Tuesday 31 March 2009

Richard Wilkinson to speak at 'Capitalism Isn't Working'


We are pleased to announce that Professor Richard Wilkinson will be speaking at the LEAP Conference 'Capitalism Isn't Working' on 25th April 2009.

Richard will be taking part in the morning plenary session 'Who Pays?' and then holding a free lunchtime meeting on his new book The Spirit Level - why more equal societies almost always do better (pictured left). The Guardian recently featured the findings of the work - which you can download here.

For years, Professor Wilkinson has done pioneering research work on the effect that inequality has on societies - and contributed to the March 2007 LEAP Red Papers '10 Years On: Whatever happened to equality?' (free download, Wilkinson's paper is on p.6).

You can register online for the LEAP conference. Full agenda details will be published soon.

Monday 23 March 2009

The Credit Crunch – Causes And Resolutions


A lot of ink has been spilt analysing the causes of the Credit Crunch. Much of the discussion has understandably focussed on the culpability of financial institutions, regulators and even central banks.

There is no question all three must take their share of the blame for bringing the world economy to the brink of depression. Financial institutions were reckless, regulators asleep at the wheel, while central banks were at best naive, at worst, complicit in the creation of grotesque credit bubbles.

And in one respect, Prime Minister Brown is right when he claims this crisis is global.

Based on IMF data, there are over a hundred countries which have seen private sector borrowing rise faster than the UK since the millennium. Many have seen increases that are multiples of the rise in UK debt. Top of the poll goes to Ukraine, where private sector debt has jumped by an astonishing 5671% since the turn of this decade.

From the Baltics, down to the Balkans and across to Kazakhstan, eleven countries are in more trouble than Thailand during 1997, in the midst of the infamous SE Asian crisis.

Another nine countries are on the critical list. Eastern Europe is the fault line of a global capitalism that is badly ruptured.

And one Eastern European economy has already slipped into depression. The accepted benchmark for a depression is a contraction in real GDP of 10%. Latvia passed that unwelcome benchmark in the fourth quarter of 2008. Many more will follow.

They will be quickly matched by the major manufacturing exporters. Japan is likely to report a decline in GDP of 10% or more from its 2008 peak, when it publishes first quarter data for 2009. The collapse in exports – down 45.7% in January from a year earlier - has been astonishing. The February report on manufacturing production is expected - by the government – to show a decline of 37% from a year ago.

These rates of decline are easily comparable to the Great Depression. Indeed, in the worst year of the US slump, manufacturing output fell 21.0%. From peak to trough, it shrank 47.9%. That was over three years, between 1929 and 1932. In Japan, we have seen a large proportion of that decline in just one year.

Other big manufacturers are suffering too. Taiwan, South Korea, Germany and Sweden have all seen a collapse in exports, and will soon be in depression.

But it is wrong for Mr Brown to take comfort in the travails of Britain’s partners. The global credit bubble was a manifestation of economic policies he espoused. And Adair Turner and Hector Sants, respectively chair and chief executive of the Financial Services Authority, have come closer than most to recognising an important truth: politicians were ultimately responsible for allowing banks to lend freely.

However, even they are reluctant to admit to an even deeper and politically more uncomfortable explanation. As we argued last year in our book The Credit Crunch, the growth in lending was a necessary antidote to the pernicious effects of globalisation.

Shipping jobs abroad to cheaper locations, from China, to Eastern Europe to Turkey and India, has been a fallacy. The median wage has been relentlessly squeezed, not just in the UK, but in the US and other European countries too. If there had been no credit boom, GDP growth would have been almost negligible after the collapse of the dotcom bubble. Deflation would have become entrenched.

Led by their obsession with free trade, politicians in the West were happy to preside over the resulting housing bubbles, believing that low inflation would sustain the extreme house prices. For a while, it did.

But it is perhaps ironic, that when inflation did eventually accelerate, it was never likely to last precisely because of globalisation. Wages were being squeezed even during the boom, and as oil prices rose, there was not the slightest chance that inflation pressures would become embedded, as seen in the 1970s and 1980s. Tragically, central banks in the West could not see that. They kept interest rates too high for too long. They misjudged, because they did not understand the forces of globalisation that gave rise to the credit bubble in the first place.

Indeed, it is quite possible to show that a more timely response on interest rates, particularly in the US, but also in the UK and in Euroland, would have alleviated much of the distress we are now seeing.

But that is for the history books. What matters now is the response of central banks and governments to a looming depression.

The Bank of England’s decision to embrace quantitative easing should be welcomed on one level. This in essence involves a central bank targeting long term interest rates. The base rate may be 0.5%, but it is only one borrowing cost. There are many more interest rates, and the most important of these is the long term rate on government debt. This underpins all other credit costs. If a central bank drives the long term rate down, it can have a demonstrable impact on other borrowing costs.

This policy has many critics, but the recovery in the US from 1932 would never have happened without quantitative easing. Indeed, had the Federal Reserve in particular followed this policy more aggressively, the recovery would have been more robust.

Unemployment would have come down more quickly. It is beyond dispute that quantitative easing is a powerful monetary weapon.

There are however, several problems. The Bank of England cannot reflate in isolation. The Swiss Central Bank has joined the along with the Federal Reserve. But it remains to be seen how far the Fed, the most important central bank of all, is prepared to push this policy. It may yet fail if not used radically enough.

And it should not be seen as an excuse for profligate fiscal policies. Quantitative easing does make it easier for a government to expand its budget deficit to support an economy.

But the funds should still be used judiciously. The debt still has to be paid back.

Japan’s experience illustrates the pitfalls. Eleven emergency government budgets stretching over ten years pushed the public debt burden up from 64% to 175% by 2005. Quantitative easing has pinned down the long term interest rate – it has not been above 2% this decade, and is currently languishing close to 1%. But the sheer scale of the rise in the government debt means that 46% of tax receipts will be used to cover interest payments this year.

In this respect, we have to be alarmed that the UK budget deficit has raced towards 10% without the increased funding being put to more effective use. A bigger budget deficit tied towards an industrial strategy based around alternative energy, green technology, biotechnology and new growth sectors, would represent a sound investment in a UK recovery.

Instead, the deficit is being driven higher in part by the cost of bank bailouts. The government claims that banks have to be rescued otherwise the credit lifeline to companies would be severed, and many more would default pushing unemployment up even faster.

But the banks should have been nationalised from the outset. The government may still have needed to recapitalise the stricken financial institutions. But once nationalised, the banks could have been turned into utilities. Instead, they are being driven on commercial grounds to increase margins, to repay their loans to the taxpayer.

This way spells disaster. Loan rates need to be lowered, not maximised. Bankruptcies need to be minimised. With banks under full public control, they can be used as an extension of monetary policy, ensuring credit flows on terms that ensure companies stay afloat.

State supervised banks can also provide the support needed to allow many companies to restructure towards the new products that will help to combat climate change. The alternative technology already exists to generate a new wave of green industries.

The proposed rescue of LDV, the troubled van maker, is an acid test of the government’s willingness to marry the preservation of jobs with its carbon emission targets. It is unconscionable that LDV is on the verge of default for want of such a small capital injection, jeopardising the company’s plans for an expansion in battery powered vans.

The Bank of England's recent shift to quantitative easing will not be enough. Now is the time for an industrial strategy to reverse the huge job losses in manufacturing, which have disproportionately hit Wales, the Midlands and the North East. The 138,400 increase in the claimant count for January may have come as a shock to some. However, this could be a long way from the peak.

The Government must use its control of banks to support industry, otherwise vital skills and manufacturing capacity needed to sustain any recovery, will be lost.

The Government needs also to take proper, effective and accountable control of banks, to arrest the wave of business foreclosures. Banks need to be run as utilities and not on the basis of profit maximization, otherwise soaring defaults will entail huge social costs.

The UK is danger of following the US into mass unemployment. The wider measure of US unemployment - the so-called U6 rate - has already soared to 14.8%. This includes those who have given up looking for work and thus do not count in the official rate, and it also includes involuntary part-time workers, many of whom may lose their job. The U6 rate is heading for 20% by year-end, and could top 25% next year. It is a warning to New Labour. If it does not intervene to support industry, unemployment will soar here too, topping 4.0 million by next year.

Graham Turner is an Economist and Author of The Credit Crunch, from Pluto Press. Available from Bookmarks The Socialist BookShop, for £10 plus postage and packaging. Phone 020 7637 1848. Or www.bookmarksbookshop.co.uk

Friday 20 March 2009

The horse has bolted

Current and former leaders of global agencies are leap-frogging each other with increasingly dramatic attempts to give expression to the scale and rapidity of the disintegration and collapse of the world’s financial and economic systems. Their warnings contrast sharply with the feeble efforts of national government agencies like the UK’s Financial Services Authority (FSA).

Michel Camdessus, former managing director of the International Monetary Fund (IMF) went large last week, declaring: “This crisis is the first truly universal one in the history of humanity. No country escapes from it. It has not yet bottomed out.” He was foreshadowing yet another of the IMF’s series of ever-more pessimistic forecasts published yesterday that calmly predicts that the global economy will contract this year for the first time since World War II.

Moreover, the impact in the UK will be more severe than in any other developed capitalist economy, the IMF warns. Figures on public finances confirm a rapid spiralling of state debt in the wake of the financial crisis, mounting unemployment and collapsing tax revenues. Next year, the IMF estimates that the Treasury will have to borrow a record 11% of gross domestic product – far more than has ever been borrowed before in British history and higher as a proportion of national wealth than in the United States.

Camdessus’s observation makes the otherwise stunning admission in the opening sentences of the report on the global banking crisis from Lord Turner, head of the FSA look pretty tame in comparison. “Over the last 18 months, and with increasing intensity over the last six, the world’s financial system has gone through its greatest crisis for at least half a century, indeed arguably the greatest crisis in the history of finance capitalism,” he writes.

After pointing the finger at New Labour for promoting “light touch regulation”, Turner admits that markets are irrational but then insists it’ll be OK, apparently, if we tighten regulations this time around. A phrase about shutting stable doors after the horse has bolted springs to mind.

In common with most observers and analysts, Turner mistakenly attributes the global production shutdown, with unemployment spiralling to new records in every country, to bad behaviour in the world of finance. The real source of the crisis actually lies in the system of capitalist production whose expansion is founded on debt of all kinds.

Following the 1929 crash, despite multiple failed attempts at government intervention, the crisis stretched throughout the 1930s becoming known in retrospect as the Great Depression. The Second World War reduced the no longer profitable pre-war surplus productive capacity to rubble and bloody corpses.

Then, and only then, credit expansion freed the insatiable self-movement of capital expansion in post-war spurts of growth. These produced the transnational corporations, built on cheap labour and the wreckage from a series of worsening crises, and spawned the global financial system which has now disintegrated.

Turner wants to get the carnival back on the road, replaying the same show, saying that the global economy needs “the existence of large complex banking institutions providing financial risk management products” which “inevitably involve at least some position taking”.

This is wishful thinking. The crisis is incomparably deeper than at any other time in history partly because no-one knows the size of the balloons of credit which have yet to burst and the real state of bank finances. For example, no one in government can actually account for the vast sums allocated to bank bail-outs in America and the UK. They have disappeared into a financial black hole.

There’s an opportunity to discuss non-capitalist solutions and policies for this dangerous crisis at LEAP’s Capitalism isn’t Working conference next month.

Gerry Gold
Economics editor
A World to Win
reposted from www.aworldtowin.net

Thursday 19 March 2009

Unemployment rockets through 2m

Figures released yesterday show that UK unemployment has reached 2.03 million, up by 165,000, by the end of January 2009. The number of people receiving Jobseeker's Allowance has added a record 138,400 to reach 1.39 million.



John McDonnell MP, LEAP Chair, said: "Behind every one of these devastating figures is a story of mounting human suffering across the country. It is clear now that the Government's package of bailing out the banks is not working."

Graham Turner, author of The Credit Crunch, said:

"We should not be surprised that the claimant count rose 138,400 in January, nor that the December increase was revised up, from 73,800 to up 93,500. Indeed, the slew of job layoffs announced by companies suggests this will not be the peak. The monthly increase is certain to accelerate even further beyond the 118,700 increase recorded at the worst point of the 1990/91 recession. On that occasion, the monthly increase in the claimant count eased to 50,000 within five months and carried on falling. This time around, any reversal, whenever it materialises, will inevitably be protracted. There is every chance that the unemployment on the ILO measure will rise to 4.0m by the end of 2010 unless the Government intervenes quickly to save jobs.

"The Bank of England's recent shift to quantitative easing will not be enough. Now is the time for an industrial strategy to reverse the huge job losses in manufacturing, which have disproportionately hit Wales, the Midlands and the North East. The alternative technology already exists to generate a new wave of green products, critical in the battle against climate change. The government must use its control of banks to support industry, otherwise vital skills and manufacturing capacity needed to sustain any recovery, will be lost. The proposed rescue of LDV, the troubled van maker, is an acid test of the government’s willingness to marry the preservation of jobs with its carbon emission targets.

"The Government needs also to take proper, effective and accountable control of banks, to arrest the wave of business foreclosures. Banks need to be run as utilities and not on the basis of profit maximization, otherwise soaring defaults will entail huge social costs."

Tuesday 17 March 2009

No war but the class war . . .

Today, MPs will be voting on the Welfare Reform Bill. Among a series of amendments tabled by John McDonnell (who has an excellent article in today's Guardian) and Lynne Jones is the demand to raise Jobseeker's Allowance by £15 per week and raise it in line with earnings thereafter.

With unemployment about to break through 2 million, Jobseeker's Allowance stands at just £60.50 or just £47.95 if you're reckless enough to be under-25.

Research by the Joseph Rowntree Foundation into minimum income standards has shown that a single working age adult needs an income of at least £153 a week "in order to have the opportunities and choices necessary to participate in society".

If benefits had increased in line with earnings over the last 30 years, JSA for a single person over 25, would not be £60.50; it would be worth over £100 a week. If it had been increased in line with earnings just since 1997 it would now be worth £75 a week - £15 more.

Aside: There's also a great letter in today's Guardian: "Congratulations to all those who raised a magnificent £58m for Comic Relief. But let's not see this frittered away on mosquito nets for children when it could provide a decent pension for up to four struggling bankers." - Absolutely. Where's the bailout for the people in need?

Friday 13 March 2009

Welfare for Banks, Cuts for the Poor

On Tuesday next week, MPs will vote to introduce workfare, slash lone parent benefits, and privatise more of the welfare state. There's a grubby alliance between Labour and the Tories on this, with investment banker David Freud the object of both parties' affections in a twisted menage a trois to screw the poor.

Meanwhile, the IMF reckons that the British government has spent nearly 20% of UK GDP - £285bn - in up-front support for the financial sector since the crisis began. That compares to a figure of 6.3% of GDP for the US and an average of 5.2% for the advanced economies within the G20.

It's socialism for the rich and capitalism for the poor.

Contact your MP before Tuesday and ask them to back amendments tabled by socialist MPs John McDonnell and Lynne Jones.

Friday 6 March 2009

A tipping point is reached

It’s difficult to know which of two momentous pronouncements yesterday has the most profound significance for the future of the global capitalist economy.

Is it the Bank of England’s expected decision to reduce the base interest rate to 0.5%, and start to print money – an initial £75 billion – with which it will bypass the commercial banks and lend direct to businesses, if it can find any that want to borrow?

This means that “monetary policy in its conventional form has ceased to operate”, according to the Financial Times’ Martin Wolf. A better example of what is meant by “a tipping point” would be hard to find.

Or is it the also expected admission from global giant car-maker (and financial services company) General Motors that there are now serious doubts about its ability to continue as “a going concern”? Continued deterioration in the availability of credit together with slumping demand for vehicles of all kinds has driven it to the brink of collapse.

The fact is that the complete breakdown of the credit system and the implosion of production are tightly intertwined. Interest rates were last reduced to historic lows to deal with the dot.com crash of 2001/2, ushering in a period of frenzied speculation, which intersected at its pinnacle with the beginning of the downturn in consumption in 2004.

The global credit system closed for business in mid-2007 when it became clear that the effects of the deepening recession were irreversible. Financial institutions and investors recognised, however dimly, that the possibility of tempting consumers back into the shops to restart growth was gone. It was called a “collapse of confidence”. Share prices continue to tumble.

Despite trillions of dollars, pounds, yen and roubles being poured into the banks and the auto giants, and virtually unlimited guarantees to underpin new lending these attempts at resuscitating the system have failed. There's just too much over-capacity already to tempt new production. Too many unsold cars.

Neither can the crash be reversed by “quantitative easing” - increasing the money supply to induce spending, touted as the last throw of the dice. Governments have embarked on this desperate measure because interest rates are close to zero, property and commodity prices are dropping as demand has evaporated, and nothing else is working.

There will be attempts to bypass the banks and shovel cash into consumers' pockets directly - the “helicopter drop” approach favoured by the current chairman of the Federal Reserve, Ben Bernanke.

This can only make an unprecedentedly bad situation a whole lot worse. There’s talk already in the US and the UK about “fiscal collapse” – tantamount to state bankruptcy.

Obama’s team is reported to be working around the clock, not on a solution, but “to form an approach” to the disintegration of the auto industry. They must be getting very tired.

Obama, Brown, Darling, Mandelson, Wolf, and Mervyn King, the Bank of England’s governor and every one of the fantasists of the capitalist world are pinning their hopes on a recovery, sometime, not this year, maybe later. Maybe never.

As the conference called by the Left Economics Advisory Panel for 25 April puts it, “Capitalism Isn’t Working”. The conference is scheduled to discuss policy solutions for the crisis. They will have to be founded upon collectively-owned, co-operatively managed, not-for-profit ecologically-sound production, distribution and exchange. And that includes the banks. Nothing less will do.

Gerry Gold
Economics editor
reposted from www.AWORLDTOWIN.net

Wednesday 4 March 2009

Salute the miners’ strike for jobs

This week marks the 25th anniversary of the start of the great miners’ strike in defence of jobs and communities. Their year-long confrontation with the state and the Tory government remains an outstanding example of the determination of ordinary working people to fight for their rights.

By the time of the strike, officially, unemployment in Britain had risen to around 3.25 million – although the real total was nearer 4 million – and the privatisation of all the great state industries, starting with British Telecom, was underway. It was the miners alone who answered the call of history, and challenged the right of the state and governments to put people out of work and into poverty.

The strike was provoked by the Conservative government of Margaret Thatcher when the state-controlled National Coal Board (NCB) on 1 March 1984 announced plans for the closure of 20 pits in Yorkshire with the loss of 20,000 jobs. The government was in fact secretly planning for the closure of 70 pits throughout the country and the virtual destruction of the industry.
The 600 miners at Cortonwood colliery in South Yorkshire met on Sunday 4 March and voted to strike, calling on the Yorkshire Area of the National Union of Miners for support, which was duly given a few days later. The miners of Scotland, Wales, the North-East, Kent and North Derbyshire came out on March 12.

So began one of the longest, most decisive, most determined and extraordinary strikes of all time. The government had prepared very carefully for this showdown, building up stocks of coal at the power stations, while at the same time switching some of them to burn oil.....................................


read more of this account by photographer P J Arkell with some of his photos at http://www.aworldtowin.net/blog/salute-miners-strike-for-jobs.html

Tuesday 3 March 2009

PFI a disaster waiting to happen that is now happening

We put out this press release today:

PFI a disaster waiting to happen that is now happening

The Government has today announced that it will prop up the Private Finance Initiative (PFI) with £2bn of public money. This exposes the fallacies of PFI that it is more efficient, and that it transfers risk to the private sector.

John McDonnell MP, LEAP Chair, said:

"PFI has been and remains a disaster. It has transferred profits to the private sector and losses to the public sector.

"It was a disaster waiting to happen and we warned the Government about this. However, they ignored us in their reckless pursuit of the Prime Minister's ideology for over a decade.

"It makes the Prime Minister's management of PFIs about as competent as Fred Goodwin's management of RBS."

Andrew Fisher, LEAP Director, said:

"All these projects should now be conventionally funded by the taxpayer - not by the taxpayer subsidising the private sector.

"This shows that the Government's agenda is driven entirely by their neoliberal ideology, with no concern for the taxpayer."

-Ends-