. The latter do want a smaller public sector and lower taxation. Adair Turner, former director-general of the Confederation of British Industry and now head of the Financial Services Authority, once said that Labour is now the party that represents big companies, while the Conservatives are for small business.
It seemed that way under Blair.
But it is not surprising, in view of the fact that so much of what was British industry is now multinational, that a nationalist party like the Conservatives should represent beleaguered small capital much more than in the past.