Financial
meltdown soon – prepare for revolution
by Steve Wallis
The world
economy is heading towards a severe crisis, mainly due to debt held by
governments and individuals (particularly those with “subprime” mortgages), and
rich people and companies exploiting tax loopholes and tax havens to pay little
or no tax. Many Western countries have very little manufacturing industry or
raw materials and are borrowing heavily to postpone the crisis. In the UK, this
borrowing has largely been used to finance increases in public spending which
has kept the economy ticking over; for example, spending on the National Health
Service has been regularly increased by 7% above the rate of inflation and many
analysts are predicting economic problems as a result of “only” increasing it
by a planned 4% above inflation in the next financial year (and education
spending by 2% above inflation).
In my view,
socialists should concentrate on demanding the closure of tax loopholes and
havens, threatening the confiscation of the assets of those who continue to use
the tax havens that remain or relocate abroad to avoid paying tax. Socialists
raising such issues and encouraging (mainstream as well as left-wing) political
parties to adopt them can bring forward the date of the inevitable financial
crisis and ensure that the outcome of the crisis is positive when it happens –
resulting in more ethical capitalist societies and perhaps even democratic
socialist societies in some countries of the world. The alternative, which is
perhaps what many of the strategists of big business are hoping for (apart from
those solely motivated by maximising profits in the short term), is an
authoritarian society – of a capitalist nature like George Orwell predicted in
“Nineteen Eighty-Four”, or maybe fascist (based on Nazi Germany) or Stalinist
(based on “Communist” Russia).
In the
In his 9th of
October pre-budget report/comprehensive spending review, Labour Chancellor
Alistair Darling nicked the Tories’ non-domicile poll tax plan (but limited it
to those who had been in this country for seven or more years and made it
£5,000 higher) and announced that the capital gains tax will have a flat rate
of 18%. While the capital gains tax change would hit private equity firms a
bit, they would still pay 10% less than the (reduced) rate of corporation tax
of 28%, so it does not close the loophole. The change would benefit many rich
people, including speculators on the stock market and those selling second
homes, because the full rate of capital gains tax is currently 40% (with “taper
relief” rates of 10% for assets held for two years and 20% for those held for
one year, or a minimum of 24% for second homes). According to the Treasury, the
change in capital gains tax would only raise £350 million next financial year –
and it has now been reported that Labour will make concessions to help entrepreneurs
selling their businesses (who currently benefit from the taper relief as well
as private equity firms), so it could actually cost the government money
overall.
There is
massive dishonesty and hypocrisy at the heart of
The Tories
and Lib Dems have ignored New Labour’s black hole because they would do much
the same if they came to power – they know it would be electoral suicide for
them to propose massive public spending cuts or massive tax increases. Most of
the mass media has conspired in hiding it, with the BBC News at
The
Whatever the
precise figures, they massively underestimate the real debt. They do not
include debts owed by local authorities, commitments to contracts under the
Private Finance Initiative (PFI) or Private Public Partnerships (PPP) or the
£20 billion so far lent out by the Bank of England to the Northern Rock bank to
prevent its collapse.
A huge number
of PFI/PPP building projects have been carried out under Tory and New Labour
governments over the years, with private companies providing much of the money
in return for massive guaranteed profits over 25 or so years. This is much more
expensive than the government borrowing the money directly, since it pays a
lower interest rate than private companies (due to the fact that they could go
bust) and since all companies involved in PFI/PPP schemes take a cut. For
example, the PFI scheme for
150 mortgage
lenders in the USA have gone bust as a result of the crisis over subprime
mortgages, which are lent to people with poor credit records and/or low incomes
and start at low rates of interest that massively increase later. This has
caused a “credit crunch”, with banks reluctant to lend to each other due to not
knowing which debts are good and which are subprime. This led to the Northern
Rock’s problems – with the first run on a bank since the 19th century due to it
needing to be bailed out by the Bank of England, with savers understandably
withdrawing their money not trusting government claims that it is safe. New
Labour have now promised that the first £35,000 of savings are safe (and hint
at increasing this figure to £100,000), but few people trust politicians these
days. Whereas they are bailing out a small credit union that has gone bust, but
they will find it difficult to pay up if another large bank has similar
problems (and big falls in the share prices of the Alliance & Leicester or
Bradford & Bingley suggest one of them may be next).
Panorama on
the 8th of October revealed that 8% of
Many
economists are predicting some sort of recession soon, with high inflation,
rising unemployment and possibly a big fall in house prices. New Labour is
trying to limit pay increases in the public sector to 2% and pensions are being
attacked. Many workers will be forced to go on strike to defend their
livelihoods. The limited success of the postal workers’ strike (which may not
be over since Royal Mail’s offer is still very bad for the workers) will
encourage other workers to consider strike action.
But how
severe will the economic crisis be? An article entitled “Prepare for financial
meltdown” appeared in the 16th of March issue of Money Week. It quoted an
article in Time magazine by Niall Ferguson, Scottish Professor of history at
Harvard, pointing out similarities between today’s markets and those prior to
the outbreak of World War I.
I don’t know
what effect events in the
Sending out
this document may cause some fluctuations in the world’s stock markets – I am
sending it to mailing lists/discussion groups with hundreds of thousands of
members on (only a fraction of whom will read it of course) after all, as well
as putting it on other forums on the web including Google Groups. The sudden
realisation by investors that they could be forced to pay tax on their assets
or even lose them altogether, as a result of ethical capitalist or even
socialist revolutions in some countries of the world, would only be expected to
cause a panic! Whether they think they would stand more chance of preserving
their assets by selling shares or hanging on to them is an individual choice,
and I can’t say I know what the overall effect will be. [I am sending this
document out too late to affect the UK stock market until Monday (5 November),
but it may affect today’s Dow Jones index in the USA (2 November).]
The
communication of one person’s views is relatively minor, of course, compared to
the effect of masses who may be influenced, directly or indirectly, by that
person. Left-wing parties would have to seriously threaten action against big
corporations and rich individuals, along similar lines to those I suggest, and
possibly come to power, to cause the level of panic to start a financial
meltdown.
Some
socialists think that the
As I pointed
out above, a massive financial crisis is on the cards, which will provide great
opportunities for some kind of revolution. So what sort of political parties do
we need to prepare for these opportunities?
I would
advocate some sort of “ethical capitalist party” to propose a more ethical form
of capitalism, including a fair electoral system (I favour proportional
representation based on single transferable vote) and measures to force the
rich to pay tax. Such a party could arise as a result of splits in mainstream
political parties, and the financial crisis is likely to trigger such splits,
but socialists and other left-wing activists should prepare for the crisis by
setting it up beforehand.
Because I
want the struggle for an ethical capitalist revolution to lead to socialism,
there is also a need in some countries (particularly those like Scotland in
which a socialist revolution is fairly realistic in the not too distant future)
for parties that put forward a vision of a socialist society and openly talk
about how it can be achieved including the need for a revolution. I advocate
fairly broad but openly revolutionary socialist parties for this task; some may
welcome members who are not (initially at least) revolutionaries, but the
parties should not pretend to be merely in favour of reforms – the need for a
revolution should be put forward publicly (at meetings and in the party’s
publications) even if it is made clear that these are the views of individual
members rather than those of the party as a whole.
The Scottish
Socialist Party (SSP), which had united most socialists in Scotland outside the
Labour Party, split last year in the wake of former convenor Tommy Sheridan’s
defamation trial, and the split-off party Solidarity adopted very similar
policies to the SSP – proposing reforms under capitalism. The SSP had six
Members of the Scottish Parliament (MSPs) after the 2003 elections but no
socialists were elected at all in May 2007. The strategy of trying to build a
party from a low electoral base, when it primarily uses reformist politics,
into one capable of challenging for power has proved unsuccessful. In my
opinion, only half of those six MSPs were playing a positive role overall,
resulting in many people regarding the SSP as just as bad as other political
parties. [I suspect that there were usually three such MSPs, and that the
composition of those playing a positive role varied over time; I don’t want to
make any allegations here about specific MSPs.]
In my opinion,
it was actually better for the future of the world that the SSP and Solidarity
got wiped out completely, rather than just getting the odd MSP (or even a
united SSP getting two or three MSPs which would probably have happened if the
defamation trial had not taken place). This is partly because the Scottish
National Party (SNP) won the elections by a single seat over Labour – with a
5.4% higher share of the vote, as I discovered by entering the figures in a
spreadsheet since the mass media avoided giving overall figures, presumably
because that would prove that the Scottish electoral system is not particularly
proportional and lead to demands for a more democratic system (which in my view
should be single transferable vote). [The SNP victory is to be welcomed as a
boost for independence and because the SNP stood on a much more left-wing
programme than Labour – although they are delaying the implementation of many
of their manifesto pledges (arguably abandoning some altogether) when in
power.] Also, the decimation of socialists forces the parties to re-evaluate
strategy rather than just limping on with the same doomed approach.
In my
opinion, the best outcome out of the SSP/Solidarity split would be for one
party to become an ethical capitalist party and the other to become an openly
revolutionary socialist party. Which way either party goes of course depends on
their members…
There is a
current crisis in Respect, with a split developing between the Socialist
Workers Party (SWP) and a faction around George Galloway MP. The SWP want
Respect to become more socialist and the other faction want it to concentrate
on winning support from Muslims, including (small) businessmen. The SWP (whose
members and supporters almost certainly comprise a majority of the membership)
went along with the strategy of attracting Muslim support until recently,
paying lip-service to Respect being a socialist party.
As I pointed
out above, socialism will not be on the agenda in
The strategy
of the Socialist Party of
Note that
this document concentrates on the situation in the
For further economic analysis from me, read the document Barclays Bank will go bankrupt! that I wrote two days after this one.
For more recent discussion of the economic crisis, visit my Banks & Building Societies page or the Economics bulletin board on my Revolutionary Platform Network forum.