Issue 224 of SOCIALIST REVIEW Published November 1998 Copyright Socialist Review

Crunch time?

With the current recession getting even deeper a real sense of panic now grips the ruling class. Lindsey German examines the political consequences of the current crisis and what steps workers can take to ensure they don't pay for the mess the market has created

'It's all looking distinctly horrible', was the verdict of the chief economist at a US bank in London early in October as he surveyed the disaster which was unravelling in the world's money markets. The mixture of horror and confusion sums up the dawning view of those who are supposed to control, and of course profit from, the same markets. At every stage in the crisis which is still enveloping world capitalism, the capitalists and their advisers have underestimated the crisis and therefore assumed that the worst was unlikely to come.

Now they are much less sure. At first--up till earlier this year--they thought the crisis would be confined to Asia and that, if anything, the western economics would benefit from the Tigers doing less well and from the stagnation in the Japanese economy. Even when the Russian economy collapsed In August, containment seemed possible. After all, the US economy was growing, much of Europe looked like it was entering a boom, and in Britain the talk from Gordon Brown and Tony Blair was of an end to the 'boom-bust cycle'. Then came the near collapse of the misnamed Long Term Credit Management hedge fund, whose exposure ran into hundreds of billions of dollars. Since then the markets have gone haywire, with a 'dash for cash' where even government bonds, previously one of the safest forms of investment, have fallen in value, and wild fluctuations in the currencies of the world's two largest economics. Within three days the dollar fell by almost a fifth against the yen. Such a fall in such normally stable currencies has been unprecedented in recent decades.

Much of this fall was put down to hedge funds trying to cut down their exposure to risky investments. But the fate of the hedge funds themselves is indicative of the changes which have taken place in the past year. Only a year ago two of LTCM's guiding lights, Myron Scholes and Robert Merton, were awarded the Nobel prize for economics on the basis of their work on mathematical models for financial derivatives trading. But their success in predicting the direction of the markets has been limited as the markets moved against their positions. Their models did not work.

Nurses in Birmingham question the priorities of New Labour

The wild fluctuations of the markets, the sudden closures of brand new factories and the dramatic downscaling of growth predictions in economics like Britain all point to the instability of the whole system. Far from the market being a rational and sensible way of organising the world's well-being, its consequences are irrational and harmful, causing destruction of industry, waste of raw materials and misery in the lives of millions of human beings. Just as happens in every great crisis of the system, all its apologists seem completely at a loss. One, indeed, was forced to resort to Alice Through the Looking Glass for an explanation:

'The dollar was strong; the dollar is now weak. Stock markets were at all time highs; now they are in headlong retreat. Emerging markets offered long term rapid growth; now they are mired in recession. Long bonds were a safe haven; now even they lack a sufficient comfort factor. Financial markets seem to have entered, a looking glass world in which all the assumptions of recent years have been turned upside down.' (Philip Coggan, 'Curiouser and Curiouser', Financial Times, 10-11 October 1998)

They cannot understand why the seemingly indefinite expansion of the system suddenly turns into its opposite. When this happens, precisely those features of the system which seemed most reliable and secure suddenly become the most prone to crisis. So today two of the great worries in judging the direction of the immediate crisis are the fate of what have been described as 'two giant dominoes: the US population and the western banking system.' There are fears for the overexposure to debt of many US individuals, and of many banks (which themselves have clearly been heavily involved in gambling on the money markets through their investment banks and hedge funds). If the worst fears are realised, then the economy can go much further into depression. This, coupled with what is clearly now becoming a world crisis of overproduction, means that we are facing the worst economic crisis since the 1930s. This point has not been lost even on the pro-market Alan Greenspan, head of the US Federal Reserve, who said last month that there had been nothing like this for over 50 years.

Already the political consequences are stark. The most directly hit Far Eastern economies have experienced political convulsions, with revolution in Indonesia and a continuing mass movement towards reform. The main opposition leader there, Megawati Sukamoputri, attracted mass demonstrations when she visited Bali recently and, as we showed last month, the mass of the population are suffering huge attacks on their living standards. In Malaysia the split at the very top of the ruling class has seen president Matahir's second in command imprisoned and beaten up as growing cries for reform are met by increased state repression. In South Korea the supposedly reforming regime is clamping down on socialists and militants in an effort to suppress dissent.

In Europe the crisis is still on the horizon and therefore the response is still much more at an ideological level. Already, however, the bankruptcy of the market is becoming daily more apparent, as is the search, even in the echelons of the ruling class, for new solutions to the crisis. The ruling class has been forced to look at state intervention in various forms, considered anathema only a few months ago.

The election of social democratic governments in most of the major European countries will only sharpen the contradictions facing the ruling classes in these countries. Blair, Jospin and Schröder all won their victories because they symbolised the deep hatred and mistrust of the old Tory regimes in their respective countries and they represented the embodiment of workers' expectations in however limited a way. However, their adherence to free market policies and their inability to even see a way out of the crisis, let alone to implement it, means that they are constantly forced to attack workers. The worsening crisis will accelerate this process, as will the need to meet the convergence criteria for monetary union in Europe by January.

The contradictions facing the Blair government are in some ways the most acute. Blair remains the last defender of the market. Witness his continuing admiration of Margaret Thatcher, his closeness to Rupert Murdoch and his refusal in recent weeks to even attack currency speculators, despite their obviously low standing in society at large. Blair's visit to China infuriated many people when his refusal to condemn human rights infringements was clearly because he felt that such matters are a price worth paying for the success of the market.

At home there is also growing discontent. Around 12,000 trade unionists, students and pensioners lobbied Labour's conference in Blackpool at the end of September--testimony to a degree of anger which is only fuelled by daily news of factory closures and job losses, by continuing cuts in education, health and social services, and by attacks on public sector pay among groups such as nurses and teachers. Protests over school closures, the sell off of council estates, factory closures and privatisation are all growing around the country.

These campaigns take place before the recession hits. Yet all estimates seem to agree that recession is coming to Britain. Spending is slowing down sharply--a sign that most people have little money to spend apart from on the basic necessities of life--wage rises have been lower than previously estimated, and manufacturing industry has for months been screaming about its difficulty in exporting. The world crisis is likely to hit Britain hard as inward investment dries up and as the financial chaos mounts. The factory closures in north east England and Scotland are already signs of this, as are the threats of job losses at Rover.

If the crisis of the system simply hit the capitalists, however few people would be complaining. Unfortunately, they quite often get away relatively unscathed. It is the poorest, the hardest working or those who are already suffering who are likely to be hardest hit, as their incomes contract and their jobs disappear.

The question for socialists in such situations is, how do we respond to the demands of the crisis? How in particular do we link our general vision of the need for a socialist society with trying to meet the needs and concerns of millions of workers faced with the misery of the crisis? The Action Programme supported by Socialist Worker is an attempt to make this link. It raises concrete demands which can win the support of large numbers of workers for nationalisation of the banks and factories, to stop closures, for a full minimum wage, for an end to cuts and privatisation, for a 35 hour week.

These demands can themselves lead to a fight--for example, the idea of occupying a factory to stop closures and win the right to work can be absolutely central to the fight for jobs. If this and other demands were taken up and acted upon by groups of workers they could be highly successful in their own right. However, these demands are of central importance in a period of stark crisis like the present because they also raise the general inability of the system to solve the crisis. They point to the need to change the whole way that society operates in order to guarantee full employment and raise living standards.

The Russian revolutionary Leon Trotsky used such a method when he put forward his programme addressed to French workers in 1934. The French workers had just beaten back the immediate threat of fascism (a very real threat since Hitler had come to power only a year previously in neighbouring Germany) and were beginning to recover their confidence following years of slump. The programme was designed to meet their fears over fascism and unemployment, to show how workers could fight back over these issues, but also to raise wider questions of what breeds fascism and unemployment

The aim of the Action Programme today is to similarly organise a fightback against immediate concerns while raising the wider question of how society is organised. It therefore raises the nature of the capitalist system itself and how it fails but also provides a concrete and positive response to the question of how we fight back. It has to be raised in every union branch, workplace, Labour Party ward meeting--everywhere where workers gather and where there is a growing concern about needing to do something to prevent the crisis ruining our lives.


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