The global economic crisis is the strongest evidence of the failure of capitalism. It reveals the nonsense of the oft-made claim that only a free market can lead to prosperity and higher standards of living for everyone.
In reality, unregulated capitalism has always resulted in higher and higher booms, followed by deeper and deeper busts. The most serious consequence is persisting inequality with, worldwide, hundreds of millions living in poverty.
When the rhetoric is swept away, and the evidence examined, it becomes all too obvious that capitalism has failed even to provide stable economies.
The issue of inequality, and the determination of the establishment to maintain it, is the subject of the three publications described below. They provide the background to the articles on this Blog.
Capitalism in Crisis: a Socialist Solution
This pamphlet analyses the current economic crisis in the UK and demonstrates that a solution will emerge only when a socialist strategy is adopted.
Further Education and Democracy
This book illustrates inequalities in the further education system in the UK. It explains how more than half the population aged 16 and over (‘The Neglected Half’) are denied the education they need - to obtain jobs, and to become fully participating members of society.
Who Killed Bilston Community College?
Bilston Community College, the most successful in the country for creating new opportunities for working-class (especially ethnic minority) citizens, was closed illegally in 1999. The government’s decision to close the college resulted in the denial of opportunities for tens of thousands.
An appeal against the closure, supported by over 50 voluntary community organisations, was completely disregarded by the then Secretary of State for Education and Employment.
All the above are all available on ebay.co.uk, or from keithwymer@blueyonder,co.uk
Thursday 26 February 2009
Wednesday 25 February 2009
WILL APRIL BE THE CRUELLEST MONTH?
Inexcusable Late Start
The Bank of England did not spot the recession until October 2008: the warnings of David Blanchflower (a lone voice on the Bank’s Monetary Policy Committee) were ignored for more than 6 months. Interest rate cuts, October-February, should have started at least 4 months earlier.
We cannot know how many lost their jobs and/or homes as a consequence of this delay. Whatever the number, it was unnecessary and in excusable.
The government, despite its many advisers and consultants, was also a late starter. Thousands had been made redundant, and tens of thousands more were facing redundancy, when Alistair Darling launched his, extremely modest, Autumn Fiscal Package.
‘Too little, too late’ is the, not unreasonable, criticism levelled at both the Bank and the government; although the situation is rather more complex. The Bank was certainly a late starter but, apparently not knowing what else to do, has continued to cut interest rates beyond the point of their effectiveness.
It would have been much more sensible for the Bank to start its ‘quantitative easing’ (pumping more money into the economy) in December rather than March. Late again! Incidentally, the public would be much better informed if the Bank, and the media, explained, clearly, what was happening, instead of using obscure terms like ‘quantitative easing’.
Full-Hearted Recession: Half-Hearted Response
The criticism of the government is not so much that it has failed to act but that it has acted half-heartedly. A string of minor initiatives to halt the recession do not amount to a convincing strategy. What should have been done (e g a much larger Autumn stimulus) is described in detail in my Blog: March 2009? It’s too Late.
The £14 Billion for Northern Rock to lend (announced 23/2/09) is a case in point. The figure should be at least £56 Billion: £14 Billion each, for lending, for the other institutions owned by the government – Bradford and Bingley, the Post Office; Royal Bank of Scotland.
The £14 Billion is intended, particularly, to help first time buyers. Yet, coinciding with the announcement, Gordon Brown wrote an article in the Observer arguing that a 10% deposit should be a minimum requirement. Although this is clearly sound in principle, it is no encouragement for first time buyers - until the government explains how it intends to help them to acquire such a deposit.
The government is unable to act on the scale required because it has boxed itself in. It is afraid to launch a £100 Billion expenditure plan because it lacks the convincing repayment strategy I described in my last Blog.
Will April 2009 be the Cruellest Month?
With the exception of a few ‘Blanchflowers’, experts failed in their predictions. While the sun was shining (people in jobs, house prices rising etc) they, in broad terms, predicted that the sun would continue to shine. Now, when all is gloom and doom, they predict more gloom and doom.
Because the downturn is global, it is impossible for the UK to recover in isolation. However, it seems likely that the action taken by USA’s new President, and his decision (implied in Hilary Clinton’s comments last week) to work more closely with China, will result in greater stability in the next few months.
It is in this context that the UK’s prospects must be considered. My view is that, if the Bank and the government had acted when Blanchflower gave his first warning, the bottom of the recession would have been reached January/February 2009. Their tardiness makes it look more like April/May 2009.
This prediction is made on the assumption that the belated action taken by the government, and the Bank of England, will begin to have an effect from March. The bottoming out of the recession is not, of course, the same as recovery.
The downturn would have been worse without the action taken but it is difficult to see significant recovery without further action.
Action for Recovery
I have been assisted in my predictions by an excellent article by Kevin Daly and Ben Broadbent (Goldman Sachs economists) in The Sunday Times (22/2/09); although the judgements below are, obviously, my own.
My view is that the situation in April will be ready for recovery but that this will not occur without a government expenditure stimulus of, at least, £100Billion, along the lines outlined in my last Blog. As I emphasise there, the key for the government to get out of its box is a convincing repayment strategy.
Providing the government acts now, the factors which will assist the recovery (as Daly and Broadbent point out) include:
(i) the reduction of interest rates (from5% t0 1%);
(ii) the fall in sterling, which makes exports cheaper;
(iii) import substitution – for example, people taking their holidays in the UK, instead of overseas.
In the current global crisis, the fact that the UK relies less on exports than, say, Germany and Japan means that government action can be more effective. It can be more effective because government expenditure can support the production of goods to replace imports, and also because governments can give people money spend.
With regard to ‘import substitution’, Pontins and Butlins are creating new jobs in anticipation of expansion of the home tourist trade. In the retail sector, a number of companies (including Asda, Tesco and Morrisons) have announced the creation of thousands of jobs.
The bringing forward of a number of government capital projects, and the boost to green energy will also create jobs.
Although these are ‘green shoots’, significant reduction of unemployment depends on further government action – quickly, and on a large scale.
For a more detailed discussion of these issues see me two previous Blogs: March 2009? Its Too Late, and A Clear and Convincing Strategy is Required – Gordon.
The Bank of England did not spot the recession until October 2008: the warnings of David Blanchflower (a lone voice on the Bank’s Monetary Policy Committee) were ignored for more than 6 months. Interest rate cuts, October-February, should have started at least 4 months earlier.
We cannot know how many lost their jobs and/or homes as a consequence of this delay. Whatever the number, it was unnecessary and in excusable.
The government, despite its many advisers and consultants, was also a late starter. Thousands had been made redundant, and tens of thousands more were facing redundancy, when Alistair Darling launched his, extremely modest, Autumn Fiscal Package.
‘Too little, too late’ is the, not unreasonable, criticism levelled at both the Bank and the government; although the situation is rather more complex. The Bank was certainly a late starter but, apparently not knowing what else to do, has continued to cut interest rates beyond the point of their effectiveness.
It would have been much more sensible for the Bank to start its ‘quantitative easing’ (pumping more money into the economy) in December rather than March. Late again! Incidentally, the public would be much better informed if the Bank, and the media, explained, clearly, what was happening, instead of using obscure terms like ‘quantitative easing’.
Full-Hearted Recession: Half-Hearted Response
The criticism of the government is not so much that it has failed to act but that it has acted half-heartedly. A string of minor initiatives to halt the recession do not amount to a convincing strategy. What should have been done (e g a much larger Autumn stimulus) is described in detail in my Blog: March 2009? It’s too Late.
The £14 Billion for Northern Rock to lend (announced 23/2/09) is a case in point. The figure should be at least £56 Billion: £14 Billion each, for lending, for the other institutions owned by the government – Bradford and Bingley, the Post Office; Royal Bank of Scotland.
The £14 Billion is intended, particularly, to help first time buyers. Yet, coinciding with the announcement, Gordon Brown wrote an article in the Observer arguing that a 10% deposit should be a minimum requirement. Although this is clearly sound in principle, it is no encouragement for first time buyers - until the government explains how it intends to help them to acquire such a deposit.
The government is unable to act on the scale required because it has boxed itself in. It is afraid to launch a £100 Billion expenditure plan because it lacks the convincing repayment strategy I described in my last Blog.
Will April 2009 be the Cruellest Month?
With the exception of a few ‘Blanchflowers’, experts failed in their predictions. While the sun was shining (people in jobs, house prices rising etc) they, in broad terms, predicted that the sun would continue to shine. Now, when all is gloom and doom, they predict more gloom and doom.
Because the downturn is global, it is impossible for the UK to recover in isolation. However, it seems likely that the action taken by USA’s new President, and his decision (implied in Hilary Clinton’s comments last week) to work more closely with China, will result in greater stability in the next few months.
It is in this context that the UK’s prospects must be considered. My view is that, if the Bank and the government had acted when Blanchflower gave his first warning, the bottom of the recession would have been reached January/February 2009. Their tardiness makes it look more like April/May 2009.
This prediction is made on the assumption that the belated action taken by the government, and the Bank of England, will begin to have an effect from March. The bottoming out of the recession is not, of course, the same as recovery.
The downturn would have been worse without the action taken but it is difficult to see significant recovery without further action.
Action for Recovery
I have been assisted in my predictions by an excellent article by Kevin Daly and Ben Broadbent (Goldman Sachs economists) in The Sunday Times (22/2/09); although the judgements below are, obviously, my own.
My view is that the situation in April will be ready for recovery but that this will not occur without a government expenditure stimulus of, at least, £100Billion, along the lines outlined in my last Blog. As I emphasise there, the key for the government to get out of its box is a convincing repayment strategy.
Providing the government acts now, the factors which will assist the recovery (as Daly and Broadbent point out) include:
(i) the reduction of interest rates (from5% t0 1%);
(ii) the fall in sterling, which makes exports cheaper;
(iii) import substitution – for example, people taking their holidays in the UK, instead of overseas.
In the current global crisis, the fact that the UK relies less on exports than, say, Germany and Japan means that government action can be more effective. It can be more effective because government expenditure can support the production of goods to replace imports, and also because governments can give people money spend.
With regard to ‘import substitution’, Pontins and Butlins are creating new jobs in anticipation of expansion of the home tourist trade. In the retail sector, a number of companies (including Asda, Tesco and Morrisons) have announced the creation of thousands of jobs.
The bringing forward of a number of government capital projects, and the boost to green energy will also create jobs.
Although these are ‘green shoots’, significant reduction of unemployment depends on further government action – quickly, and on a large scale.
For a more detailed discussion of these issues see me two previous Blogs: March 2009? Its Too Late, and A Clear and Convincing Strategy is Required – Gordon.
Tuesday 10 February 2009
A Clear, and Convincing, Strategy is Required - Gordon
The Brown government took decisive (if belated) action when banks reached the point of collapse last October. Hundreds of £ Billions was provided, mainly as loans to be repaid over years. It is important to emphasise that this is not expenditure – in the longer term, there could even be a profit for the taxpayer.
The banks have been ‘saved’ but they have not kept their part of the bargain - to increase lending to the level the economy, and individuals, need. The reasons for this must be addressed urgently. Steps are likely to include extending the period for repayment to the government, and perhaps a lower interest rate on the loans.
If the privately-owned banks do not co-operate to the full, they must be nationalised. In any case, the banks already controlled by the government – Northern Rock, Bradford and Bingley, Royal Bank of Scotland (and the Post Office) - should be developed as a People’s Banking System.
Make Do and Mend No Good
The banks have been supported with hundreds of £ Billions. In comparison, the rest of us have received very little. Alister Darling’s £ 20 Billion package was woefully inadequate; as are the small ‘make do and mend’ measures to help the unemployed.
The government gives the impression that it believes the financial markets will recover in their own time, and that we shall eventually be back to where we were in 2007. This seems most unlikely and, in any case, this is not where we want to be.
The state, albeit reluctantly, is heavily involved in the financial markets. It must stay there and take the steps necessary to create a much fairer and more equal society. The challenge is not to mend a broken system, which has undermined the economy and caused large-scale unemployment, but to create a new system.
The new system must function in the interests of the whole nation, not just a few speculators.
2009 Priorities and Cost
‘Make do and mend’ will not do. Because there is no convincing strategy, the government is boxed in. It recognises that borrowing is necessary but is afraid to borrow on the scale required because it refuses to make the policy changes required for repayment.
The priorities are to:
(i) keep the elderly alive, by ensuring that they are warm and properly fed;
(ii) keep families in their homes;
(iii) ensure that children have proper care;
(iv) prevent unemployment and to create new jobs.
This requires £200 Billion, rather than the £ 20 Billion of the Autumn Package This obviously requires government borrowing but there must be a clear and convincing strategy for repayment.
Strategy for Repayment
Repayment is a major problem only if it is believed that restoring the old, free market, system is the solution. Even if restored, it would be a pale shadow of its former self – and, even more important, the old inequalities would continue.
Gordon Brown and Alister Darling are nervous about the necessary expenditure because they do not have a convincing strategy for repayment. Without it, they are open to the charge of ‘irresponsible borrowing’.
To repay the £ 200 Billion, the first step is to stop spending on what we do not need and cannot afford. The obvious example is Trident and armed services geared to intervention in the affairs of other countries (e g
The second step is to crack down on tax avoidance (companies and individuals) and to impose a windfall tax on companies which make excessive profits.
The third step is progressively higher rates of tax on incomes over £80,000 a year.
Over a 5 year period, starting 2010, these steps would more than repay the 200-300 £ Billion of borrowing to see the country through the recession. They would also result in a fairer, and more equal, society.
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