The G20 meeting in the UK next week brings together the leaders of countries that account for 80% of the world economy. They are contemplating the fate of their capitalist economy as it falls into the abyss.
The contraction of credit and the end to debt–financed spending has forced a major downturn in output – there only about half as many cars coming off the global production lines as this time last year. The countries that are being hit hardest are those most dependent on exports such as Germany and Japan; global exports are 25% lower than this time last year.
The G20 gathering will try to convince the world that they are in control of events and collectively taking the action needed to pull the economy out of its nosedive. Specifically, there will be proposals to coordinate another “fiscal stimulus” (tax cuts and spending programmes) to lift demand in Europe and USA. They will agree ideas fornew, tougher regulations on the banking sector and promise steps to rein in tax havens.
They may try to boost resources available to the IMF to bail out stricken states. They will also try and conceal the significant differences existing between them (especially between Brown-Obama and the Eurozone) over how much more money can be found to shore up capitalism without saddling governments with huge debts and storing up massive problems for the future.
We are currently living through the sharpest industrial and trade contraction since at least the Second World War, surpassing in depth, breadth and duration the 1974-75 and 1980-82 global recessions. The social consequences are devastating for many, pushing unemployment rates up towards 8-10% in many G20 countries and in some cases, such as Spain, 15% and higher. G20 ministers are keen to pre-empt a longer depression.
There is no doubt they are aware of the consequences of repeating the disastrous policies adopted by their predecessors in the 1930s, following the 1929 crash.
Then governments cut spending in order to balance government budgets as their revenues fell after 1929. Money and credit supply contracted 40-50% in five years. Then, states set up barriers to trade that sharply contracted international commerce and output.
The consequences were brutal. In the USA between 1929-33 industrial output more than halved and real GDP contracted by almost 30%. The unemployment rate surged to 25%. From 1929 to mid-1933 prices fell by nearly 30%. There were widespread bank failures, and defaults and bankruptcies by businesses and households.
The global depression shattered the social and political fabric of Europe and America, sparking huge class struggles, civil and inter-state wars. The G20 leaders are haunted by the thought that history could repeat itself. So they have adopted policies opposite to those of the 1930s.
Eurozone governments have put together substantial bank rescue packages: bank guarantees worth 18% of GDP, capital injections amounting to more than 200bn (2.3% of GDP) and asset purchase programmes worth more than Euro 100bn (more than 1% of GDP). The UK government has spent hundreds of billions of pounds on bank rescues and debt guarantees. In the US a $1tr “toxic assets” programme has just been agreed to get bad debts off the banks’ books to try and kick-start lending.
On top of this EU states have outlined spending and tax cuts packages for 2009-10 worth Euro 154bn (1.7% of GDP). The Obama and Brown plans are on a similar scale.
The G20 meeting will also warn against national protectionism. In the 1930s tit-for tat tariffs cut the global value of imports by 70% in the four years to 1933. Nothing on this scale is underway or being mooted by major governments. US Congress flirtedwith “buy American” clauses in one package and EU states are channelling funds to car firms against EU rules. India has raised tariffs on steel imports. But so far this is small beer, although non-tariff barriers are likely to multiply in the years ahead.
Too little, too late?
The immediate problem facing the G20 leaders is not that they will engage in a trade war, but rather that their interventions – significant as they have been so far – are simply not enough to stop the recession getting worse.
It is reliably estimated that there are more than $3.5tr worth of bad debts lurking in the financial system, far more than government programmes are designed to cope with. Moreover, the G20 has so far adopted a private market strategy and will only take over banks when absolutely forced to.
In general governments have sought to give the banks incentives to sort their problems out, yet so far they are refusing to be “incentivised”. Credit is slow to expand and as a result the world’s workers and poor are faced with a longer and deeper recession.
We are paying the price of the criminal recklessness of the capitalist bankers and politicians. Unemployment is ruining lives, leading to homes being repossessed. In the UK we are already passed the two million mark and a further million will certainly follow them into the job centres this year for a fruitless interview. School leavers have little chance of getting a job this summer.
Even if the various policies succeed in putting a floor under the economic collapse and a recovery of some sort sets in by the end of the year, the various G20 governments will be saddled with huge debts for years to come. The billions they have handed over to the bankers will be clawed back from us in the form of higher taxes, public sector jobs and service cuts, and pay freezes.
In the face of this what are our trade union leaders doing? On today’s demonstration they will denounce the bankers, the bosses and the bonuses. They will moan that Labour should be doing more and quicker to help keep people at work and from losing their homes. They will mouth their usual platitudes about the need to fight back. But on Monday morning it will be business as usual, negotiating redundancies, short-time working and pay cuts, as they have done at Toyota and elsewhere.
In contrast, in France millions took to the streets in co-ordinated strike action in January and again last week, with mass demonstrations up and down the country. In Britain the trade union leaders’ main priority is to get Brown and Labour reelected next year. As such they will refuse to organise mass strikes and demonstrations à la France which may eject Brown from office or boost Cameron in the polls.
Jobs, justice, climate
The slogan of today’s protest is “Jobs, justice, climate”. Addressing each of these in an integrated, revolutionary way can cut short the economic slump, remove the major causes of the capitalist crisis and tackle the biggest threat to the future of the planet – climate change.
* Nationalise the financial sector without compensation!
The banks are told by government to lend to firms and households while at the same time instructed to build up their capital reserves against future risks. This is a contradiction that cannot be resolved in a commercial banking system, one driven by profit maximisation.
The G20 governments must immediately nationalise all the major banks and the shadow banking system (hedge funds etc) to put the credit and investment tools in the hands of a centralised agency. Only then can all the resources of the economy be brought to bear on job creation and welfare provision and an end put to the scandal of bosses bonuses while millions are being thrown out of work as a result of their actions.
* For a red-green new deal!
Instead of negotiating cuts in pay in a vain attempt to “save jobs” our trade union leaders should be fighting for a massive expansion of jobs in renewable energy industries. Instead of short time working in the car industry we need to convert plant and equipment from these carbon-emitters to produce technologies to halt climate change. Every sacked worker needs to be retrained on full pay to build armies of home insulators, turbine builders, solar panel manufacturers and fitters, renewable energy engineers and researchers. Sweden, a country of 10 million has 400,000 people working in clean energy industries; the UK has a few thousand. We need billions of pounds and millions of workers employed to wean the economy off carbon in the next 10 years. This investment can be paid for by a huge wealth and profit tax on the capitalist wreckers; any attempt at avoidance or off-shoring should be met with complete expropriation of the companies involved.
* No to an enhanced IMF!
Ten years ago many developing world countries in Asia were in deep recession after the Asian financial crisis of 1997. Then the IMF weighed in with its “help” – emergency aid to stabilise their currencies while country after country slashed their welfare programmes and jobs and sold off their state companies to the west in order to “balance the books”. Now it’s the turn of eastern Europe to get the IMF treatment. Countries like Latvia have had their currencies “stabilised” by IMF injections; in return the IMF demands these countries balance their budgets – the very thing deemed wrong-headed for the EU or US right now. And this means swingeing 30% pay cuts and spending pared to the bone. So much for justice. If fiscal stimuli are needed to reflate economies in the EU and US then smaller countries in Asia, Europe and Africa (which did not create the toxic assets or set the reckless rules for financial markets) must get the same assistance. We demand that unconditional aid be given to sustain jobs, food programmes and development projects in countries that are victims of the recklessness and greed of Europe and the US .
* A workers’ answer – socialism!
The capitalist politicians that instructed us in the virtues of the free market, that did the bidding of the bankers as they insisted on “light touch regulation”, bringing us to this present ruinous situation, cannot be trusted to oversee the process of recovery.
Their reforms will be too timid to tame the bankers and will end up preparing future crises. Only a string of revolutionary workers’ governments across the globe, not a cabal of G20 ministers, can tackle the root cause of the present misery: capitalism itself. These must be governments that originate out of mass upheavals, building on the events in France, based on accountable, popular organisations forged in the heat of struggle. Governments made up not of pampered parliamentarians, but of ordinary workers’ leaders. Governments that are instruments based on the power of the working class and use the present crisis to destroy the rule of private property in commerce, finance and industry that threatens to disfigure the lives of millions.
If we want an end to the crisis and not a crisis without end, this is the bold socialist step that we must take together.
Comments from other groups and individuals on the G20 summit are welcome.