The state of the economy will continue to mould British politics after the election. Economics will constrain the room for manoeuvre of the political elite, pressing them to drive through a series of attacks. It will also create the terrain on which workers will have to organise and resist. The prospects for the system are, then, of keen interest to those who wish to challenge it. After almost three years of chaos, what lies in store? It is worth reminding ourselves of the enormity of the crisis that has unfolded around us. It is estimated that lost output, the goods and services that went unproduced during the crisis, amounts to $4 trillion - enough dollar bills to stretch to the sun and back twice over. That sum would also be sufficient to provide basic education, healthcare, sanitation and nutrition to all those on the planet currently denied them, and to do so for 30 years. According to Andrew Haldane, the Bank of England's director of financial stability (an oxymoron if ever there was one), the permanent long-term impact of the crisis could magnify these losses to anywhere from $60 trillion to $200 trillion. One of the oldest and most powerful arguments for socialism is the gap between what the system ought to make possible, the capacity of collective human labour to enrich the lives of those who undertake it, and the miserable reality of what it actually delivers. And every sign is that the impact of the crisis, which has already mutilated nations, tortured millions with hunger and sparked both instability and resistance, will continue to be felt.
A year ago economists Barry Eichengreen and Kevin O'Rourke published research showing that the "Great Recession", as it has been dubbed, was closely tracking the trajectory of the Great Depression that began in 1929. But history seldom repeats itself. In a recent update to their original paper they show how the global economy has begun to diverge from the path of that earlier meltdown. The action of states across the globe, which engineered a series of financial bailouts, stimulus packages and liquidity injections on a scale hitherto unseen, is largely responsible for preventing a 1930s-style slump. But this intervention has come at a great price. Socialising the risks associated with the crisis, at the very moment when tax revenues were spiralling down, has replaced the danger of a private-sector meltdown with that of entire nations becoming bankrupt. Events in Greece this spring are the clearest example. After months of insisting that it would not bail out the heavily indebted Greek economy, the German government, along with the other eurozone countries and in partnership with the International Monetary Fund (IMF), agreed to do just that. The bailout comes with strings attached - Greek workers, a fifth of whom already live below the poverty line, will now face a structural adjustment programme as savage as that imposed on many Third World countries in the past. In return the IMF and eurozone government will guarantee that Greece can, in the short term, roll over its debt. Even this may well merely postpone the inevitable as markets continue to bet on an eventual default.
But even if Greece does avoid bankruptcy, this is not the end of the matter. Several financial columnists likened the bailout to that of Bear Stearns, which in spring 2008 became an early casualty of the crisis on Wall Street. Few people now remember Bear Stearns, but most do remember the next big Wall Street bank to collapse - Lehman Brothers - and the meltdown that followed. Speculators are already looking for the next domino set to topple after Greece. It might be one of the other weak eurozone countries, with Portugal tipped as the most likely, but it might well be Britain. As the Guardian economics editor Larry Elliott writes, "Greece's...projected budget deficit in 2010 is lower than those for the US, Ireland and, of course, Britain. The UK is helped by the long maturity of its existing debt, which removes some of the short-term pressures on government bonds, and by its floating exchange rate, which allows the currency to take the strain during a financial crisis. On the other hand, there are plenty of off-balance-sheet liabilities, a record peacetime budget deficit, a dysfunctional financial system and a grotesquely unbalanced economy. "The assumption is that the US is too big to fail because the dollar is the world's reserve currency... The assumption is that Japan is too big to fail because a debt-to-GDP ratio in excess of 200 percent can always be financed by high levels of domestic savings. The assumption is that Britain is too big to fail because, well, just because those sort of things don't happen here." As Elliott points out, this is hardly reassuring.
All this is happening despite the fact that the major economies are technically out of recession. The recovery can be characterised in three words: "weak", "fragile" and "uncertain". The recovery is weak because the crisis, in spite of its severity, has not resolved the underlying problems capitalism faces. The conditions for the crisis were created by three decades of sustained low profitability. This argument, often made by Marxist commentators, occasionally finds an echo in the mainstream press. So a recent column in the Financial Times lamented the collapse of the "return on capital", roughly equivalent to what Karl Marx called the "rate of profit". It pointed out that after the Second World War this held up at about 15 percent in the US. By the 1980s it was 10 percent, and today it is just 5 percent. If these figures are to be trusted, the system has gone from a situation in which US firms could double the scale of their investment in just six years to one in which it would take two decades - hardly a great advert for the dynamism of global capitalism. Marx placed just such a long-term decline in the rate of profit at the centre of his theory of crisis. He also argued that profitability could be restored by crisis itself, through what he called "the annihilation of a great part of the capital". During a recession some companies fail and are bought up by rivals, and others have to sell off parts of their business or dump their stock on the market to meet their obligations. Those companies that survive can take advantage of this, grabbing assets at a fraction of their real value and putting them to highly profitable use in the recovery that follows. Depressed wages and high unemployment also allow capitalists to squeeze more out of workers. A process of "creative destruction" may lead to a boom following a slump.
But this is not some automatic process that pushes the economy back towards some natural equilibrium. The post-war boom followed only after the prolonged horror of the 1930s slump and the destruction of the Second World War, which also forced states to intervene to reorganise whole national economies. The current crisis has led to a surge in firms failing. In the US the asset value of publicly listed companies filing for bankruptcy in 2008 and 2009 was greater than the total for the preceding 28 years. However, so far the current crisis has not been long enough or deep enough to clear out the system and pave the way for a boom like that of the 1950s and 1960s. Some of the big multinationals have been able to survive by reducing their output for a time in an attempt to ride out the storm. And, more importantly, states have intervened to keep failing businesses afloat, for instance by rescuing car manufacturers Chrysler and General Motors along with large chunks of the banking system. Eichengreen and O'Rourke contrast the length of the Great Recession with that of the Great Depression: "Global industrial production now shows clear signs of recovering. This is a sharp divergence from experience in the Great Depression, when the decline in industrial production continued fully for three years." Paradoxically, staving off a catastrophic slump may have simply guaranteed that problems linger on, ensuring that recovery remains weak. The recovery is also uneven.
Initial estimates suggested that British growth slowed to just 0.2 percent in the first quarter of 2010. The US is growing faster, and is also faring better than Germany and Japan, which are more export-oriented and have suffered more from the decline in world trade than from the initial financial meltdown. China was also hit by falling demand for its exports but has continued to boom due to a massive state-sponsored domestic investment programme. This has revived the fortunes of some of the developing economies that supply it with raw materials. But even in China there are fears that growth is unstable, with widespread concerns about an emerging property bubble, a glut of lending raising the prospect of colossal levels of bad debt, and the danger that too much is being produced for still-limited markets. The weakness of the global recovery means that workers will continue to suffer. In some countries this takes the form of high unemployment and attacks on wages, as in the US, Spain and Ireland. In others, such as Germany and Japan, where unemployment has not risen as fast, companies have sought to hold on to workers but have cut pay rates, reduced hours or shifted workers onto part-time contracts. Britain lies somewhere between the two extremes. Wages have been held below the rate of inflation and unemployment has increased significantly. In April the jobless rate hit 8 percent, the highest it has been in 14 years. This figure excludes the growing number of people no longer looking for employment, which currently stands at over 21 percent of those of working age. In addition, the number of people working part-time because they cannot get full-time work is at its highest level since 1992.
Unemployment and underemployment will persist well into any recovery. A recent IMF report argues that employment falls further and takes longer to recover during recessions that have a significant financial component. The report indicates that it could take a year and a half from the end of the recession for any substantial improvement, assuming that the recovery continues. Accompanying the weakness of the recovery is its fragility. This is a product of changes to capitalism that took place during the past few decades. Faced with continued low profitability, capitalists began to shift their investment towards the financial system, where they hoped to be able to grab short-term paper profits. This created a series of bubbles as asset prices boomed, from the dotcom bubble of the 1990s through to the subprime mortgage and commodities bubbles that had swollen to huge proportions when the crash came. These bubbles flattered economies with the impression of dynamism and kept the system ploughing forwards. Underlying them was a "mega-bubble" of credit, fuelled by low interest rates and excess savings seeking a profitable outlet.
Martin Wolf of the Financial Times, one of the ruling class's most brutally honest spokespeople, argues, "Quite simply, the financial system has become bigger and riskier. The UK case is dramatic, with banking assets jumping from 50 percent of GDP to more than 550 percent over the past four decades... A large part of the financial system seems to be a machine to transfer income and wealth from outside to inside, while increasing the fragility of the economy as a whole." He concludes that the financial system produced "illusory gains on the way up and real pain on the way down". The excesses of the bubble era now emerging are astonishing. April saw the beginning of a series of litigations against those who created the arcane financial instruments traded in the run-up to the crash. Goldman Sachs stands accused of repackaging loans, including what it knew to be toxic debts, in an asset it created for the Paulson hedge fund. Paulson could then bet on its failure, while unsuspecting buyers lost out. So too did companies who insured the investment, including RBS and AIG, in which the British and US governments respectively are now the majority shareholders. Goldman Sachs denies the allegations, but whatever the outcome of the case it sheds light on the increasingly bizarre and bloated world of finance. There is little evidence that the crash has "tamed" finance, as some left-leaning economists had hoped. Indeed, all the features of the bubble era are returning. Financial profits are growing far faster than profits in the wider economy; the housing market, which tumbled with the recession, is shooting back up, as are oil prices; speculation on exchange rates continues; banking bonuses are back. The super-rich are also returning to the conspicuous consumption to which they are accustomed, as evidenced by the 33 percent growth in sales of Dom Pérignon and similar high-end champagnes in the first three months of 2010.
Financialisation means each new problem that emerges is amplified as panic spreads rapidly through the system. This is what happened just before Christmas with the Dubai property crash and then in spring with events in Greece. All of this lends an additional fragility to the already weak recovery.
Finally, any recovery is and will remain uncertain. State interventions replaced private borrowing and investment with mountains of public debt, and falling tax revenues made it difficult to recover the money spent. Now governments everywhere face a dilemma. Do they cut back to pay off their debts, risking a "double-dip recession" as the stimulus is withdrawn? Or do they continue spending and risk a run on their currencies, as the eurozone experienced amid fears of a Greek default? Chris Giles writes in the Financial Times, "Never has a UK government borrowed more in peacetime than Labour did last year, when it was in the red to the tune of 11.8 percent of national income. Never has a government had to obtain £1 for every four it spends from investors rather than tax payers. And never has a government borrowed £6,000 annually, as in 2010-11, on behalf of every household, with a further £25,000 expected over the course of the coming parliament." Even if Britain avoids a complete loss of faith on the part of its financiers, the political elite is committed to an assault on the public sector the likes of which we have never seen. The general election result was unknown as Socialist Review went to press but the consensus between the parties in the run-up to polling day was greater than the differences. As Giles argues, "In terms of defined spending cuts, each [party] has outlined less than £10 billion worth - far less than the minimum £40 billion needed in the first three years." In order to appease the City of London real government spending will have to be slashed by about one fifth, he concludes.
Similarly, the Chartered Institute of Personnel and Development, a body representing human resources professionals, predicted "a 10 percent reduction in the 5.8 million core public sector workforce...the likelihood of 500,000 jobs being shed in the next five years dwarfing the figures the parties have been prepared to acknowledge".
The scale of the challenge facing the left can seem paralysing. But it is important to remember that crisis also weakens and divides our rulers. Capitalism has been discredited in the eyes of many who live under it as once solid certainties have melted into air. The crisis has sharpened the divisions within the ruling class, setting its representatives against each other as they each seek to find ways to preserve their profits at the expense of their rivals. Different groups of capitalists are coming into conflict on a global and national level, further fracturing the ideological consensuses of our age and creating cracks that the left can exploit by putting forward its own arguments. The political elite who claim to preside over the system have suffered blow after blow to their legitimacy. Any incoming government will be a weak one, lacking real hegemony over those it seeks to rule. But it will be under pressure from the wider ruling class to drive through attacks on an unprecedented scale, whether it does so enthusiastically or reluctantly. This is an explosive combination, and in this context there will be further struggles, both local eruptions and national disputes. Politics will be crucial to these battles. For instance, in order to break out of the commonsense view that some part of the public sector has to be slashed, it will be necessary to argue that there are other ways of raising the money - through cutting the budget for the Trident nuclear programme, for example, or closing tax loopholes exploited by the rich, or by increasing the top rate of income tax. That means challenging the agenda of the mainstream political parties.
Politics can also bridge the gap between local campaigns to defend public services and struggles by groups of workers in these services who also wish to defend their wages and their jobs. The Right to Work initiative, set to hold an emergency conference on 22 May, can begin to draw together a network of solidarity and resistance, strengthening each of the different battles and maintaining a permanent relationship between all those who want to fight back. At the heart of the resistance, we also need a growing core of revolutionaries committed to a socialist alternative to capitalism and capable of arguing for a way forward for the working class movement as a whole. The situation in the coming months can change very rapidly indeed. To rise to the challenge, the left must be able to match the pace of events.
Showing posts with label recession. Show all posts
Showing posts with label recession. Show all posts
Saturday, 1 May 2010
Thriving on disaster capitalism
Volcanic ash, eh? What is it about disasters and capitalism? It seems that any event outside the daily norm exposes all the system's horrors and weaknesses. Throughout the general election campaign, the consensus of the major parties remained that private enterprise, the free market, low taxes and a move away from "welfarism" are all good things. You would hardly think that a system founded on these principles was going through the worst economic chaos experienced by anyone not old enough to have lived through the 1930s. Nor would you think that this chaos was in no small part created by the unfettered and unregulated behaviour of ultra-greedy bankers and capitalists. Indeed all the warnings that politicians issued about tough times ahead are aimed at precisely those who had nothing to do with causing this crisis - the poor, those on benefits and public sector workers. So, despite the mayhem that potentially awaits all those of us who don't own or control wealth, they all argue for the virtues of their system. Yet every time the system is put to the test it fails. The eradication of famine, starvation and drought should all be well within the means of the modern world, yet we repeatedly witness human tragedy on a colossal scale. I heard a Haitian commentator on the radio explain that most of the problems faced by Haitians immediately following the earthquake still remain. Nor is the system's inability to cope with disaster restricted to what are often dismissed as "obscure and backward" parts of Africa or Asia. One only has to think back to the devastation caused by Katrina, in a large city at the heart of the richest and most powerful country in the world, to remember just how utterly useless US capitalism was when coping with the crisis. Sadly, New Orleans remains a tarnished testament to such failure to this day.
So it is that in each and every disaster of this type the free market, the profit motive and the "shackling of the nanny state" have proved to be utterly useless weapons in dealing with the crisis. As a result of that uselessness, untold, and frequently unnecessary, human misery has ensued. This shouldn't surprise us. Where is the profit in rehousing the homeless poor, feeding the penniless starving or taking care of the unemployable injured? Indeed the profit motive and the free market, far from solving such problems, actually add to them. For free market capitalism, profit is far more important than providing human happiness - indeed, on many occasions, far more important than life itself. One of the fascinating aspects of the economic crisis is that we are now told by many that concern for "green issues" must be put on the back burner. The very future of our planet and the air that we breathe must come below the drive for balanced budgets and profitability. So to the recent crisis caused by Icelandic volcanic ash. The airline bosses apparently at first thought it was a good idea not to fly in conditions that might cause death and disaster. But, after a few days of not making profits, their tune rapidly changed. Suddenly this was just the ultra-caution of Eurocrats, the cowardice of aviation experts.
Enter the profoundly disgusting Willie Walsh. Up to now his CV has consisted of being responsible for transforming Aer Lingus into a no-frills (but ludicrously expensive) airline, attacking working conditions and doing everything he can to smash the unions at British Airways. Unsurprisingly, he was swiftly demanding that the same staff whose livelihoods he is wrecking should have their lives endangered for his profits. His pathetic stunt of going up in a flight was just that. The likelihood of one plane flying into the ash was indeed very small, but if the skyways were fully employed the likelihood would quickly change. Ah, but we are losing massive amounts of money, whined Walsh and his ilk. And compared to that what do the lives of crew or passengers matter? So every disaster or crisis, no matter how major or minor, is made worse by the priorities of the system. None of this was aired by the party leaders in the election campaign. Of course, David Cameron would never question the system - his party is, after all, the party of the greedy, the free market obsessed, the rich and privileged. There was a time when Labour would have at least been critical of aspects of the system and acknowledged that fetters had to be put on it. But now there are very few voices in Labour expressing such views - and Gordon Brown's certainly hasn't been one of them. As for Nick Clegg, and the freshness of what he had to say, when you scratch beneath the surface you find one more defender of the capitalist status quo. All in all a bloody disastrous lack of choice!
So it is that in each and every disaster of this type the free market, the profit motive and the "shackling of the nanny state" have proved to be utterly useless weapons in dealing with the crisis. As a result of that uselessness, untold, and frequently unnecessary, human misery has ensued. This shouldn't surprise us. Where is the profit in rehousing the homeless poor, feeding the penniless starving or taking care of the unemployable injured? Indeed the profit motive and the free market, far from solving such problems, actually add to them. For free market capitalism, profit is far more important than providing human happiness - indeed, on many occasions, far more important than life itself. One of the fascinating aspects of the economic crisis is that we are now told by many that concern for "green issues" must be put on the back burner. The very future of our planet and the air that we breathe must come below the drive for balanced budgets and profitability. So to the recent crisis caused by Icelandic volcanic ash. The airline bosses apparently at first thought it was a good idea not to fly in conditions that might cause death and disaster. But, after a few days of not making profits, their tune rapidly changed. Suddenly this was just the ultra-caution of Eurocrats, the cowardice of aviation experts.
Enter the profoundly disgusting Willie Walsh. Up to now his CV has consisted of being responsible for transforming Aer Lingus into a no-frills (but ludicrously expensive) airline, attacking working conditions and doing everything he can to smash the unions at British Airways. Unsurprisingly, he was swiftly demanding that the same staff whose livelihoods he is wrecking should have their lives endangered for his profits. His pathetic stunt of going up in a flight was just that. The likelihood of one plane flying into the ash was indeed very small, but if the skyways were fully employed the likelihood would quickly change. Ah, but we are losing massive amounts of money, whined Walsh and his ilk. And compared to that what do the lives of crew or passengers matter? So every disaster or crisis, no matter how major or minor, is made worse by the priorities of the system. None of this was aired by the party leaders in the election campaign. Of course, David Cameron would never question the system - his party is, after all, the party of the greedy, the free market obsessed, the rich and privileged. There was a time when Labour would have at least been critical of aspects of the system and acknowledged that fetters had to be put on it. But now there are very few voices in Labour expressing such views - and Gordon Brown's certainly hasn't been one of them. As for Nick Clegg, and the freshness of what he had to say, when you scratch beneath the surface you find one more defender of the capitalist status quo. All in all a bloody disastrous lack of choice!
Saturday, 3 April 2010
New decade, old enemies for NHS
Perhaps against the odds, 2009 turned out to be a successful year in which campaigning and pressure forced a significant retreat on controversial policies in the NHS. The pell-mell drive to privatise community and primary care services that had until recently been directly provided by primary care trusts appears to have been slowed, if not halted, although very few people in the wider electorate even knew that it was going on. The change of policy is a result of consistent trade union pressure on health ministers - although sadly not before services in Hull, Bromley and Kingston had been lined up for take-over by "social enterprises." Private and "non-profit" voluntary sector organisations that fancied carving themselves a generous slice of the £11 billion NHS budget for these services, and some of the senior managers lining up to take advantage of Lord Darzi's so-called "right to request" that an NHS unit be hived off as a "social enterprise," have been twitching with anger at Health Secretary Andy Burnham. The so-called co-operation and competition panel, set up as a sounding board for aggrieved private-sector punters to complain they have been treated unfairly, has apparently received complaints from various aggrieved parties bitter at Burnham's October declaration that the NHS should be the "preferred provider" unless all efforts to improve NHS services had failed.
But to his credit Burnham has not only stuck to his guns, apparently having won the support of Gordon Brown - he has even suggested he may review the working of the competition panel itself. NHS managers have been - in some cases reluctantly - dragged into line on the new policy. If only we could look forward to similar successes in this new year. But sadly, the new decade is opening with the NHS facing new and very serious threats. The new danger is the old enemy that the London Health Emergency was formed to fight back against in 1983 - cuts and closures. All the main political parties are agreed that massive cuts should be inflicted on health care, education and other public services - not because these services have failed in any way, but because of a huge private-sector failure. They are cutting health care in a bid to cover the colossal £175 billion costs of bailing out failed and irresponsible bankers. Of course the party leaders won't admit that they plan cuts in the NHS, least of all in the run-up to the general election in May. So each of them claims to be "protecting" front-line services by increasing funding in line with inflation - ignoring the fact that the NHS needs billions more in real terms each year to keep pace with the costs of a growing population, rising numbers of elderly and new drugs and technology. And even if front-line budgets were to be protected, many spending plans for the next few years already assume massive "efficiency" savings of up to 5 per cent a year, without any evidence that unprecedented savings on this scale can be achieved without cuts.
To make matters worse, much of the 5 per cent of the NHS which is not seen as "front line" - and therefore not protected - includes training and research budgets which are likely to be slashed. Even NHS chief executive David Nicholson admits that the coming cuts are "tougher than the NHS has ever had, through its history. And it's for a sustained period." The squeeze will hit hospital services hardest of all - with a four-year freeze on the "payment by results" tariff which determines hospital budgets, and a massive 70 per cent cut in funding for any additional A&E patients treated in excess of the 2008-9 caseload. A Health Service Journal analysis argues that by 2014 "savings on this scale could entail perhaps half a dozen general hospitals going to the wall in each Strategic Health Authority." Hardest hit will be hospitals with large fixed overhead costs - in particular those funded through the private finance initiative. But primary care trusts and strategic health authorities are also required to cut their management costs by 30 per cent - some might say not before time. They are even looking to cut the massive amount they are wasting each year on hiring costly private-sector management consultants. While NHS chiefs are already discussing these issues in secret, the plans are only beginning to emerge. NHS London is leading the charge, with cuts - based on a secret briefing by US-based private management consultants McKinsey - aimed at slashing up to £5 billion from the capital's £13 billion primary care trust budget by 2017.
NHS London has said quite openly that it wants primary care trusts to chop A&E caseloads by 60 per cent - diverting almost 2 million patients a year to unproven or as yet non-existent primary care "polysystems." This seems especially bizarre in the context of this winter of snow and swine flu, in which all of the existing A&E units are full to bursting and running well above target. NHS London also wants primary care trusts to cut hospital outpatient attendances by 55 per cent - diverting upwards of five million appointments to other "settings" such as polyclinics and health centres, where highly paid consultants would have to travel to see a fraction of the number they could see in a properly equipped hospital. Even on Lord Darzi's inadequate and outdated figures in 2007, these two changes would mean cutting well over £1 billion from London hospital budgets, forcing a drastic round of service cuts and closures. But primary care and mental health face cutbacks too. GPs have been caught up in the new cash squeeze and required for the first time ever to deliver efficiency savings, but NHS London also wants to slash staffing in "non-acute" services by 66 per cent - and even cut GP appointment times by 33 per cent. The list goes on and on. NHS London is frogmarching the capital's primary care trusts deep into unknown territory. Nobody anywhere has changed an established health-care system on this scale before, let alone at the breakneck speed it proposes, with virtually none of the alternative services that would be required even planned, let alone in place.
All of these potentially devastating cutbacks are based on the assumptions and assertions in the secret McKinsey document. In other words, there is absolutely no published evidence that these changes could even be achieved, or that they would save money, enhance efficiency or deliver acceptable levels of patient care. The few Darzi-style health centres that have been established so far are not only much more expensive than the average primary care but they have generally failed to sign up their "drop-in" patients to regular lists.
The NHS London plan seems to be guesswork hatched up by management consultants from the US, the land of the world's most costly, exclusive, wasteful and hugely inefficient health-care system. And if the guesses go wrong, the health care of millions will be put at risk. Let's stop them before it's too late.
But to his credit Burnham has not only stuck to his guns, apparently having won the support of Gordon Brown - he has even suggested he may review the working of the competition panel itself. NHS managers have been - in some cases reluctantly - dragged into line on the new policy. If only we could look forward to similar successes in this new year. But sadly, the new decade is opening with the NHS facing new and very serious threats. The new danger is the old enemy that the London Health Emergency was formed to fight back against in 1983 - cuts and closures. All the main political parties are agreed that massive cuts should be inflicted on health care, education and other public services - not because these services have failed in any way, but because of a huge private-sector failure. They are cutting health care in a bid to cover the colossal £175 billion costs of bailing out failed and irresponsible bankers. Of course the party leaders won't admit that they plan cuts in the NHS, least of all in the run-up to the general election in May. So each of them claims to be "protecting" front-line services by increasing funding in line with inflation - ignoring the fact that the NHS needs billions more in real terms each year to keep pace with the costs of a growing population, rising numbers of elderly and new drugs and technology. And even if front-line budgets were to be protected, many spending plans for the next few years already assume massive "efficiency" savings of up to 5 per cent a year, without any evidence that unprecedented savings on this scale can be achieved without cuts.
To make matters worse, much of the 5 per cent of the NHS which is not seen as "front line" - and therefore not protected - includes training and research budgets which are likely to be slashed. Even NHS chief executive David Nicholson admits that the coming cuts are "tougher than the NHS has ever had, through its history. And it's for a sustained period." The squeeze will hit hospital services hardest of all - with a four-year freeze on the "payment by results" tariff which determines hospital budgets, and a massive 70 per cent cut in funding for any additional A&E patients treated in excess of the 2008-9 caseload. A Health Service Journal analysis argues that by 2014 "savings on this scale could entail perhaps half a dozen general hospitals going to the wall in each Strategic Health Authority." Hardest hit will be hospitals with large fixed overhead costs - in particular those funded through the private finance initiative. But primary care trusts and strategic health authorities are also required to cut their management costs by 30 per cent - some might say not before time. They are even looking to cut the massive amount they are wasting each year on hiring costly private-sector management consultants. While NHS chiefs are already discussing these issues in secret, the plans are only beginning to emerge. NHS London is leading the charge, with cuts - based on a secret briefing by US-based private management consultants McKinsey - aimed at slashing up to £5 billion from the capital's £13 billion primary care trust budget by 2017.
NHS London has said quite openly that it wants primary care trusts to chop A&E caseloads by 60 per cent - diverting almost 2 million patients a year to unproven or as yet non-existent primary care "polysystems." This seems especially bizarre in the context of this winter of snow and swine flu, in which all of the existing A&E units are full to bursting and running well above target. NHS London also wants primary care trusts to cut hospital outpatient attendances by 55 per cent - diverting upwards of five million appointments to other "settings" such as polyclinics and health centres, where highly paid consultants would have to travel to see a fraction of the number they could see in a properly equipped hospital. Even on Lord Darzi's inadequate and outdated figures in 2007, these two changes would mean cutting well over £1 billion from London hospital budgets, forcing a drastic round of service cuts and closures. But primary care and mental health face cutbacks too. GPs have been caught up in the new cash squeeze and required for the first time ever to deliver efficiency savings, but NHS London also wants to slash staffing in "non-acute" services by 66 per cent - and even cut GP appointment times by 33 per cent. The list goes on and on. NHS London is frogmarching the capital's primary care trusts deep into unknown territory. Nobody anywhere has changed an established health-care system on this scale before, let alone at the breakneck speed it proposes, with virtually none of the alternative services that would be required even planned, let alone in place.
All of these potentially devastating cutbacks are based on the assumptions and assertions in the secret McKinsey document. In other words, there is absolutely no published evidence that these changes could even be achieved, or that they would save money, enhance efficiency or deliver acceptable levels of patient care. The few Darzi-style health centres that have been established so far are not only much more expensive than the average primary care but they have generally failed to sign up their "drop-in" patients to regular lists.
The NHS London plan seems to be guesswork hatched up by management consultants from the US, the land of the world's most costly, exclusive, wasteful and hugely inefficient health-care system. And if the guesses go wrong, the health care of millions will be put at risk. Let's stop them before it's too late.
Saturday, 27 March 2010
Many faces of Mr Darling
Daft neophyte influence-pedlar Geoff Hoon has just realised that his antics merit an apology to his constituents and the public in general. They certainly do, not that it makes a blind bit of difference whether he apologises or not. There's nothing which can excuse his mendacious attempt to trade on his parliamentary experience, apology or no apology. But, while we're at it, let's have an apology from Tony Blair for being a hypocritical God-bothering war criminal who seems to have found God simultaneously with organising the deaths of hundreds of thousands of innocent Iraqis. Let's have an apology from Gordon Brown for financing it. Let's have a bit of abject grovelling from Peter Mandelson for having had to have three tries at being a responsible minister before he finally established a secure and unelected position from which to betray the working class. And let's have an apology from the bankers for profiting from their own corruption, from Justice Secretary Jack Straw for presiding over a historic erosion of civil liberties in this country and from David Cameron for, well, simply being David Cameron. Lord knows, that's probably a crime against humanity in itself. But let's have the biggest apology of all from Alistair Darling for having more faces than Cerberus; there's the face that purports to defend the economy of the country from excessive and over-hasty cutbacks proposed by the Tories.
There's the face that bungs billions at the bankers to help them survive the consequences of their own excesses and then turns to the taxpayer to fund the measure while still tolerating a frivolous and greedy banking bonus culture. There's the Labour face that decried Thatcherism and all its works all through the extreme right-wing government of the not-so-blessed Margaret. And there's the face that, when asked whether the Treasury figures suggested deeper, tougher cuts than those of Thatcher's government, replied: "They will be deeper and tougher." Now, they could be deeper and tougher that those of the Thatcher government and still be totally acceptable to anyone on the left. But the track record of this government suggests that this is unlikely. There could be, for example, a realistic assessment of the Trident weapons system. Not the replacement cost which is being debated at the moment with estimates between £20 billion and £35 billion, but the whole useless article itself, running costs, replacement costs and all, with Greenpeace suggesting a total of £130 billion for that. Then there're the two new aircraft carriers that are projected by the Ministry of Defence - there's about £15 billion sitting there. And then, of course, there's the war in Afghanistan and the continuing cost of the Iraq occupation. Mr Darling, wearing his hawk face this time, announced yet another £4 billion for the little adventure in Afghanistan in this week's Budget. That's on top of the existing costs, of course, estimated as £4.5 billion last year over the two theatres. All of these projects are dubious politically, and should be considered so by any Labour politician. And Trident is considered dubious operationally by some very highly respected military Establishment figures. In and around those figures is a sum far in excess of what the Chancellor feels he needs to save. Even leaving taxation of bank bonuses and bank profits, ignoring levies on the banks to force repayment of sums owed and a transaction tax on speculations, there's enough to sort out the debt problem. So how about another face, Mr Darling? Why don't you try the face of plain common sense? Or is it going to be just another useless po-faced apology some time in the future?
There's the face that bungs billions at the bankers to help them survive the consequences of their own excesses and then turns to the taxpayer to fund the measure while still tolerating a frivolous and greedy banking bonus culture. There's the Labour face that decried Thatcherism and all its works all through the extreme right-wing government of the not-so-blessed Margaret. And there's the face that, when asked whether the Treasury figures suggested deeper, tougher cuts than those of Thatcher's government, replied: "They will be deeper and tougher." Now, they could be deeper and tougher that those of the Thatcher government and still be totally acceptable to anyone on the left. But the track record of this government suggests that this is unlikely. There could be, for example, a realistic assessment of the Trident weapons system. Not the replacement cost which is being debated at the moment with estimates between £20 billion and £35 billion, but the whole useless article itself, running costs, replacement costs and all, with Greenpeace suggesting a total of £130 billion for that. Then there're the two new aircraft carriers that are projected by the Ministry of Defence - there's about £15 billion sitting there. And then, of course, there's the war in Afghanistan and the continuing cost of the Iraq occupation. Mr Darling, wearing his hawk face this time, announced yet another £4 billion for the little adventure in Afghanistan in this week's Budget. That's on top of the existing costs, of course, estimated as £4.5 billion last year over the two theatres. All of these projects are dubious politically, and should be considered so by any Labour politician. And Trident is considered dubious operationally by some very highly respected military Establishment figures. In and around those figures is a sum far in excess of what the Chancellor feels he needs to save. Even leaving taxation of bank bonuses and bank profits, ignoring levies on the banks to force repayment of sums owed and a transaction tax on speculations, there's enough to sort out the debt problem. So how about another face, Mr Darling? Why don't you try the face of plain common sense? Or is it going to be just another useless po-faced apology some time in the future?
Thursday, 25 March 2010
When efficiency means health service cuts
Health minister Mike O'Brien has said he believes health bosses such as NHS London should keep a veil of secrecy over their discussions on how to impose wholesale changes to the service's operation. If information leaked out, he told MPs this week, opponents of the plans could "attack them over their lack of evidence." What a telling admission. Not only are paranoid levels of secrecy now official government policy, but ministers are actively encouraging health chiefs to hatch up plans for which there is no evidence - while opposing those of us who point out that these policies are potentially dangerous. The three remaining strategic health authorities that have so far kept a stony silence on their plans are expected to reveal how they intend to generate their share of a £20 billion financial "gap" in the service in the new financial year. Their policy changes, as called for by NHS boss Sir David Nicholson, are unlikely to contain many surprises. Across the country the same rhetoric is being wheeled out to justify proposals for astronomical increases in "efficiency" and "productivity" which will wind up as cuts. Buzz-words such as "reinventing care pathways" (dumping patients out of hospital A&Es onto untested, supposedly cheaper alternatives in primary care such as "polysystems" - see below) "working smarter" and "innovation" crop up again and again.
But so do more obvious, unambiguous phrases such as "affordability analysis," "decommissioning," "savings," and "tariff reductions" - in other words cutting the amount paid to NHS trusts for each episode of treatment.
Perhaps the most blunt statement about the real driving force behind the various new policies comes from NHS Southwark, which declares openly that its proposals are cash-driven. "Our financial modelling shows that the primary care trust's (PCT's) current profile of expenditure is unaffordable over the next five years. "The affordability analysis requires £18m of savings in 2010/2011. Our commissioning strategy is driven by the need to achieve a system of healthcare which is financially sustainable." (Strategic Plan 2010/11 to 2016/17)." But this highlights a major question. Can the proposals outlined by health bosses actually work, delivering services to patients while saving a large amount of money? Central to the guidelines laid down by NHS London for cutting £5 billion from its PCTs' spending by 2017 is an assumption that 60 per cent of people who currently attend A&E units with relatively minor problems could be treated satisfactorily in primary care.
On this basis NHS London wants to divert around 2 million people annually away from hospitals and into a new, expensive network of "polysystems" - controversial centralised super-facilities which were originally designated "polyclinics" in Lord Darzi's 2007 suggestions for reform. Similar assumptions have also been made elsewhere and A&E has been a major focus for redesigning "pathways." I have consistently challenged these assumptions, which have become more and more extravagant since the early 1990s, and pointed to the failure of previous attempts to divert smaller numbers patients from A&E to "minor injury units." These turned out to treat mere handfuls of patients at high costs, while queues at A&Es were undiminished. But now we also know for a fact that NHS London's 60 per cent assumption is wrong. A recently released Primary Care Foundation report commissioned by the Department of Health found that less than half the A&E patients included in that figure were suitable for treatment only by GPs. Their figure showed that in some cases as few as 10 per cent, and a maximum of 30 per cent of people in A&E had no need of any form of hospital care. Since we now have fresh and reliable evidence that the 60 per cent figure was wrong, one obvious question is where such a false assumption came from.
It appears to flow from the top-secret document produced for NHS London by US-based management consultants McKinsey's. But where did McKinsey's get the number? Is it based on anything substantial, or just made up to drive forward the reorganisation of hospital care? Another question arises: would it save any money to deliver minor A&E services in polyclinics? Again the answer seems to be No. Lord Darzi's 2007 report on London, which argued A&E patients should be switched to polyclinics, estimated that the cost would be £66 per visit to a polyclinic compared with £81 at a hospital. However transferring the patients brings the added cost of building or renting the new polyclinic and running it day by day. Darzi-style health centres that are already running on a much smaller scale than the London plans are "jaw-droppingly" expensive compared with existing primary care services - with costs ranging from three to seven times more per patient. It seems most improbable that a new network of polyclinics in London will come in any cheaper, especially since private-sector providers such as Richard Branson's Virgin group now see them as an attractive future profit stream. Health chiefs have also been keen to switch a large volume of outpatient treatment - up to half, equivalent to 5 million appointments a year in London - away from hospitals and into polyclinics.
Yet even according to Lord Darzi's projections this would save no money at all. Instead it would massively inflate the costs of providing and running the polyclinic. It would also of course make running hospital services less efficient if consultants and staff have to spend hours at a time trekking round to small-scale clinics instead of working from a central base. The Audit Commission at the end of last year highlighted another reason to doubt the viability of these plans. Their report More For Less pointed out that while hospital unit costs were falling and productivity improving, there had been "no shift from hospitals to care closer to home in the community; either in terms of investment or activity." Nor, argues the Audit Commission, had PCTs succeeded in "dampening demand" for hospital care, despite years of promises. In fact the most recent figures show another substantial increase in numbers of patients referred to hospitals by GPs for inpatient care. These are not "inappropriate attenders" in A&E, but people whose condition requires treatment that primary care and community services cannot provide.
Flying in the face of all this hard evidence of rising demand, and offering no explanation on how it might be achieved, NHS London has said it wants to cut the number of hospital beds in the capital by a third. Even if they only focus on front-line acute beds that would mean a staggering 5,700 beds to go - equivalent to around 12 district general hospitals. This might save money - but only if the services are not replaced by any alternative. None of these proposals seems to have any basis in evidence in this country or elsewhere. Nor do they seem to fit with experience on the ground. Doctors are increasingly required to demonstrate the "evidence base" for the treatment they deliver.
But it appears that the most senior levels of NHS management feel no equivalent obligation to show that their plans are evidence-based, organisationally viable or likely to yield the promised cuts in costs. If the plans go wrong patients and NHS staff lose out either way. If they prove to save little or nothing, these policies will widen the gap they are supposed to help close and force another round of even bigger cuts. On the other hand short-sighted closures and excessive reduction in staff numbers can result in local collapse in service and the quality of care. Lurking in the background is the grim example of Mid Staffordshire hospitals, where the quest for just £10m of cuts resulted in the loss of 150 clinical posts and a total collapse in care, with dozens or hundreds losing their lives as a result. Managers who fail to learn from existing evidence could be doomed to repeat this type of failure.
But so do more obvious, unambiguous phrases such as "affordability analysis," "decommissioning," "savings," and "tariff reductions" - in other words cutting the amount paid to NHS trusts for each episode of treatment.
Perhaps the most blunt statement about the real driving force behind the various new policies comes from NHS Southwark, which declares openly that its proposals are cash-driven. "Our financial modelling shows that the primary care trust's (PCT's) current profile of expenditure is unaffordable over the next five years. "The affordability analysis requires £18m of savings in 2010/2011. Our commissioning strategy is driven by the need to achieve a system of healthcare which is financially sustainable." (Strategic Plan 2010/11 to 2016/17)." But this highlights a major question. Can the proposals outlined by health bosses actually work, delivering services to patients while saving a large amount of money? Central to the guidelines laid down by NHS London for cutting £5 billion from its PCTs' spending by 2017 is an assumption that 60 per cent of people who currently attend A&E units with relatively minor problems could be treated satisfactorily in primary care.
On this basis NHS London wants to divert around 2 million people annually away from hospitals and into a new, expensive network of "polysystems" - controversial centralised super-facilities which were originally designated "polyclinics" in Lord Darzi's 2007 suggestions for reform. Similar assumptions have also been made elsewhere and A&E has been a major focus for redesigning "pathways." I have consistently challenged these assumptions, which have become more and more extravagant since the early 1990s, and pointed to the failure of previous attempts to divert smaller numbers patients from A&E to "minor injury units." These turned out to treat mere handfuls of patients at high costs, while queues at A&Es were undiminished. But now we also know for a fact that NHS London's 60 per cent assumption is wrong. A recently released Primary Care Foundation report commissioned by the Department of Health found that less than half the A&E patients included in that figure were suitable for treatment only by GPs. Their figure showed that in some cases as few as 10 per cent, and a maximum of 30 per cent of people in A&E had no need of any form of hospital care. Since we now have fresh and reliable evidence that the 60 per cent figure was wrong, one obvious question is where such a false assumption came from.
It appears to flow from the top-secret document produced for NHS London by US-based management consultants McKinsey's. But where did McKinsey's get the number? Is it based on anything substantial, or just made up to drive forward the reorganisation of hospital care? Another question arises: would it save any money to deliver minor A&E services in polyclinics? Again the answer seems to be No. Lord Darzi's 2007 report on London, which argued A&E patients should be switched to polyclinics, estimated that the cost would be £66 per visit to a polyclinic compared with £81 at a hospital. However transferring the patients brings the added cost of building or renting the new polyclinic and running it day by day. Darzi-style health centres that are already running on a much smaller scale than the London plans are "jaw-droppingly" expensive compared with existing primary care services - with costs ranging from three to seven times more per patient. It seems most improbable that a new network of polyclinics in London will come in any cheaper, especially since private-sector providers such as Richard Branson's Virgin group now see them as an attractive future profit stream. Health chiefs have also been keen to switch a large volume of outpatient treatment - up to half, equivalent to 5 million appointments a year in London - away from hospitals and into polyclinics.
Yet even according to Lord Darzi's projections this would save no money at all. Instead it would massively inflate the costs of providing and running the polyclinic. It would also of course make running hospital services less efficient if consultants and staff have to spend hours at a time trekking round to small-scale clinics instead of working from a central base. The Audit Commission at the end of last year highlighted another reason to doubt the viability of these plans. Their report More For Less pointed out that while hospital unit costs were falling and productivity improving, there had been "no shift from hospitals to care closer to home in the community; either in terms of investment or activity." Nor, argues the Audit Commission, had PCTs succeeded in "dampening demand" for hospital care, despite years of promises. In fact the most recent figures show another substantial increase in numbers of patients referred to hospitals by GPs for inpatient care. These are not "inappropriate attenders" in A&E, but people whose condition requires treatment that primary care and community services cannot provide.
Flying in the face of all this hard evidence of rising demand, and offering no explanation on how it might be achieved, NHS London has said it wants to cut the number of hospital beds in the capital by a third. Even if they only focus on front-line acute beds that would mean a staggering 5,700 beds to go - equivalent to around 12 district general hospitals. This might save money - but only if the services are not replaced by any alternative. None of these proposals seems to have any basis in evidence in this country or elsewhere. Nor do they seem to fit with experience on the ground. Doctors are increasingly required to demonstrate the "evidence base" for the treatment they deliver.
But it appears that the most senior levels of NHS management feel no equivalent obligation to show that their plans are evidence-based, organisationally viable or likely to yield the promised cuts in costs. If the plans go wrong patients and NHS staff lose out either way. If they prove to save little or nothing, these policies will widen the gap they are supposed to help close and force another round of even bigger cuts. On the other hand short-sighted closures and excessive reduction in staff numbers can result in local collapse in service and the quality of care. Lurking in the background is the grim example of Mid Staffordshire hospitals, where the quest for just £10m of cuts resulted in the loss of 150 clinical posts and a total collapse in care, with dozens or hundreds losing their lives as a result. Managers who fail to learn from existing evidence could be doomed to repeat this type of failure.
Another pale blue budget
That man Darling certainly knows how to make my job a damn sight more difficult than it might otherwise be. To write a paean of praise for a truly socialist Budget would have been wonderful, if a little unlikely. An outburst of rage at a truly reactionary Budget would have been, at least, easy to write and an opportunity to inspire people to react against it. But the pallid and undernourished animal taken out for a walk by the Chancellor in Parliament yesterday inspires neither hope nor fear, just a sense of bitter resignation that Mr Darling has, again, got it wrong. Overall, it's a palest of pale blue Budget, giving little except to businesses and shirking any direct intervention to revive manufacturing, leaving it to business and the markets to sling the cash where they may. On education, Mr Darling announced a £35 million enterprise fund to help universities to float new companies to profit from academic reasearch. There was also a one-off £270 million to fund another 20,000 new places at university. But somehow he forgot to mention the £518 million cutback in university funding announced by Peter Mandelson just before Christmas, which rather takes the gilt off Mr Darling's gingerbread.
On the public sector, Mr Darling was a bit of a deeper shade of blue, however. Pay limits of 1 per cent from 2011 on top of the current stringencies is a foolish and reactionary attack on some of the poorest paid workers in the sector. And as for announcing that he will reform public-sector pensions to make sure they are affordable, the Chancellor is so far off the wall that it's plain silly. Mr Darling is pandering to all the most nonsensical propaganda put out by the Tories when he says this. Even the London Evening Standard, whose Tory proclivities are well known, knows better. Its City commentator Anthony Hilton, not the most notorious of socialists, had this to say only a couple of weeks back: "In the context of the wider economy, public-sector pensions are eminently affordable and not at all generous. Cutting them would save nothing because - deprived of this income - many recipients would have to fall back on other state benefits." Well, Mr Darling, if even the Standard can see it... It's probably possible to write the longest leader on record on Budget day, but it's a temptation that we are going to have to resist. However two more points really must be looked at. Housing deserves far more thought and consideration than Mr Darling has given it.
A knee-jerk doubling of the stamp duty threshhold from £125,000 to £250,000, coupled with doubling the duty to 5 per cent on houses worth over a million, may sound very redistributive, but it's really a nonsense. In the context of helping more first-time buyers onto the housing ladder, it's all very well until you remember that the ladder is propped against a wall of huge personal debts which it isn't fair to force people into. Rather than dragging young couples into lifelong debt, wouldn't it have been better to release cash to councils to fund a programme of affordable homebuilding? It would certainly have been a damn sight better use of funds than £4 billion extra for the Afghan war. And, as for the reform of housing benefit to save £250 million, it's not clear what reforms, but it's a sensitive area to play with and you can bet that claimants won't be the recipients of any great largesse. And lastly, there's pensions. The National Pensioners Convention points out that, for the first time ever, this year's £2.40-a-week increase in the state pension does not apply to SERPS or graduated pension payments. They also point out in the frostiest terms that maintaining the winter fuel allowance at last year's levels is not much use given last year's fuel cost rises. Cold comfort there. So it's another year of missed opportunity, and one that Mr Darling may well regret come May.
Budget day started with PCS pickets outside the Houses of Parliament, the Treasury and almost every jobcentre around the country. Anyone observing MPs drive past the PCS protesters to hear Alistair Darling's words of wisdom would have been struck by the lack of public esteem for Parliament. In fact, it's at an all-time low. Ordinary men and women across the country, such as public-sector workers and BA cabin crew, are struggling against pay cuts, redundancies and attacks on their terms and conditions. Add to that a string of parliamentary scandals and it's no wonder people are so disillusioned.
Expenses claims, the shady lobbying practices of Geoff Hoon, Stephen Byers and Patricia Hewitt, plus the Tory Ashcroft debacle have left MPs reeling. So this particular Budget comes at a key time for Labour. Key choices are to be made as the recession - according to some commentators - "draws to a close" and in the wake of the decisions taken in 2008 to bail out the banks. At one level Darling made some fairly encouraging Keynesian remarks about the "role of government," defending the role of the state and comparing current levels of unemployment and interest rates to the recessions of the 1980s and '90s. But he soon retreated into Great Britain PLC mode when he said all the bank shares would eventually be sold and that the age of interventionism was over. If Darling really believes this, he should cast an eye to the media reporting of what is happening in Greece. Greece's budget deficit, coupled with pressure from the EU and international banks, has forced the hapless George Papandreou to make endless flights to European capitals to pledge even more cuts and attacks on the welfare state, only to return home to more strikes and even bigger demonstrations. Darling seemed like a man uncertain of what to say. What was obvious, though, was that above all he wanted to please the City commentators and be told he was being "responsible" and "cutting the deficit."
The Chancellor has allowed, even encouraged, praise from the City to be the gold standard of 21st century fiscal policy. The new national barometer by which government success is measured appears to be at what the level the deficit is. Emphasising the point is the international banking fraternity's decision to lower Portugal's credit rating, which demonstrates the power of big-business sophistry over the real needs of people. Darling did announce some welcome changes and improvements, but, as he trundled his way through his speech, he continued with the same theme he has adopted for so long - essentially that public employees must pay a wholly disproportionate share of the debt burden created by the banking crisis. A 1 per cent pay limit on public-sector pay for three years, the loss of many jobs and the relocation of one-third of Civil Service positions currently in London will mean hardship and depression for many who are already low paid.
As one of the PCS pickets outside Parliament laconically put it, their struggle has an effect on everyone else in the public sector.
If this dispute is lost then it can only be a matter of time before severance arrangements for the police and others are affected. Since the EU does not allow state subsidies or direct support for industry, government powers are limited to tax-raising and giving out benefits. In another nod towards Keynes, the Chancellor announced a cut in stamp duty for first-time buyers and an increase in the rate for £1 million-plus properties.
However, he then went on to make a very curious reference to the way "welfare reform has restricted the rise in inactivity benefits." This indicates the real purpose of taking many people out of benefits altogether and making draconian demands on accepting low-paid jobs that the welfare trap of housing benefits penalises them from accepting - it's all about the deficit.
Yet the huge housing benefit bill for tenants of private landlords who charge exorbitant rents is to be dealt with in absolutely the wrong way. Instead of controlling rents and the obscene levels of profit made by renting to the poorest tenants, the plan is to prevent those on benefit being allowed to go into "expensive" homes. It looks as though an era of social cleansing could begin with restricting housing support to "low-cost" areas. In a continuation of the Great Britain PLC theme, Darling confirmed the sale of the Dartford river crossing and the Channel Tunnel rail link, putting pressure on government departments and local authorities to continue asset sales to meet infrastructure investment needs. New Labour and the Tories have always believed that government is essentially a business, not a public role and while Darling has changed the mood music, he has saddled himself and any future government with the millstone of debt reduction, whatever the circumstances. The Tory response was as expected - more cuts more quickly and not raising tax and national insurance contributions for the wealthiest. David Cameron's strange obsession with marriage was dealt a neat blow with plans for tax credits to be paid to families irrespective of the status of the parental relationship.
One telling figure, hidden quietly in the midst of all this was the cost of the Afghanistan war. Some £4 billion in the next year alone. Free market obsessions brought us the crisis and while the initial reaction to the crisis of partially taking the banks into public ownership was welcome, the price is being paid by tight spending, wage control and asset sales. Public support for global regulation and the so-called Robin Hood tax show that for all the shallowness of the media presentation of the crisis, there are many who see the real causes of poverty and inequality in Britain and are prepared to do something about it. With election fever about to fully set in, perhaps the best way of defeating the Tories is to promise a period of redistribution of wealth or quite simply the end of new Labour.
On the public sector, Mr Darling was a bit of a deeper shade of blue, however. Pay limits of 1 per cent from 2011 on top of the current stringencies is a foolish and reactionary attack on some of the poorest paid workers in the sector. And as for announcing that he will reform public-sector pensions to make sure they are affordable, the Chancellor is so far off the wall that it's plain silly. Mr Darling is pandering to all the most nonsensical propaganda put out by the Tories when he says this. Even the London Evening Standard, whose Tory proclivities are well known, knows better. Its City commentator Anthony Hilton, not the most notorious of socialists, had this to say only a couple of weeks back: "In the context of the wider economy, public-sector pensions are eminently affordable and not at all generous. Cutting them would save nothing because - deprived of this income - many recipients would have to fall back on other state benefits." Well, Mr Darling, if even the Standard can see it... It's probably possible to write the longest leader on record on Budget day, but it's a temptation that we are going to have to resist. However two more points really must be looked at. Housing deserves far more thought and consideration than Mr Darling has given it.
A knee-jerk doubling of the stamp duty threshhold from £125,000 to £250,000, coupled with doubling the duty to 5 per cent on houses worth over a million, may sound very redistributive, but it's really a nonsense. In the context of helping more first-time buyers onto the housing ladder, it's all very well until you remember that the ladder is propped against a wall of huge personal debts which it isn't fair to force people into. Rather than dragging young couples into lifelong debt, wouldn't it have been better to release cash to councils to fund a programme of affordable homebuilding? It would certainly have been a damn sight better use of funds than £4 billion extra for the Afghan war. And, as for the reform of housing benefit to save £250 million, it's not clear what reforms, but it's a sensitive area to play with and you can bet that claimants won't be the recipients of any great largesse. And lastly, there's pensions. The National Pensioners Convention points out that, for the first time ever, this year's £2.40-a-week increase in the state pension does not apply to SERPS or graduated pension payments. They also point out in the frostiest terms that maintaining the winter fuel allowance at last year's levels is not much use given last year's fuel cost rises. Cold comfort there. So it's another year of missed opportunity, and one that Mr Darling may well regret come May.
Budget day started with PCS pickets outside the Houses of Parliament, the Treasury and almost every jobcentre around the country. Anyone observing MPs drive past the PCS protesters to hear Alistair Darling's words of wisdom would have been struck by the lack of public esteem for Parliament. In fact, it's at an all-time low. Ordinary men and women across the country, such as public-sector workers and BA cabin crew, are struggling against pay cuts, redundancies and attacks on their terms and conditions. Add to that a string of parliamentary scandals and it's no wonder people are so disillusioned.
Expenses claims, the shady lobbying practices of Geoff Hoon, Stephen Byers and Patricia Hewitt, plus the Tory Ashcroft debacle have left MPs reeling. So this particular Budget comes at a key time for Labour. Key choices are to be made as the recession - according to some commentators - "draws to a close" and in the wake of the decisions taken in 2008 to bail out the banks. At one level Darling made some fairly encouraging Keynesian remarks about the "role of government," defending the role of the state and comparing current levels of unemployment and interest rates to the recessions of the 1980s and '90s. But he soon retreated into Great Britain PLC mode when he said all the bank shares would eventually be sold and that the age of interventionism was over. If Darling really believes this, he should cast an eye to the media reporting of what is happening in Greece. Greece's budget deficit, coupled with pressure from the EU and international banks, has forced the hapless George Papandreou to make endless flights to European capitals to pledge even more cuts and attacks on the welfare state, only to return home to more strikes and even bigger demonstrations. Darling seemed like a man uncertain of what to say. What was obvious, though, was that above all he wanted to please the City commentators and be told he was being "responsible" and "cutting the deficit."
The Chancellor has allowed, even encouraged, praise from the City to be the gold standard of 21st century fiscal policy. The new national barometer by which government success is measured appears to be at what the level the deficit is. Emphasising the point is the international banking fraternity's decision to lower Portugal's credit rating, which demonstrates the power of big-business sophistry over the real needs of people. Darling did announce some welcome changes and improvements, but, as he trundled his way through his speech, he continued with the same theme he has adopted for so long - essentially that public employees must pay a wholly disproportionate share of the debt burden created by the banking crisis. A 1 per cent pay limit on public-sector pay for three years, the loss of many jobs and the relocation of one-third of Civil Service positions currently in London will mean hardship and depression for many who are already low paid.
As one of the PCS pickets outside Parliament laconically put it, their struggle has an effect on everyone else in the public sector.
If this dispute is lost then it can only be a matter of time before severance arrangements for the police and others are affected. Since the EU does not allow state subsidies or direct support for industry, government powers are limited to tax-raising and giving out benefits. In another nod towards Keynes, the Chancellor announced a cut in stamp duty for first-time buyers and an increase in the rate for £1 million-plus properties.
However, he then went on to make a very curious reference to the way "welfare reform has restricted the rise in inactivity benefits." This indicates the real purpose of taking many people out of benefits altogether and making draconian demands on accepting low-paid jobs that the welfare trap of housing benefits penalises them from accepting - it's all about the deficit.
Yet the huge housing benefit bill for tenants of private landlords who charge exorbitant rents is to be dealt with in absolutely the wrong way. Instead of controlling rents and the obscene levels of profit made by renting to the poorest tenants, the plan is to prevent those on benefit being allowed to go into "expensive" homes. It looks as though an era of social cleansing could begin with restricting housing support to "low-cost" areas. In a continuation of the Great Britain PLC theme, Darling confirmed the sale of the Dartford river crossing and the Channel Tunnel rail link, putting pressure on government departments and local authorities to continue asset sales to meet infrastructure investment needs. New Labour and the Tories have always believed that government is essentially a business, not a public role and while Darling has changed the mood music, he has saddled himself and any future government with the millstone of debt reduction, whatever the circumstances. The Tory response was as expected - more cuts more quickly and not raising tax and national insurance contributions for the wealthiest. David Cameron's strange obsession with marriage was dealt a neat blow with plans for tax credits to be paid to families irrespective of the status of the parental relationship.
One telling figure, hidden quietly in the midst of all this was the cost of the Afghanistan war. Some £4 billion in the next year alone. Free market obsessions brought us the crisis and while the initial reaction to the crisis of partially taking the banks into public ownership was welcome, the price is being paid by tight spending, wage control and asset sales. Public support for global regulation and the so-called Robin Hood tax show that for all the shallowness of the media presentation of the crisis, there are many who see the real causes of poverty and inequality in Britain and are prepared to do something about it. With election fever about to fully set in, perhaps the best way of defeating the Tories is to promise a period of redistribution of wealth or quite simply the end of new Labour.
Thursday, 18 March 2010
Why I back British Airways staff strike
The sickening bonanza for the rich goes on; last week the Forbes 'rich list' showed that the number of billionaires on the planet has increased significantly over the last year, and they have seen their incomes soar. Here in Britain, the Audit Commission has released the results of a study on the severance packages of council chief executives. In a 33 month period, 37 individuals received £9.5 million. It is from this wealthy layer and their representatives in the main political parties that venom and condemnation is unleashed on civil servants and British Airways cabin crew - workers who have been forced to vote for strike action to stop a relentless driving down of their terms and conditions. Transport Secretary Lord Adonis declared that a strike of BA cabin crew would be "totally unjustified" - this from a man who was not even elected to parliament, about a strike that was democratically decided by an overwhelming majority of the cabin crew.
New Labour leader Gordon Brown joined the baying mob, by calling the BA strike "deplorable". Yet the BA workers' trade union, Unite, is the largest donor to New Labour, giving £11 million of its members' money to the party over the last four years alone. So Brown urges on the imposed 'race to the bottom' for working class people's living standards, while raking in their union subs to fund further vicious attacks. Members of the PCS union are mainly in the public sector, British Airways cabin crew are in the private sector, but in both cases they have been forced to fight simply to defend previously agreed contracts and conditions - an aim that is a million miles away from the greed of the fat cats who are behind the denigrations of their struggles.
An enormous class chasm separates the interests of the workers being forced into action and those who are leading the attacks on them. But the potential strength of all the working and middle class people under attack, or threatened with attacks, is enormous.
Not just hundreds, or thousands, but millions of other workers will be able to identify with the plight of those taking strike action now, and would be willing to give support if the trade union movement mobilises it. The planned seven days of strike action in two separate walkouts on 20-22 March and 27-30 March by British Airways (BA) cabin crew opens up a new chapter in their ongoing dispute with BA management. The dispute was triggered when the management tore up cabin crew contracts last November. They reduced the number of crew on flights, changed the role of the lead member of the crew team and proposed to bring in new staff on inferior pay and conditions. In a final throw of the dice to resolve the dispute, the crews' union, Unite, offered a pay cut of 2.6% and agreed to new starters having inferior terms and conditions. However, the management refused to allow the new starters to work alongside existing crew. Instead, it wanted a 'new fleet' with lower paid crew working on different planes and routes to existing cabin crew. This was a bridge too far for cabin crew. Separating off the new crew would make it more difficult to recruit them into the union with a view to bringing their terms and conditions up to the level of their longer standing colleagues.
Instead, there could be a significant number of workers outside the union, weakening the negotiating position of cabin crew in any future dispute. Also, there would be an immediate effect on pay. Basic pay for the bulk of cabin crew is very low. Some new starters are on as little as £14,000 a year. This can be topped up through allowances, with the most being paid for long distance destinations.However management could use the new lower wage crews, on lower allowances, for these longer routes. While I refuse to support Unite's offer of pay cuts in talks, management's stubborn refusal to compromise on the new fleet shows that for it, cost saving is largely secondary to undermining one of the strongest organised sections of the BA workforce. Unite assistant general secretary Len McCluskey voiced similar suspicions when he said that BA management's "real agenda is destroying trade unionism among its employees." Cabin crew are in a powerful industrial position. From the moment they strike, planes will stop flying and the company will haemorrhage money every minute.
Therefore, management's strategy has been to delay industrial action for as long as possible through protracted negotiations, vague promises and before Christmas, attacking a democratic strike ballot through the courts. A barrage of harassment and intimidation has been unleashed on the crew in the hope of undermining their will to strike. Management has also leased 25 fully-crewed planes and has been trying to train a scab crew for use during the strikes, including by calling for volunteers from other parts of the company.
New Labour leader Gordon Brown joined the baying mob, by calling the BA strike "deplorable". Yet the BA workers' trade union, Unite, is the largest donor to New Labour, giving £11 million of its members' money to the party over the last four years alone. So Brown urges on the imposed 'race to the bottom' for working class people's living standards, while raking in their union subs to fund further vicious attacks. Members of the PCS union are mainly in the public sector, British Airways cabin crew are in the private sector, but in both cases they have been forced to fight simply to defend previously agreed contracts and conditions - an aim that is a million miles away from the greed of the fat cats who are behind the denigrations of their struggles.
An enormous class chasm separates the interests of the workers being forced into action and those who are leading the attacks on them. But the potential strength of all the working and middle class people under attack, or threatened with attacks, is enormous.
Not just hundreds, or thousands, but millions of other workers will be able to identify with the plight of those taking strike action now, and would be willing to give support if the trade union movement mobilises it. The planned seven days of strike action in two separate walkouts on 20-22 March and 27-30 March by British Airways (BA) cabin crew opens up a new chapter in their ongoing dispute with BA management. The dispute was triggered when the management tore up cabin crew contracts last November. They reduced the number of crew on flights, changed the role of the lead member of the crew team and proposed to bring in new staff on inferior pay and conditions. In a final throw of the dice to resolve the dispute, the crews' union, Unite, offered a pay cut of 2.6% and agreed to new starters having inferior terms and conditions. However, the management refused to allow the new starters to work alongside existing crew. Instead, it wanted a 'new fleet' with lower paid crew working on different planes and routes to existing cabin crew. This was a bridge too far for cabin crew. Separating off the new crew would make it more difficult to recruit them into the union with a view to bringing their terms and conditions up to the level of their longer standing colleagues.
Instead, there could be a significant number of workers outside the union, weakening the negotiating position of cabin crew in any future dispute. Also, there would be an immediate effect on pay. Basic pay for the bulk of cabin crew is very low. Some new starters are on as little as £14,000 a year. This can be topped up through allowances, with the most being paid for long distance destinations.However management could use the new lower wage crews, on lower allowances, for these longer routes. While I refuse to support Unite's offer of pay cuts in talks, management's stubborn refusal to compromise on the new fleet shows that for it, cost saving is largely secondary to undermining one of the strongest organised sections of the BA workforce. Unite assistant general secretary Len McCluskey voiced similar suspicions when he said that BA management's "real agenda is destroying trade unionism among its employees." Cabin crew are in a powerful industrial position. From the moment they strike, planes will stop flying and the company will haemorrhage money every minute.
Therefore, management's strategy has been to delay industrial action for as long as possible through protracted negotiations, vague promises and before Christmas, attacking a democratic strike ballot through the courts. A barrage of harassment and intimidation has been unleashed on the crew in the hope of undermining their will to strike. Management has also leased 25 fully-crewed planes and has been trying to train a scab crew for use during the strikes, including by calling for volunteers from other parts of the company.
Monday, 15 March 2010
The buck stops with Brown
Someone ought to remind Gordon Brown that the massive crisis that rocked the economy was caused by the privately owned banks not by the Civil Service or any other part of the public sector. This government has treated the financial sector with kid gloves. No matter what its excesses, from irresponsible gambling with other people's money to mind-boggling bonuses for the favoured few and sickening displays of ostentatious consumption, this allegedly Labour government cannot hide its deep conviction that financiers are a special breed. Banks are too important to be allowed to fail or to be taken into democratically accountable public ownership. But steelworkers, carworkers, fishermen, building workers, call centre staff, postal workers, bank staff and workers in many other industries can be dumped on the scrapheap with nothing more than a "how very disappointing" from Baron Mandelson and the rest of the new Labour crew. And, when it comes to civil servants, far from "how very disappointing," Labour's front bench competes with the other parties to outbid them on how many "bureaucrats, pen-pushers, back-office staff" it can get rid of to save the economy.
It's only two years since Brown had some of the more loathsome creatures that populate the Labour benches guffawing out loud when he announced that 96,000 Civil Service jobs would go as though this trumping of a Tory policy ace was a great leap forward. While most people were incandescent with rage over the bankers' outrageous conduct, the government is pointing in a different direction. It's aiming at the Civil Service, with Brown fulminating against a "culture of excess" in reference to salaries of over £150,000 and bonuses of £50,000. These are certainly among the higher end of salaries across the spectrum of wage-earners, but they are dwarfed by the seven-figure salaries and bonuses in the City. And while the government boasts that it will cut 20 per cent or £3 billion from the senior civil servants' pay bill over three years, it ignores its own responsibility in pushing up Civil Service costs through its obsession with public-private partnership, which has cost, in the Ministry of Defence alone, no less than £6bn on failed IT projects and private consultants. Nor is it simply the highest-paid civil servants who are bearing the brunt of ignorant comment by right-wing politicians.
Tory frontbencher Liam Fox recently launched a grab for the headlines by telling bereaved families who had lost loved ones in Afghanistan that British soldiers were dying because they are ill-equipped while civil servants were being paid £47 million in bonuses. These were not bonuses but one-off payments that had been insisted on by the government as a cost-saver, taking the place of a pay rise so as not to affect pension entitlement. And the vast majority of the Civil Service "fat cats" getting these one-off payments have an average annual salary of less than £20,000 and each received about £300. It is disgusting that a Labour Prime Minister - a Labour Prime Minister - implies that Civil Service excess is reducing money that should be spent on health, schools, policing and social services. He, of all people, knows that it is his own refusal to tax fairly the banks, big business and the wealthy and his obsession with supporting US foreign wars that leaves too little to spend on manufacturing, services and welfare.
It's only two years since Brown had some of the more loathsome creatures that populate the Labour benches guffawing out loud when he announced that 96,000 Civil Service jobs would go as though this trumping of a Tory policy ace was a great leap forward. While most people were incandescent with rage over the bankers' outrageous conduct, the government is pointing in a different direction. It's aiming at the Civil Service, with Brown fulminating against a "culture of excess" in reference to salaries of over £150,000 and bonuses of £50,000. These are certainly among the higher end of salaries across the spectrum of wage-earners, but they are dwarfed by the seven-figure salaries and bonuses in the City. And while the government boasts that it will cut 20 per cent or £3 billion from the senior civil servants' pay bill over three years, it ignores its own responsibility in pushing up Civil Service costs through its obsession with public-private partnership, which has cost, in the Ministry of Defence alone, no less than £6bn on failed IT projects and private consultants. Nor is it simply the highest-paid civil servants who are bearing the brunt of ignorant comment by right-wing politicians.
Tory frontbencher Liam Fox recently launched a grab for the headlines by telling bereaved families who had lost loved ones in Afghanistan that British soldiers were dying because they are ill-equipped while civil servants were being paid £47 million in bonuses. These were not bonuses but one-off payments that had been insisted on by the government as a cost-saver, taking the place of a pay rise so as not to affect pension entitlement. And the vast majority of the Civil Service "fat cats" getting these one-off payments have an average annual salary of less than £20,000 and each received about £300. It is disgusting that a Labour Prime Minister - a Labour Prime Minister - implies that Civil Service excess is reducing money that should be spent on health, schools, policing and social services. He, of all people, knows that it is his own refusal to tax fairly the banks, big business and the wealthy and his obsession with supporting US foreign wars that leaves too little to spend on manufacturing, services and welfare.
Counting the cost of failure
Figures, they say, can tell any story that you want them to and they are probably right to some extent. But, despite the efforts of the spinners of Whitehall and Fleet Street, the recent figures on insolvencies tell a story that can't be easily disguised. A record number of individuals were declared insolvent during last year, with 134,142 people losing the battle to keep their heads above the water line. It's the highest level seen since records began in 1960 and, given the almost unending series of closures, lay-offs, short-time working deals and heavily leveraged takeovers which rack up tremendous company debts and demand staffing cuts in the last year, you don't have to look far to find the reasons. People are being dropped into debt and unemployment by companies that will do anything to avoid corporate problems, including sacrificing their workforces, and they are being left there by a government so fixated on entrepreneurship and dodgy business creation as the way out that it sees no percentage in direct intervention. And at least one insolvency expert has warned that "we should expect to see a further rise of around 12 per cent in annual insolvency figures this year and these levels are likely to remain until at least 2012."
So the nightmare will continue for a growing number of the unemployed and discarded. But it's not only personal insolvencies that should concern us. Company failures also soared to their highest level for ages when more than 19,000 firms succumbed to the recession last year. It's been 16 years since the figures have been that bad and these figures also show little sign of being the end of the story. The figure is a terrifying increase of over 22 per cent on 2008. And it's what industries the failing companies are situated in that should give major cause for concern. Because the rate of attrition in industries that should be leading the way out of recession is huge. We don't yet have the figures for the last quarter of 2009 broken down by industry, but the existing trend since 2007 is startling enough.
Trading-related bankruptcies have soared. In manufacturing, the quarterly rate of collapse has nearly doubled, with more in the third quarter of 2009 than in the eight previous quarters combined. Be it rubber and plastics, metal fabrication or transport equipment, the collapse continues unabated. In construction, the picture is similar, with companies folding at twice the rate in 2009 as in 2007; in retail the decline is less obvious but still there.And we haven't seen the last by a long way. The Bank of England has paused quantitative easing for the simple reason that it hasn't worked and that's not surprising. The way the bank organised it, buying gilts was just putting money into pockets of banks which still refuse to loose the reins on borrowing. Little was reaching the firms that government is mistakenly relying on to revive the economy. In fact, their rate of collapse just keeps on growing. It is clearly time for far more direct intervention by government. Relying on a failed market economy is a thankless and rewardless procedure and cannot be allowed to continue.
The government now theoretically has control over several huge financial institutions and it must start using them as vehicles of policy, directing investment where it is needed, not where speculators see fit. Potentially viable firms cannot be allowed to go to the wall at the behest of an uncontrolled and speculation-dominated economy, but growth must be directed consciously, without the randomness of a system that says "soak the workers or go under." It's long past time for direct intervention and an attempt to build a planned, reliable economy. The free market has failed, so let's not waste valuable time trying to revive a corpse.
So the nightmare will continue for a growing number of the unemployed and discarded. But it's not only personal insolvencies that should concern us. Company failures also soared to their highest level for ages when more than 19,000 firms succumbed to the recession last year. It's been 16 years since the figures have been that bad and these figures also show little sign of being the end of the story. The figure is a terrifying increase of over 22 per cent on 2008. And it's what industries the failing companies are situated in that should give major cause for concern. Because the rate of attrition in industries that should be leading the way out of recession is huge. We don't yet have the figures for the last quarter of 2009 broken down by industry, but the existing trend since 2007 is startling enough.
Trading-related bankruptcies have soared. In manufacturing, the quarterly rate of collapse has nearly doubled, with more in the third quarter of 2009 than in the eight previous quarters combined. Be it rubber and plastics, metal fabrication or transport equipment, the collapse continues unabated. In construction, the picture is similar, with companies folding at twice the rate in 2009 as in 2007; in retail the decline is less obvious but still there.And we haven't seen the last by a long way. The Bank of England has paused quantitative easing for the simple reason that it hasn't worked and that's not surprising. The way the bank organised it, buying gilts was just putting money into pockets of banks which still refuse to loose the reins on borrowing. Little was reaching the firms that government is mistakenly relying on to revive the economy. In fact, their rate of collapse just keeps on growing. It is clearly time for far more direct intervention by government. Relying on a failed market economy is a thankless and rewardless procedure and cannot be allowed to continue.
The government now theoretically has control over several huge financial institutions and it must start using them as vehicles of policy, directing investment where it is needed, not where speculators see fit. Potentially viable firms cannot be allowed to go to the wall at the behest of an uncontrolled and speculation-dominated economy, but growth must be directed consciously, without the randomness of a system that says "soak the workers or go under." It's long past time for direct intervention and an attempt to build a planned, reliable economy. The free market has failed, so let's not waste valuable time trying to revive a corpse.
Shattered dreams in black America
The American economy has gone through what has been called the Great Recession. But the crisis in Black communities across the U.S. constitutes an outright depression--spurring desperate conditions that have gone largely unreported because of the racist indifference of the government and mass media. Unemployment has reached catastrophic levels in Black communities. The numbers are staggering. Official African American unemployment was 15.6 percent in November 2009, compared to an overall national rate 10 percent--and those statistics leave out workers who have been forced into part-time jobs because they couldn't find full-time work, or who have been pushed out of the workforce altogether. For young African Americans, male and female, aged 16 to 29, joblessness is as high as 30 percent, according to the Washington Post. According to one report, between 2006 and 2009, more than 6 percent of Black men have lost their jobs--in real numbers, that adds up to the disappearance of more than 489,000 jobs.
Unemployment among Black women aged 20 and older has risen by more than 4 percentage points since the beginning of the recession, bringing their total unemployment rate up to more than 11 percent--which 75 percent higher than for white women in the same age range.The overview of unemployment doesn't begin to convey the extent of the jobs crisis in Black America. Officially, the nation's highest unemployment rate is in Detroit, which is 83 percent Black--joblessness is a staggering 28 percent. Unemployment on the mostly Black South and West Sides of Chicago comes in second at 22 percent. The top 10 areas in the country where unemployment is concentrated include Black neighborhoods in Toledo, Ohio; Atlanta; and St. Louis. But a study conducted by the University of Wisconsin-Milwaukee shows that the jobs desert for African Americans is more severe than the official figures show. The study found Black male unemployment for men aged 16 to 64 to be unprecedented and overwhelming. Buffalo had the highest percentage of Black men either unemployed or permanently out of the labor force at 52 percent. That was followed by Milwaukee at 47 percent and Chicago at 43 percent. Among 35 major metropolitan areas, African Americans had the "lowest" unemployment in Washington, D.C. at 27 percent. In most of those 35 cities, Black unemployment hovered somewhere between 30 and 35 percent. The problem is not just an issue of not having a job. The loss of jobs in Black communities is exacerbating social disparities that have historically caused a lesser quality of life for African Americans. For example, the rapid loss of jobs means that greater numbers of African Americans are losing their health care, which will only worsen disparities around health care between Blacks and whites that already exist. In 2007, when Black unemployment was approximately 10 percent, 20 percent of Blacks were without heath insurance. With Black unemployment growing steadily today, the numbers of the Black uninsured are sure to rise, too.
Unemployment also impacts rising levels of poverty in Black communities. A recent report found that 90 percent of Black children are part of families that will use food stamps by the time they are 20 years old. All told, 40 percent of Black children live in poverty, according the government's official statistics. According to the census, a full quarter of African Americans were living in poverty in 2007--two years before the unemployment crisis in Black America. Rising unemployment is also exacerbating the foreclosure crisis in Black neighborhoods across the country. In two neighborhoods alone, there were 725 foreclosures in a nine-month period. The Woodstock Institute has found that for every one home foreclosure on a given block. the value of the remaining homes decrease by 1 percent. Thus, the heavy concentration of home foreclosures in African American neighborhoods is rapidly destroying the value and worth of the remaining homes in the neighborhood. According to the Center for Responsible Lending, 53 percent of African Americans who bought homes in 2006 have already lost or will lose their homes to foreclosure in the next few years, compared to 22 percent of white borrowers facing foreclosure. The rate in Black and Latino communities is running at an astonishing rate. In Chicago, foreclosures increased by 18 percent in 2009, including 8,000 homes lost by Latinos and another 10,000 homes lost by African Americans. According to the Center for Responsible Lending, between 2009 and 2012, 1.3 million Latinos and 1.1 million African Americans are expected to lose their homes.
The nonprofit Woodstock Institute attributes the disproportionate number of lost homes in Black and Latino communities to their overrepresentation among those who were steered towards sub-prime loans during the 2000s. Studies have shown that African Americans, despite being qualified for convention loans, were often steered toward sub-prime loans, with their hidden fees and ballooning interest rates. For years, African Americans in urban areas were cut off from private mortgage funds. But legal changes in the 1970s in lending rules and deregulation in the 1980s and 1990s led to a sharp increase of credit in African American communities. African American communities were more susceptible to predatory lending because of the dearth of banks in Black communities and the generally lower credit scores among African Americans. According to the Chicago Reporter, when calculated on a 100-point scale, the average credit score for African Americans is about half of the average for whites. Generally, low credit scores were the pretext for both steering Blacks toward sub-prime mortgages during the housing boom--and now, the renewed exclusion of African Americans from credit sources.
According to one report, in 2008, 48 percent of African American applications to purchase or refinance a home were rejected. In Dallas, more than 60 percent of Blacks' loan applications for home refinancing were rejected. Still, the focus on low credit scores as the reason for African Americans being offered predatory mortgages or now being rejected outright has become a way of denying that racism underlies the foreclosure and credit crisis in Black communities. A lot of the evidence leads to a different conclusion. For example, a 2005 study found that 70 percent of African Americans with incomes between $92,000 and $152,000 who bought homes were given sub-prime loans, versus 16 percent of whites in the same income range. Moreover, the NAACP claims in a lawsuit against lender Countrywide Financial (now owned by JPMorgan Chase) that even when Blacks and whites were both offered sub-prime loans, African Americans were charged on average 30 percent more for the same services. But even when it was the case that Blacks had lower credit scores and therefore didn't qualify for prime credit based on "legitimate" criteria, can this process by considered free of racism? Who and what determines what constitutes "good credit" anyway? What are the factors involved? According to the JPMorgan Chase response to the lawsuit against them for discrimination, a good credit score is based on multiple factors like credit history, debt, work history, assets, and previous or current property ownership, among others. How could it be claimed that such criteria aren't shaped by racism? In reality, "good" or "bad" credit are socially created products, born of the entanglement of race, place, the real estate industry and American housing policy.
Unemployment among Black women aged 20 and older has risen by more than 4 percentage points since the beginning of the recession, bringing their total unemployment rate up to more than 11 percent--which 75 percent higher than for white women in the same age range.The overview of unemployment doesn't begin to convey the extent of the jobs crisis in Black America. Officially, the nation's highest unemployment rate is in Detroit, which is 83 percent Black--joblessness is a staggering 28 percent. Unemployment on the mostly Black South and West Sides of Chicago comes in second at 22 percent. The top 10 areas in the country where unemployment is concentrated include Black neighborhoods in Toledo, Ohio; Atlanta; and St. Louis. But a study conducted by the University of Wisconsin-Milwaukee shows that the jobs desert for African Americans is more severe than the official figures show. The study found Black male unemployment for men aged 16 to 64 to be unprecedented and overwhelming. Buffalo had the highest percentage of Black men either unemployed or permanently out of the labor force at 52 percent. That was followed by Milwaukee at 47 percent and Chicago at 43 percent. Among 35 major metropolitan areas, African Americans had the "lowest" unemployment in Washington, D.C. at 27 percent. In most of those 35 cities, Black unemployment hovered somewhere between 30 and 35 percent. The problem is not just an issue of not having a job. The loss of jobs in Black communities is exacerbating social disparities that have historically caused a lesser quality of life for African Americans. For example, the rapid loss of jobs means that greater numbers of African Americans are losing their health care, which will only worsen disparities around health care between Blacks and whites that already exist. In 2007, when Black unemployment was approximately 10 percent, 20 percent of Blacks were without heath insurance. With Black unemployment growing steadily today, the numbers of the Black uninsured are sure to rise, too.
Unemployment also impacts rising levels of poverty in Black communities. A recent report found that 90 percent of Black children are part of families that will use food stamps by the time they are 20 years old. All told, 40 percent of Black children live in poverty, according the government's official statistics. According to the census, a full quarter of African Americans were living in poverty in 2007--two years before the unemployment crisis in Black America. Rising unemployment is also exacerbating the foreclosure crisis in Black neighborhoods across the country. In two neighborhoods alone, there were 725 foreclosures in a nine-month period. The Woodstock Institute has found that for every one home foreclosure on a given block. the value of the remaining homes decrease by 1 percent. Thus, the heavy concentration of home foreclosures in African American neighborhoods is rapidly destroying the value and worth of the remaining homes in the neighborhood. According to the Center for Responsible Lending, 53 percent of African Americans who bought homes in 2006 have already lost or will lose their homes to foreclosure in the next few years, compared to 22 percent of white borrowers facing foreclosure. The rate in Black and Latino communities is running at an astonishing rate. In Chicago, foreclosures increased by 18 percent in 2009, including 8,000 homes lost by Latinos and another 10,000 homes lost by African Americans. According to the Center for Responsible Lending, between 2009 and 2012, 1.3 million Latinos and 1.1 million African Americans are expected to lose their homes.
The nonprofit Woodstock Institute attributes the disproportionate number of lost homes in Black and Latino communities to their overrepresentation among those who were steered towards sub-prime loans during the 2000s. Studies have shown that African Americans, despite being qualified for convention loans, were often steered toward sub-prime loans, with their hidden fees and ballooning interest rates. For years, African Americans in urban areas were cut off from private mortgage funds. But legal changes in the 1970s in lending rules and deregulation in the 1980s and 1990s led to a sharp increase of credit in African American communities. African American communities were more susceptible to predatory lending because of the dearth of banks in Black communities and the generally lower credit scores among African Americans. According to the Chicago Reporter, when calculated on a 100-point scale, the average credit score for African Americans is about half of the average for whites. Generally, low credit scores were the pretext for both steering Blacks toward sub-prime mortgages during the housing boom--and now, the renewed exclusion of African Americans from credit sources.
According to one report, in 2008, 48 percent of African American applications to purchase or refinance a home were rejected. In Dallas, more than 60 percent of Blacks' loan applications for home refinancing were rejected. Still, the focus on low credit scores as the reason for African Americans being offered predatory mortgages or now being rejected outright has become a way of denying that racism underlies the foreclosure and credit crisis in Black communities. A lot of the evidence leads to a different conclusion. For example, a 2005 study found that 70 percent of African Americans with incomes between $92,000 and $152,000 who bought homes were given sub-prime loans, versus 16 percent of whites in the same income range. Moreover, the NAACP claims in a lawsuit against lender Countrywide Financial (now owned by JPMorgan Chase) that even when Blacks and whites were both offered sub-prime loans, African Americans were charged on average 30 percent more for the same services. But even when it was the case that Blacks had lower credit scores and therefore didn't qualify for prime credit based on "legitimate" criteria, can this process by considered free of racism? Who and what determines what constitutes "good credit" anyway? What are the factors involved? According to the JPMorgan Chase response to the lawsuit against them for discrimination, a good credit score is based on multiple factors like credit history, debt, work history, assets, and previous or current property ownership, among others. How could it be claimed that such criteria aren't shaped by racism? In reality, "good" or "bad" credit are socially created products, born of the entanglement of race, place, the real estate industry and American housing policy.
Saturday, 13 March 2010
Tory smoke & mirrors over co-ops
History and politics are comprised of, among other things, the forces of continuity and the forces for change. But everything is not always quite as it seems. Take the support of both Tory and Labour parties for the transferral of public-sector services over to workers' co-operatives. For Labour, this has traditionally been about supporting workers and extending industrial democracy. Here the notion was that workers should be supported when they try to buck the outcomes of the market, even if co-operatives are a far from perfect means to do so. For the Tories, workers' co-operatives have always been more about workers being entrepreneurs and capitalists. Here, there was the hope that capitalism could be given a smattering of a people's property-owning democracy - similar to how the Tories trumpeted share ownership as creating a form of people's capitalism back in the 1980s because of privatisation. So this is the sense of continuity.
But in another sense - and this is now far more important - both Labour and Tories have happened upon an old idea and turned it into something quite new. No longer are they talking about co-ops in the private sector but co-ops in the public sector. Context is all here. Faced with a desperately fought forthcoming election, the discrediting of the neoliberalism consensus and the desire to further reduce the size of the public sector, both parties have decided that workers' co-operatives can be used as a clever way to dismantle the public services. This is a game of smoke and mirrors. Give workers what seems like control over their jobs and the services they provide but only allow them to do so where they have to operate under market conditions. Guess which bit will have more influence on the other bit? Yes, the market will influence the co-ops far more than the co-ops will ever influence the market. So these co-ops will be in competition with each other for resources and customers - yes, users of services will still be called "customers." And with competition, the benefits of co-operation and co-ordination will be lost.
But there is much more that is worse about this vision of a brave new world for our public services. One the one hand, the workers of these co-ops will get the blame for making the difficult decisions that will affect our services in times of reduced funding. This will shift the blame away from the party in government and the economic system that we live under. On the other hand, the element of popular control over our services that we currently have will be drastically reduced. These co-ops will be able to empire-build and protect their vested interests. Here, the real and present danger will be that they put their interests before those of the public they are supposed to serve. We can already see this process at work with many housing associations. Sure, they are not co-ops, but there are similarities. In the case of the Glasgow Housing Association, the biggest in Britain, salaries for senior managers have now outstripped anything like they were paid while under local authority control. And, just as in the case of housing associations, the professional experts will increasingly displace the users in a power play where the experts tell the users: "We know what is best and right for you."
So upon the launch of the Tories' new-fangled co-ops policy, Unison was correct to say: "Don't be fooled by the Tories' conversion to co-operatives. This is just another Tory Party plan to break up public services, plunge them into confusion and then let the private sector pick over their bones." And so Unite was just as right to point out that "David Cameron is using the language of socialism to mask the break-up of public services. He is mangling the English language to advance his anti-state ideology." The GMB pitched in with this is "the wrong idea at the wrong time," questioning the supposed democracy and accountability created and suggesting the idea was "just a political gimmick." But in the heat of an election period, let's not be so naive here that we think if we just reject the Tories' policy that everything will be alright. Labour's plans are no better. Labour may favour a model based on an imitation of the John Lewis partnership. But this will produce the same results as the Tories' plan, give or take a minor detail or two. Now, more than ever, is the time to stand up for publicly delivered, publicly funded and publicly accountable public services.
But in another sense - and this is now far more important - both Labour and Tories have happened upon an old idea and turned it into something quite new. No longer are they talking about co-ops in the private sector but co-ops in the public sector. Context is all here. Faced with a desperately fought forthcoming election, the discrediting of the neoliberalism consensus and the desire to further reduce the size of the public sector, both parties have decided that workers' co-operatives can be used as a clever way to dismantle the public services. This is a game of smoke and mirrors. Give workers what seems like control over their jobs and the services they provide but only allow them to do so where they have to operate under market conditions. Guess which bit will have more influence on the other bit? Yes, the market will influence the co-ops far more than the co-ops will ever influence the market. So these co-ops will be in competition with each other for resources and customers - yes, users of services will still be called "customers." And with competition, the benefits of co-operation and co-ordination will be lost.
But there is much more that is worse about this vision of a brave new world for our public services. One the one hand, the workers of these co-ops will get the blame for making the difficult decisions that will affect our services in times of reduced funding. This will shift the blame away from the party in government and the economic system that we live under. On the other hand, the element of popular control over our services that we currently have will be drastically reduced. These co-ops will be able to empire-build and protect their vested interests. Here, the real and present danger will be that they put their interests before those of the public they are supposed to serve. We can already see this process at work with many housing associations. Sure, they are not co-ops, but there are similarities. In the case of the Glasgow Housing Association, the biggest in Britain, salaries for senior managers have now outstripped anything like they were paid while under local authority control. And, just as in the case of housing associations, the professional experts will increasingly displace the users in a power play where the experts tell the users: "We know what is best and right for you."
So upon the launch of the Tories' new-fangled co-ops policy, Unison was correct to say: "Don't be fooled by the Tories' conversion to co-operatives. This is just another Tory Party plan to break up public services, plunge them into confusion and then let the private sector pick over their bones." And so Unite was just as right to point out that "David Cameron is using the language of socialism to mask the break-up of public services. He is mangling the English language to advance his anti-state ideology." The GMB pitched in with this is "the wrong idea at the wrong time," questioning the supposed democracy and accountability created and suggesting the idea was "just a political gimmick." But in the heat of an election period, let's not be so naive here that we think if we just reject the Tories' policy that everything will be alright. Labour's plans are no better. Labour may favour a model based on an imitation of the John Lewis partnership. But this will produce the same results as the Tories' plan, give or take a minor detail or two. Now, more than ever, is the time to stand up for publicly delivered, publicly funded and publicly accountable public services.
Thursday, 11 March 2010
Young voters need real change
Fifty-six percent of 17-24 year olds aren't registered to vote. Of those that are registered, many still do not vote come polling day. With this in mind, BBC3 hosted a 'first time voters' Question Time, giving politicians from the three establishment parties a platform to explain to young people why they should vote for them. How did these politicians do? They failed spectacularly. They were so patronising and out of touch that a fair few television screens may not have made it through the whole show in one piece! The first audience question was on graduate unemployment. Labour minister David Lammy can wring his hands about not wanting a 'lost generation' as much as he wants, but when the solution put forward is to "marshal business to offer jobs and voluntary opportunities" he's wasting his time. New Labour sold the travesty of university tuition fees on the lie that a degree guarantees you a better wage down the line - now this Higher Education minister is telling graduates they should work for free.
On the MPs' expenses scandal, Tory MP Jeremy Hunt bragged that he was one of the first MPs to publish his expenses online and lectured on how we "need a generation of politicians that are comfortable with transparency." But he only published his expenses after he'd been rumbled and this smug, unapologetic Tory was told to repay £9,500! Not a whisper from the panel about the three Militant MPs in the 1980s, including current Socialist Party councillor Dave Nellist, who only took a worker's wage rather than the full, inflated MPs' salary. There was also discussion about 'celebrity politics' stemming from Gordon Brown's TV interview with Piers Morgan. Although the politicians tried to defend their party leaders, some of the young people in the audience cut through this and pointed out that the attempted 'personalisation' of politics stems from the fact that there are no fundamental policy differences between the main parties. As one young woman said: "Maybe 10 or 15 years ago there was a difference, but I don't see any difference between Labour and the Tories now; they're all just scrambling over a tiny piece of land but nobody's saying anything anyone wants to hear."
The main parties find it impossible to engage with young people because, no matter what spin they put on it, they represent those at the top of society, millionaires and people a million miles away from the young people that they wetly tried to inspire on this show. What a difference it would make if another voice was allowed, that of working class people in the form of a Trade Unionist and Socialist Coalition (TUSC) representative.
A clear call of no cuts, no privatisation, and for free education and workers' rights would have gained support and would force the establishment politicians to address real political dividing lines. TUSC supporters are finding this out on doorsteps across the country; there is a thirst for a working-class alternative, but the drought at the top of the political establishment means many young people are amazed when they find out that an alternative is developing. As the general election campaign develops, more and more workers and young people will be given the chance to find out about TUSC and the sort of politics that young people in the audience of this show could be genuinely inspired by.
On the MPs' expenses scandal, Tory MP Jeremy Hunt bragged that he was one of the first MPs to publish his expenses online and lectured on how we "need a generation of politicians that are comfortable with transparency." But he only published his expenses after he'd been rumbled and this smug, unapologetic Tory was told to repay £9,500! Not a whisper from the panel about the three Militant MPs in the 1980s, including current Socialist Party councillor Dave Nellist, who only took a worker's wage rather than the full, inflated MPs' salary. There was also discussion about 'celebrity politics' stemming from Gordon Brown's TV interview with Piers Morgan. Although the politicians tried to defend their party leaders, some of the young people in the audience cut through this and pointed out that the attempted 'personalisation' of politics stems from the fact that there are no fundamental policy differences between the main parties. As one young woman said: "Maybe 10 or 15 years ago there was a difference, but I don't see any difference between Labour and the Tories now; they're all just scrambling over a tiny piece of land but nobody's saying anything anyone wants to hear."
The main parties find it impossible to engage with young people because, no matter what spin they put on it, they represent those at the top of society, millionaires and people a million miles away from the young people that they wetly tried to inspire on this show. What a difference it would make if another voice was allowed, that of working class people in the form of a Trade Unionist and Socialist Coalition (TUSC) representative.
A clear call of no cuts, no privatisation, and for free education and workers' rights would have gained support and would force the establishment politicians to address real political dividing lines. TUSC supporters are finding this out on doorsteps across the country; there is a thirst for a working-class alternative, but the drought at the top of the political establishment means many young people are amazed when they find out that an alternative is developing. As the general election campaign develops, more and more workers and young people will be given the chance to find out about TUSC and the sort of politics that young people in the audience of this show could be genuinely inspired by.
Wednesday, 10 March 2010
Dances to the market fiddle
Over the last few years, there has been a trend of companies altering their pension schemes from final salary schemes to the less beneficial and far riskier — to the pensioner — money purchase schemes. It's a trend that has been fought where possible by trade unions, mostly with little success. The willingness to fight to save final salary schemes has been undermined by the almost endless stream of horror stories about schemes becoming intolerably costly for the poor employer or going bust when the firm folds, leaving pensioners in the lurch. The Royal Mail and the BT pension schemes are frequently quoted as in dire trouble because of various "black holes," resulting in massive deficits. The Royal Mail scheme has even been pilloried as the biggest obstacle to the firm's viability. All this has served to militate against working people springing to the defence of their pension schemes. What was once known as invisible earnings, a right generated by years of contributions and service, has become mutable, a privilege granted by a boss and taken away at a whim.
But pensions more nearly relate to energy prices than to any commercial reality. We've all seen how energy prices rise when the poor, struggling energy companies have to face higher raw materials bills, but rarely go down when prices drop. It's the same with occupational pensions. When the markets clamp down, the bosses wail and rend their clothing over having to increase their contributions to final salary schemes because the assets of the schemes aren't generating enough income. But when the markets go up, there's precious little rending of the Armani suits and there's equally little chance of the boss ploughing more into the schemes to provide against the lean times. Instead, they take a contributions holiday, bung nothing at all into the schemes, often for years, relying on market gains to keep the funds up to scratch. They probably give themselves juicy bonuses as well, on the basis that the firm's net profit soared.Oddly, we're in one of those periods now, whatever the government, the opposition and the rest of the Establishment may say about soaring debt.
The government's Pension Protection Fund, which was set up to safeguard at least some occupational pensions against fund defaults, has just said, although you might struggle to find it in the tame capitalist press, that pension funds have had a bumper year. The overall deficit was reduced from £51.9bn at the end of January to £15.1bn at the end of February. And that stacks up with other improvements to rank with the nearly miraculous. At the end of February 2009, the deficit stood at £204.7bn. The improvement was driven by a 2.5 per cent jump in the value of assets held by pensions during the month due to rising equity markets.
But, strain as you might, you won't hear any companies rushing to reinstate their final salary schemes. No, they've had their chance to chop the schemes when times were hard and they won't reverse things now.
Listen carefully and you'll probably find that the problems were down to "market fluctuations" rather than pension holidays and the present improvement will be described as a "blip" not to be relied on.
But so much of these figures are just pure fantasy. A change in actuarial assumptions in 2009 reduced funds' estimated liabilities by around £70bn. The pension funds didn't own a single share more, but were supposedly and suddenly £70bn better off. There can be no substitute for a proper state pension, but while occupational pensions are there, and have been hard-won by working people, they mustn't be left to the mercies of unscrupulous profiteers. Pensions of whatever kind can't be just grist to the market mill, mere capital available for speculation. It's not the markets' money, it's the pensioners'.
But pensions more nearly relate to energy prices than to any commercial reality. We've all seen how energy prices rise when the poor, struggling energy companies have to face higher raw materials bills, but rarely go down when prices drop. It's the same with occupational pensions. When the markets clamp down, the bosses wail and rend their clothing over having to increase their contributions to final salary schemes because the assets of the schemes aren't generating enough income. But when the markets go up, there's precious little rending of the Armani suits and there's equally little chance of the boss ploughing more into the schemes to provide against the lean times. Instead, they take a contributions holiday, bung nothing at all into the schemes, often for years, relying on market gains to keep the funds up to scratch. They probably give themselves juicy bonuses as well, on the basis that the firm's net profit soared.Oddly, we're in one of those periods now, whatever the government, the opposition and the rest of the Establishment may say about soaring debt.
The government's Pension Protection Fund, which was set up to safeguard at least some occupational pensions against fund defaults, has just said, although you might struggle to find it in the tame capitalist press, that pension funds have had a bumper year. The overall deficit was reduced from £51.9bn at the end of January to £15.1bn at the end of February. And that stacks up with other improvements to rank with the nearly miraculous. At the end of February 2009, the deficit stood at £204.7bn. The improvement was driven by a 2.5 per cent jump in the value of assets held by pensions during the month due to rising equity markets.
But, strain as you might, you won't hear any companies rushing to reinstate their final salary schemes. No, they've had their chance to chop the schemes when times were hard and they won't reverse things now.
Listen carefully and you'll probably find that the problems were down to "market fluctuations" rather than pension holidays and the present improvement will be described as a "blip" not to be relied on.
But so much of these figures are just pure fantasy. A change in actuarial assumptions in 2009 reduced funds' estimated liabilities by around £70bn. The pension funds didn't own a single share more, but were supposedly and suddenly £70bn better off. There can be no substitute for a proper state pension, but while occupational pensions are there, and have been hard-won by working people, they mustn't be left to the mercies of unscrupulous profiteers. Pensions of whatever kind can't be just grist to the market mill, mere capital available for speculation. It's not the markets' money, it's the pensioners'.
Tuesday, 9 March 2010
Under attack from all sides
We've had the bit about Britain climbing out of recession already this week, although, since it was based on a mere 0.1 per cent growth in the economy, any claims of success are highly debatable. But what has that green shoot meant to the working people of the country and what does this "recovery" signal for them? Not a lot, apparently, if we are to judge anything by January's news. Biggest and baddest among the announcements that poured into our newsroom was by drugs giant AstraZeneca, which said that 8,000 jobs out of 63,000 are to be slashed across the company's global operations as part of a job cuts programme that has already cost 12,600 people their livelihoods. The firm aims to deliver cost savings - cuts in the wage bill - of around £1.1 billion. As the company announced this threat to the 11,000 employees in Britain, it also announced annual figures showing a 24 per cent rise in profits to £6.65 billion; so essentially it might be recovering from recession, but the same can't be said of its employees.
Meanwhile, home shopping group Shop Direct warned that it is to axe 1,500 jobs at its centres in Sunderland, Burnley and Newtown. The GMB union called this "a body blow in an area of very high unemployment" and a "devastating blow" to local communities. Again, as the company announced the jobs massacre, it declaimed in self-satisfied tones, "a successful peak trading period where total sales grew by 6 per cent and online sales by 19 per cent." Just to make sure that these two companies didn't feel lonely, carmaker Toyota decided to extend the use of the Enlish language by announcing that it had detected a "headcount surplus" of 750 at its main British factory in Burlaston in Derbyshire, where it has already made big cutbacks. One can only suppose that this presages more redundancies rather than the mass beheadings that it seems to hint at. Toyoto, at least, didn't brag about a vastly successful year to rub salt into the wounds, although the company surprised industry observers by posting an unexpected £146 million net profit for the three months to September. And, to cap it all, rail union RMT warns that Tube bosses are secretly drawing up a £5 billion Tube cuts programme, with 144 station ticket offices and 1,200 maintenance jobs under threat.
Also in January, privateer Babcock Rail announced that it is to axe 300 staff, a quarter of its workforce. So it seems that this so-called recovery is not all it's cracked up to be, at least for the working class. It may mean that productivity is rising slightly, but jobs are continuing to vanish at a rate of knots. And that means that the market for anthing produced is shrinking equally rapidly and the call on benefits is rising in tandem - if there's anyone left to administer them after the swingeing cuts planned for the public sector by both main parties.
It's high time that the measure of recovery of the economy was measured by growth in jobs rather than some semi-fictional output figure which contains all the intangibles of City manipulation run in with industrial output.
The real measure of the state of the nation is in another story, the figures for savings in the economy.
Finance company ING revealed that, once the savings of the wealthiest 5 per cent of the population are pruned out of the statistics, average savings are a fiver over £2,200 rather than the £20,000 that has been previously quoted. The top 5 per cent earners, believe it or not, hold fully one third of the nation's savings, while the rest of us were able to put the magnificent sum of £38 aside for a rainy day last year.
So let's all pray for a dry year and a recovery that's driven by government commitment to revive the real economy, not some fragile, semi-fictional output figure. It's becoming progressively clearer how the recession and the massive public debt incurred by the rescue of Britain's feckless bankers will affect working people if the Labour Cabinet and others get their way. And the effects are unpalatable, to say the least. Government, the Tory opposition and the bosses all seem to be united in their determination that the working class will do penance for the bankers' sins. It's hitting us from all sides at once and it won't be easy to organise against, because the attack is coming in such a huge variety of different approaches. In many ways, it's the economic equivalent of the West's "shock and awe" assault on Iraq, so massive and so overwhelming that its intent is clearly to paralyse any opposition by sheer weight and volume. Every element of people's lives is under threat and, the poorer you are, the greater the threat becomes.
In education, Universities Minister David Lammy warns that "it will be a good few years before universities can expect any really significant upturn in their income from the public purse." Despite warnings from universities facing unprecedented demand that the system could be "brought to its knees" by spending cuts which could eventually run into billions, Mr Lammy, a barrister with a London University and Harvard education, signalled a freeze on spending and suggested turning to the private sector for funding. In social housing, The National Housing Federation has just warned that the housing budget could be slashed by 17.98 per cent. It said that, if this happened, around 556,000 planned affordable homes would not be built, while 278,000 jobs and apprenticeships in the construction industry and wider economy would also be lost. In 2007, the government pledged to build a million affordable homes by 2020 to tackle the housing shortage, but only 162,000 will be built by April 2011.
On pay, Chancellor Alistair Darling said on Sunday that pay for top public-sector posts will be reduced. That's on top of the 1 per cent cap on rises already announced. Top pay may not seem to be an immediate problem for most public-sector workers but, beware, freezes and cuts at the top will inevitably trickle down and affect workers throughout a sector already battered by huge job cuts, with even more planned. It's not only the public sector, though. The Chartered Institute of Personnel and Development says that the impact of the recession on workers has been "much deeper" than official figures showed. There were 6.2 million fresh claims for jobseeker's allowance between April 2008 and November 2009, 7.5 times the rise in the unemployment claimant count. And of those who found new jobs, two-thirds were paid an average of 28 per cent less than previously. Employers are getting in on the act as well. In September, Jaguar Land Rover offered to guarantee that 8,000 full-time staff would be kept on until 2015 in return for cuts to the salaries and pensions of new staff. Well, they still want the cuts, but talks with the unions broke down when the bosses changed their minds and withdrew the fragile guarantee on job security.
In Glasgow, workers are organising against cuts that may mean councils dumping 600 jobs in the city and as many as 20,000 across Scotland. It's a unified assault across the board and it's going to require a unified response. The individual campaigns are going to have to develop a much broader view and unite in a struggle that encompasses them all. Mutual support and solidarity are the orders of the day if anything is to be held and defended from the ruling-class onslaught that faces us. Where better to start, then, than the People's Charter, which provides a unifying perspective and a banner under which all these elements can organise?
Lord knows, we are going to need all the solidarity that we can get to fight this concerted assault.
Meanwhile, home shopping group Shop Direct warned that it is to axe 1,500 jobs at its centres in Sunderland, Burnley and Newtown. The GMB union called this "a body blow in an area of very high unemployment" and a "devastating blow" to local communities. Again, as the company announced the jobs massacre, it declaimed in self-satisfied tones, "a successful peak trading period where total sales grew by 6 per cent and online sales by 19 per cent." Just to make sure that these two companies didn't feel lonely, carmaker Toyota decided to extend the use of the Enlish language by announcing that it had detected a "headcount surplus" of 750 at its main British factory in Burlaston in Derbyshire, where it has already made big cutbacks. One can only suppose that this presages more redundancies rather than the mass beheadings that it seems to hint at. Toyoto, at least, didn't brag about a vastly successful year to rub salt into the wounds, although the company surprised industry observers by posting an unexpected £146 million net profit for the three months to September. And, to cap it all, rail union RMT warns that Tube bosses are secretly drawing up a £5 billion Tube cuts programme, with 144 station ticket offices and 1,200 maintenance jobs under threat.
Also in January, privateer Babcock Rail announced that it is to axe 300 staff, a quarter of its workforce. So it seems that this so-called recovery is not all it's cracked up to be, at least for the working class. It may mean that productivity is rising slightly, but jobs are continuing to vanish at a rate of knots. And that means that the market for anthing produced is shrinking equally rapidly and the call on benefits is rising in tandem - if there's anyone left to administer them after the swingeing cuts planned for the public sector by both main parties.
It's high time that the measure of recovery of the economy was measured by growth in jobs rather than some semi-fictional output figure which contains all the intangibles of City manipulation run in with industrial output.
The real measure of the state of the nation is in another story, the figures for savings in the economy.
Finance company ING revealed that, once the savings of the wealthiest 5 per cent of the population are pruned out of the statistics, average savings are a fiver over £2,200 rather than the £20,000 that has been previously quoted. The top 5 per cent earners, believe it or not, hold fully one third of the nation's savings, while the rest of us were able to put the magnificent sum of £38 aside for a rainy day last year.
So let's all pray for a dry year and a recovery that's driven by government commitment to revive the real economy, not some fragile, semi-fictional output figure. It's becoming progressively clearer how the recession and the massive public debt incurred by the rescue of Britain's feckless bankers will affect working people if the Labour Cabinet and others get their way. And the effects are unpalatable, to say the least. Government, the Tory opposition and the bosses all seem to be united in their determination that the working class will do penance for the bankers' sins. It's hitting us from all sides at once and it won't be easy to organise against, because the attack is coming in such a huge variety of different approaches. In many ways, it's the economic equivalent of the West's "shock and awe" assault on Iraq, so massive and so overwhelming that its intent is clearly to paralyse any opposition by sheer weight and volume. Every element of people's lives is under threat and, the poorer you are, the greater the threat becomes.
In education, Universities Minister David Lammy warns that "it will be a good few years before universities can expect any really significant upturn in their income from the public purse." Despite warnings from universities facing unprecedented demand that the system could be "brought to its knees" by spending cuts which could eventually run into billions, Mr Lammy, a barrister with a London University and Harvard education, signalled a freeze on spending and suggested turning to the private sector for funding. In social housing, The National Housing Federation has just warned that the housing budget could be slashed by 17.98 per cent. It said that, if this happened, around 556,000 planned affordable homes would not be built, while 278,000 jobs and apprenticeships in the construction industry and wider economy would also be lost. In 2007, the government pledged to build a million affordable homes by 2020 to tackle the housing shortage, but only 162,000 will be built by April 2011.
On pay, Chancellor Alistair Darling said on Sunday that pay for top public-sector posts will be reduced. That's on top of the 1 per cent cap on rises already announced. Top pay may not seem to be an immediate problem for most public-sector workers but, beware, freezes and cuts at the top will inevitably trickle down and affect workers throughout a sector already battered by huge job cuts, with even more planned. It's not only the public sector, though. The Chartered Institute of Personnel and Development says that the impact of the recession on workers has been "much deeper" than official figures showed. There were 6.2 million fresh claims for jobseeker's allowance between April 2008 and November 2009, 7.5 times the rise in the unemployment claimant count. And of those who found new jobs, two-thirds were paid an average of 28 per cent less than previously. Employers are getting in on the act as well. In September, Jaguar Land Rover offered to guarantee that 8,000 full-time staff would be kept on until 2015 in return for cuts to the salaries and pensions of new staff. Well, they still want the cuts, but talks with the unions broke down when the bosses changed their minds and withdrew the fragile guarantee on job security.
In Glasgow, workers are organising against cuts that may mean councils dumping 600 jobs in the city and as many as 20,000 across Scotland. It's a unified assault across the board and it's going to require a unified response. The individual campaigns are going to have to develop a much broader view and unite in a struggle that encompasses them all. Mutual support and solidarity are the orders of the day if anything is to be held and defended from the ruling-class onslaught that faces us. Where better to start, then, than the People's Charter, which provides a unifying perspective and a banner under which all these elements can organise?
Lord knows, we are going to need all the solidarity that we can get to fight this concerted assault.
How the state can save Britain
This is indeed a strange election for the British public. Both the main political parties are focusing on one central issue - how far and how fast the budget deficit should be cut. But that is the wrong policy. And what should clearly be the central focus of this election doesn't even get a serious mention. Cutting public spending, whether drastically or sensitively and straight away or a bit later, is not the right policy when the "recovery" is so precarious and particularly when the deep recession is mainly due not to the bank bail-outs, but to the collapse in private investment. That investment, especially in housing and private transport equipment such as buses, trains, cars etc, had already fallen spectacularly by 15 per cent between the first quarter of 2007 and the second of 2008 - before the September 2008 financial crash. The banking failures, which then exacerbated the collapse in lending to businesses and homeowners from a 20 per cent-a-year growth at the start of 2007 to nil or negative two years later, compounded an already dramatic fall in private investment.
The obvious correct response to both these failures in a deep recession is to step up public-sector investment to compensate. A major public investment programme in job creation in house-building, infrastructure enhancement and the new green digital economy would provide a triple whammy to meet the current impasse. It would boost aggregate demand to compensate for fading private investment as the unsustainable housing and credit bubbles finally burst. It would go some way to filling the void left by the collapse of bank lending to businesses, especially if it was funded by an Obama-style levy on the banks. And with house-building at its lowest ebb since the 1920s, it would give huge impetus to the provision of affordable social housing. This has left 1.8 million households languishing on council waiting lists - by far the biggest unmet social need in Britain today.
The main argument used against public investment is that the bond markets won't stand for any further extension of the already swollen budget deficit of £178bn this year - not even if it were largely funded by a supertax on the banks in repayment of the bail-outs. If the bond traders walked away, goes the argument, the government would then be unable to finance its debt and Britain might even lose its prized triple A credit rating. The opposite is true. What has caused the recent unsteadiness in the financial markets is not the size of the deficit, but rather the government's retrenchment from its modest reflation of the economy. This will make the downturn much more prolonged. The VAT increase, the National Insurance increase and the ending of quantitative easing will once again squeeze demand at far too early a stage in the recovery - and an economy flat-lining on the bottom is what scares markets. So why hasn't the obvious policy of public-sector reflation taken root?
The culprit is the neoliberal agenda. It remains dominant in both the main political parties and dictates that private markets must be the exclusive mechanism for economic activity. The Tories are only too pleased to have an excuse for major public expenditure cuts because they have always wanted to shrink the state. New Labour remains dogmatically opposed, against all the evidence, to major public sector-led recovery initiatives. Neither the Disraelian paternalist wing of the Tory Party nor the social democratic wing of the Labour Party has enough influence - so far - within their own parties to offer any real choice at this coming election. The choice is exclusively neoliberal and narrow. Yet the neoliberal system is clearly broken. The banks remain dominant and regulation is piecemeal and ineffective. The necessary shrinking of the bloated financial sector has not taken place, nor the needed expansion of the country's productive base.
The obsession with market fundamentalism, even though it has now been tested to destruction, has not given way to a needed rebalancing between the roles of the markets and the state. Privatisation, deregulation and labour market flexibility have run their course without producing stable growth or full employment. The grotesque ballooning of inequality has also generated a social recession, the stubborn persistence of poverty and unresolved and arguably deepening problems of an alienated sub-class. Nor does the concentration on exclusively market-driven criteria look like resolving the fast-approaching debacles of energy crunch and climate catastrophe. What is missing from the very narrow prism of neoliberal "solutions" is any recognition that the state has a unique role in regulating market excesses, redressing market failures, overseeing a balanced and sustainable economy, promoting the proportionate interests, rights and freedoms of all classes within society and taking a lead in national security issues like energy supply and climate threat. None of these is being adequately addressed today.
The alternative to the dead-end of neoliberal capitalism that Britain has now reached is better regulated markets, particularly in the financial sector, a new and specialised role for the state in key areas of the economy, a much stronger focus on reviving and strengthening Britain's manufacturing base, a much more co-operative and participatory industrial relations framework and a stringent overhaul of pay and incentives to provide for much fairer remuneration across the range of incomes - especially at the lowest and highest level. We need a national infrastructure bank to drive regeneration. We need a people's Girobank to offer affordable banking for all classes. We need a government-led house-building drive to rehouse up to a quarter of the population and upgrade the energy efficiency of almost all housing. An economy that swings back from unemployment support for nearly three million towards large-scale job creation of earning and tax-paying workers could begin to realise this alternative vision. It should be linked to a very different political and social order.
We need not a moribund Parliament, but one that is empowered to respond much more proactively to the electorate's demands as well as holding the executive more robustly to account. We need a much more liberal civil order that rebalances the increasingly repressive state control and surveillance in favour of reinvigorated civil liberties. And we need not a resurrected old-style welfare state nor a neoliberal-inspired whittling away of social support mechanisms, but rather a deeper and better targeted intervention in intergenerational poverty and discrimination to make the ideal of equal rights a reality. Now that would be a real choice for the election.
The obvious correct response to both these failures in a deep recession is to step up public-sector investment to compensate. A major public investment programme in job creation in house-building, infrastructure enhancement and the new green digital economy would provide a triple whammy to meet the current impasse. It would boost aggregate demand to compensate for fading private investment as the unsustainable housing and credit bubbles finally burst. It would go some way to filling the void left by the collapse of bank lending to businesses, especially if it was funded by an Obama-style levy on the banks. And with house-building at its lowest ebb since the 1920s, it would give huge impetus to the provision of affordable social housing. This has left 1.8 million households languishing on council waiting lists - by far the biggest unmet social need in Britain today.
The main argument used against public investment is that the bond markets won't stand for any further extension of the already swollen budget deficit of £178bn this year - not even if it were largely funded by a supertax on the banks in repayment of the bail-outs. If the bond traders walked away, goes the argument, the government would then be unable to finance its debt and Britain might even lose its prized triple A credit rating. The opposite is true. What has caused the recent unsteadiness in the financial markets is not the size of the deficit, but rather the government's retrenchment from its modest reflation of the economy. This will make the downturn much more prolonged. The VAT increase, the National Insurance increase and the ending of quantitative easing will once again squeeze demand at far too early a stage in the recovery - and an economy flat-lining on the bottom is what scares markets. So why hasn't the obvious policy of public-sector reflation taken root?
The culprit is the neoliberal agenda. It remains dominant in both the main political parties and dictates that private markets must be the exclusive mechanism for economic activity. The Tories are only too pleased to have an excuse for major public expenditure cuts because they have always wanted to shrink the state. New Labour remains dogmatically opposed, against all the evidence, to major public sector-led recovery initiatives. Neither the Disraelian paternalist wing of the Tory Party nor the social democratic wing of the Labour Party has enough influence - so far - within their own parties to offer any real choice at this coming election. The choice is exclusively neoliberal and narrow. Yet the neoliberal system is clearly broken. The banks remain dominant and regulation is piecemeal and ineffective. The necessary shrinking of the bloated financial sector has not taken place, nor the needed expansion of the country's productive base.
The obsession with market fundamentalism, even though it has now been tested to destruction, has not given way to a needed rebalancing between the roles of the markets and the state. Privatisation, deregulation and labour market flexibility have run their course without producing stable growth or full employment. The grotesque ballooning of inequality has also generated a social recession, the stubborn persistence of poverty and unresolved and arguably deepening problems of an alienated sub-class. Nor does the concentration on exclusively market-driven criteria look like resolving the fast-approaching debacles of energy crunch and climate catastrophe. What is missing from the very narrow prism of neoliberal "solutions" is any recognition that the state has a unique role in regulating market excesses, redressing market failures, overseeing a balanced and sustainable economy, promoting the proportionate interests, rights and freedoms of all classes within society and taking a lead in national security issues like energy supply and climate threat. None of these is being adequately addressed today.
The alternative to the dead-end of neoliberal capitalism that Britain has now reached is better regulated markets, particularly in the financial sector, a new and specialised role for the state in key areas of the economy, a much stronger focus on reviving and strengthening Britain's manufacturing base, a much more co-operative and participatory industrial relations framework and a stringent overhaul of pay and incentives to provide for much fairer remuneration across the range of incomes - especially at the lowest and highest level. We need a national infrastructure bank to drive regeneration. We need a people's Girobank to offer affordable banking for all classes. We need a government-led house-building drive to rehouse up to a quarter of the population and upgrade the energy efficiency of almost all housing. An economy that swings back from unemployment support for nearly three million towards large-scale job creation of earning and tax-paying workers could begin to realise this alternative vision. It should be linked to a very different political and social order.
We need not a moribund Parliament, but one that is empowered to respond much more proactively to the electorate's demands as well as holding the executive more robustly to account. We need a much more liberal civil order that rebalances the increasingly repressive state control and surveillance in favour of reinvigorated civil liberties. And we need not a resurrected old-style welfare state nor a neoliberal-inspired whittling away of social support mechanisms, but rather a deeper and better targeted intervention in intergenerational poverty and discrimination to make the ideal of equal rights a reality. Now that would be a real choice for the election.
Monday, 8 March 2010
Greek economy tremors shake eurozone foundation
The economic crisis in Greece is sending shockwaves through Europe’s financial and political infrastructure. The threat of debt default has fuelled feverish speculation on bond markets. The only issue on which the EU and Greek political establishment agrees is that the working-class will have to pay through savage cutbacks. This, in turn, is sparking social upheaval. Greece, currently the weakest link in a series of weak eurozone links, has triggered a severe crisis for the common currency. The euro crisis, moreover, will have a serious impact, not merely on the eurozone, but for European capitalism as a whole. The spectre of Greece defaulting on its debts is pushing up the cost of borrowing for other heavily indebted countries, like Spain, Portugal, Italy and Ireland. A Greek default (even though Greece accounts for only 2.5% of the eurozone GDP) would pose the question of the viability of the euro as a common currency. A breakup of the eurozone, which is now being seriously contemplated by some of the strategists of capitalism, would also provoke a convulsion in the world finance and currency system.
For a start, a Greek default could cause the collapse of some of the European banks holding Greek government bonds (totalling about €300bn), provoking a new phase of crisis in the global banking and financial system. Greece is the trigger, revealing the contradictions inherent in the common currency. When the global banking/financial system faced meltdown in 2008, the major capitalist powers stepped in with an estimated $18 trillion of capital injections and guarantees. They effectively nationalised the losses of speculative investment banks. At the public’s expense, they rescued banks and other speculative vehicles from the consequences of their own reckless gambling on global markets. Now, however, the major EU powers are refusing to guarantee a mere €300 billion of Greek debt. They are promising ‘solidarity’ with Greece, which is intended to reassure the financial markets that they will not allow a default. However, they have so far refused to come up with a concrete package of financial support. At the same time, they are demanding more and more savage cuts from the Greek government – cuts to be imposed on the Greek working class. To reduce the current budget deficit to 3% of GDP (the EU’s Economic and Monetary Union ‘norm’), would require a cut in GDP of between 12-15%, which would have the effect of a major slump in the economy.
The ‘reforms’ demanded by the EU powers, led by German capitalism, have been called appropriately a ‘tsunami of attacks’. Cuts on the scale now being proposed would savage social services and bring huge increases in taxes, beginning with VAT. Moreover, these misnamed ‘reforms’ are being put forward by a ‘socialist’ (PASOK) government of George Papandreou. However, the tsunami has already been met by ‘rivers of fury’, with a series of massive, nationwide strikes and protests. "The bureaucrats in Brussels want… to see blood on the streets of Athens", wrote one mass newspaper. "We are at war with the government", commented a former left MP, "because it is clearly at war with us". "Why should I as a worker pay for the errors in policies?" asked one teacher on a public-sector demonstration. "The worker can’t be the scapegoat. So we have to defend ourselves". A few capitalist commentators, however, are warning that cuts on the scale now being proposed in Greece will cause an explosive social and political reaction, not just in Greece but throughout Europe. "If you tighten the way the markets seem to want, you will get a political response that is nonviable", commented Joseph Stiglitz, an economist who advocates Keynesian policies. "These are democracies – not dictatorships".
The events in Greece, which will be echoed in Spain, Portugal, Ireland and elsewhere, mark a new period of social revolt and political struggles that will reverberate around Europe. Greece is one of the weakest of the European capitalist states. Its accumulated national debt is almost €300 billion, about 112% of GDP – and this is expected to rise to 130% by 2013, unless there are savage cuts in spending combined with tax increases. Moreover, the current debt may be even higher than it appears in the national accounts, due to the use of various complex financial instruments designed to hide the real level. The huge mountain of debt has been accumulated through the gross mismanagement of successive governments, and has certainly not benefitted the Greek working class. There is massive tax evasion, for instance, among the wealthy and even the prosperous middle class. Only workers, who have their tax deducted at source, actually pay official levels of tax. It is estimated that the government loses €30-40 billion a year through tax evasion. Corruption is rife throughout the state bureaucracy.
Greece was hit hard by the global recession, with a 1.1% fall of GDP last year and an estimated 1% fall coming during 2010. The slump has resulted in mass unemployment, especially among the youth. Greece’s national debt was accumulated over a period and was no secret. However, the debt crisis was provoked in December when the Fitch rating agency downgraded Greek bonds from A-minus to BBB. This pushed up the rate of interest the Greek government had to pay on its bonds to almost 7%, 3.8% above benchmark German government bonds. The ‘bonds market vigilantes’, the big global bond traders, began to raise the spectre of a default by the Greek government. This inevitably raised similar doubts on financial markets about other heavily indebted economies, particularly Spain, Portugal and Italy. The Eurozone conomies have been severely hit by the global downturn. There was a fall from peak to trough of -5% (compared, for instance, with a 3.8% fall in the US economy). The latest figures for the fourth quarter of 2009 show negligible growth in the biggest economies, Germany and France, with continued negative growth in the peripheral countries: Portugal, Italy, Greece and Spain, unflatteringly known as the PIGS – or PIIGS if Ireland is included.
The eurozone downturn has been exacerbated by the common currency. The rise in the value of the euro during the downturn (mainly because of the decline of the US dollar), raised the export prices of euro economies when there was a sharp fall in world demand for exports. At the same time, the divergence between the eurozone economies is now threatening a deep crisis for the euro itself. Germany, the Netherlands and France, for instance, have been able to implement debt-finance stimulus packages. The debt-laden PIGS, however, do not have that luxury, as the ‘markets’ (ie banks and speculators) are not prepared to tolerate Keynesianism in the weaker economies.
At the same time, the euro yokes economies with large current account surpluses (for example, Germany, the Netherlands) with economies with big current account deficits (the current account is the trade balance plus current payments, such as repatriated profits). With separate currencies, the currencies of surplus countries would tend to appreciate while those of the deficit countries would decline, tending to correct the imbalances. This is not possible within the one-size-fits-all eurozone.Portugal, Italy, Greece and Spain are all to varying degrees heavily laden with debt, whether in the public sector, the business sector, or household indebtedness. Greece is currently running a budget deficit of 12.7% and an accumulated national debt of €112 billion. The boom time growth in Spain and Ireland, moreover, was heavily dependent on housing bubbles, which have now deflated. The peripheral economies took advantage of low eurozone interest rates and cheap credit to finance their debt-driven growth. Although every government issued its own bonds, the apparent ‘security’ of the euro enabled them to borrow money at lower interest rates than otherwise.
As separate economies, governments of whatever complexion might have raised interest rates to try to curb the growth of bubbles. In the eurozone, however, the European Central Bank (ECB) set a common, low rate which particularly suited larger economies like Germany. The prevalence during the previous upswing of low interest rates and a high euro, which favoured surplus exporters like Germany, the Netherlands and France, encouraged profligate spending and borrowing in the weaker economies.
The crisis in the eurozone’s periphery is not an accident: it is inherent in the system. Under the EU’s Economic and Monetary Union (EMU) and ‘stability pact’, current deficits are limited to 3% of GDP, with national debt limited to 60%. It was widely suspected when Greece entered the eurozone in 2001 that the government cooked the books to meet the ‘convergence criteria’. With the onset of crisis, however, the EU Commission, the ECB and, ultimately, the major eurozone powers (Germany and France) were forced to accept much higher levels of deficit and national debt not least because they exceeded the norms themselves. This highlights the basic contradiction of the eurozone: the 16 countries are participating in a currency union, but without the basic elements of a political union. There is no centralised economic power capable of keeping the different national economies within the norms required by a stable euro currency. The EU Commission and ECB have periodically admonished national governments for breaching the rules, but have been effectively powerless to curb their expenditure.
There are no eurozone institutions, for instance, with powers similar to the International Monetary Fund (IMF). If it is called in to support a floundering currency, the IMF has draconian powers of surveillance, and has imposed draconian conditions for loans. This is why Merkel, Brown and others now favour the intervention of the IMF in Greece. By turning to the IMF, however, the ECB and eurozone would signal their own weakness. In fact, such a move could further undermine the euro. Now, however, faced with the prospect of a breakup of the eurozone, the key economies, particularly Germany, are demanding savage cuts from Greece and the other peripheral economies. This is the price they will try to exact for preventing a default by the Greek and other governments. The major eurozone powers, especially Germany, are averse to specifying a rescue package for Greece. They have confined their support to vague promises of ‘solidarity’ in the hope that this will reassure financial markets. As the International Herald Tribune comments (6 February): "There is still a game of chicken among sovereign states, with Greece counting on help and other countries holding back until Athens pays a steep price for its profligacy and manipulation of statistics".
"It’s highly unlikely Greece will be allowed to default", economist Antonio Missoroli commented. "But no one wants to say that out loud to take the pressure off the Greek government. So it’s a fragile balancing act, how much pressure can you exercise on Greece and how much can it bear?" Another commentator, Simon Tilford, said that "the EU wants to humiliate the Greek political establishment and to see them taking difficult decisions". This is a dangerous game. A Greek default, under pressure from financial markets, could trigger a domino effect throughout the eurozone. Yet even after the European summit on 10/11 February, the subsequent meeting of European finance ministers on 15 February demanded even bigger cuts. This was despite the Greek government’s promise to cut its deficit by four percentage points to 8.7% of GDP by the end of this year – in itself a savage and politically explosive reduction.
For a start, a Greek default could cause the collapse of some of the European banks holding Greek government bonds (totalling about €300bn), provoking a new phase of crisis in the global banking and financial system. Greece is the trigger, revealing the contradictions inherent in the common currency. When the global banking/financial system faced meltdown in 2008, the major capitalist powers stepped in with an estimated $18 trillion of capital injections and guarantees. They effectively nationalised the losses of speculative investment banks. At the public’s expense, they rescued banks and other speculative vehicles from the consequences of their own reckless gambling on global markets. Now, however, the major EU powers are refusing to guarantee a mere €300 billion of Greek debt. They are promising ‘solidarity’ with Greece, which is intended to reassure the financial markets that they will not allow a default. However, they have so far refused to come up with a concrete package of financial support. At the same time, they are demanding more and more savage cuts from the Greek government – cuts to be imposed on the Greek working class. To reduce the current budget deficit to 3% of GDP (the EU’s Economic and Monetary Union ‘norm’), would require a cut in GDP of between 12-15%, which would have the effect of a major slump in the economy.
The ‘reforms’ demanded by the EU powers, led by German capitalism, have been called appropriately a ‘tsunami of attacks’. Cuts on the scale now being proposed would savage social services and bring huge increases in taxes, beginning with VAT. Moreover, these misnamed ‘reforms’ are being put forward by a ‘socialist’ (PASOK) government of George Papandreou. However, the tsunami has already been met by ‘rivers of fury’, with a series of massive, nationwide strikes and protests. "The bureaucrats in Brussels want… to see blood on the streets of Athens", wrote one mass newspaper. "We are at war with the government", commented a former left MP, "because it is clearly at war with us". "Why should I as a worker pay for the errors in policies?" asked one teacher on a public-sector demonstration. "The worker can’t be the scapegoat. So we have to defend ourselves". A few capitalist commentators, however, are warning that cuts on the scale now being proposed in Greece will cause an explosive social and political reaction, not just in Greece but throughout Europe. "If you tighten the way the markets seem to want, you will get a political response that is nonviable", commented Joseph Stiglitz, an economist who advocates Keynesian policies. "These are democracies – not dictatorships".
The events in Greece, which will be echoed in Spain, Portugal, Ireland and elsewhere, mark a new period of social revolt and political struggles that will reverberate around Europe. Greece is one of the weakest of the European capitalist states. Its accumulated national debt is almost €300 billion, about 112% of GDP – and this is expected to rise to 130% by 2013, unless there are savage cuts in spending combined with tax increases. Moreover, the current debt may be even higher than it appears in the national accounts, due to the use of various complex financial instruments designed to hide the real level. The huge mountain of debt has been accumulated through the gross mismanagement of successive governments, and has certainly not benefitted the Greek working class. There is massive tax evasion, for instance, among the wealthy and even the prosperous middle class. Only workers, who have their tax deducted at source, actually pay official levels of tax. It is estimated that the government loses €30-40 billion a year through tax evasion. Corruption is rife throughout the state bureaucracy.
Greece was hit hard by the global recession, with a 1.1% fall of GDP last year and an estimated 1% fall coming during 2010. The slump has resulted in mass unemployment, especially among the youth. Greece’s national debt was accumulated over a period and was no secret. However, the debt crisis was provoked in December when the Fitch rating agency downgraded Greek bonds from A-minus to BBB. This pushed up the rate of interest the Greek government had to pay on its bonds to almost 7%, 3.8% above benchmark German government bonds. The ‘bonds market vigilantes’, the big global bond traders, began to raise the spectre of a default by the Greek government. This inevitably raised similar doubts on financial markets about other heavily indebted economies, particularly Spain, Portugal and Italy. The Eurozone conomies have been severely hit by the global downturn. There was a fall from peak to trough of -5% (compared, for instance, with a 3.8% fall in the US economy). The latest figures for the fourth quarter of 2009 show negligible growth in the biggest economies, Germany and France, with continued negative growth in the peripheral countries: Portugal, Italy, Greece and Spain, unflatteringly known as the PIGS – or PIIGS if Ireland is included.
The eurozone downturn has been exacerbated by the common currency. The rise in the value of the euro during the downturn (mainly because of the decline of the US dollar), raised the export prices of euro economies when there was a sharp fall in world demand for exports. At the same time, the divergence between the eurozone economies is now threatening a deep crisis for the euro itself. Germany, the Netherlands and France, for instance, have been able to implement debt-finance stimulus packages. The debt-laden PIGS, however, do not have that luxury, as the ‘markets’ (ie banks and speculators) are not prepared to tolerate Keynesianism in the weaker economies.
At the same time, the euro yokes economies with large current account surpluses (for example, Germany, the Netherlands) with economies with big current account deficits (the current account is the trade balance plus current payments, such as repatriated profits). With separate currencies, the currencies of surplus countries would tend to appreciate while those of the deficit countries would decline, tending to correct the imbalances. This is not possible within the one-size-fits-all eurozone.Portugal, Italy, Greece and Spain are all to varying degrees heavily laden with debt, whether in the public sector, the business sector, or household indebtedness. Greece is currently running a budget deficit of 12.7% and an accumulated national debt of €112 billion. The boom time growth in Spain and Ireland, moreover, was heavily dependent on housing bubbles, which have now deflated. The peripheral economies took advantage of low eurozone interest rates and cheap credit to finance their debt-driven growth. Although every government issued its own bonds, the apparent ‘security’ of the euro enabled them to borrow money at lower interest rates than otherwise.
As separate economies, governments of whatever complexion might have raised interest rates to try to curb the growth of bubbles. In the eurozone, however, the European Central Bank (ECB) set a common, low rate which particularly suited larger economies like Germany. The prevalence during the previous upswing of low interest rates and a high euro, which favoured surplus exporters like Germany, the Netherlands and France, encouraged profligate spending and borrowing in the weaker economies.
The crisis in the eurozone’s periphery is not an accident: it is inherent in the system. Under the EU’s Economic and Monetary Union (EMU) and ‘stability pact’, current deficits are limited to 3% of GDP, with national debt limited to 60%. It was widely suspected when Greece entered the eurozone in 2001 that the government cooked the books to meet the ‘convergence criteria’. With the onset of crisis, however, the EU Commission, the ECB and, ultimately, the major eurozone powers (Germany and France) were forced to accept much higher levels of deficit and national debt not least because they exceeded the norms themselves. This highlights the basic contradiction of the eurozone: the 16 countries are participating in a currency union, but without the basic elements of a political union. There is no centralised economic power capable of keeping the different national economies within the norms required by a stable euro currency. The EU Commission and ECB have periodically admonished national governments for breaching the rules, but have been effectively powerless to curb their expenditure.
There are no eurozone institutions, for instance, with powers similar to the International Monetary Fund (IMF). If it is called in to support a floundering currency, the IMF has draconian powers of surveillance, and has imposed draconian conditions for loans. This is why Merkel, Brown and others now favour the intervention of the IMF in Greece. By turning to the IMF, however, the ECB and eurozone would signal their own weakness. In fact, such a move could further undermine the euro. Now, however, faced with the prospect of a breakup of the eurozone, the key economies, particularly Germany, are demanding savage cuts from Greece and the other peripheral economies. This is the price they will try to exact for preventing a default by the Greek and other governments. The major eurozone powers, especially Germany, are averse to specifying a rescue package for Greece. They have confined their support to vague promises of ‘solidarity’ in the hope that this will reassure financial markets. As the International Herald Tribune comments (6 February): "There is still a game of chicken among sovereign states, with Greece counting on help and other countries holding back until Athens pays a steep price for its profligacy and manipulation of statistics".
"It’s highly unlikely Greece will be allowed to default", economist Antonio Missoroli commented. "But no one wants to say that out loud to take the pressure off the Greek government. So it’s a fragile balancing act, how much pressure can you exercise on Greece and how much can it bear?" Another commentator, Simon Tilford, said that "the EU wants to humiliate the Greek political establishment and to see them taking difficult decisions". This is a dangerous game. A Greek default, under pressure from financial markets, could trigger a domino effect throughout the eurozone. Yet even after the European summit on 10/11 February, the subsequent meeting of European finance ministers on 15 February demanded even bigger cuts. This was despite the Greek government’s promise to cut its deficit by four percentage points to 8.7% of GDP by the end of this year – in itself a savage and politically explosive reduction.
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