Britain: economic crisis and imperialist dead-ends
We are publishing here the first part of the resolution on the British situation adopted at the recent Congress of the ICC’s section in the UK. The second part, which looks at the political life of the bourgeoisie and the class struggle, will be published in a future issue, along with a summary of the main debates at the Congress.
1. Between 2007 and 2009 capitalism experienced a profound crisis. Starting with the collapse of the housing bubble in the US the crisis spread through the financial markets to the manufacturing and service sectors, drawing the developed economies into recession and slowing the rate of growth in emerging economies like China and India. Credit dried up or became increasingly costly, as financial institutions feared to lend to one another in case their money was not repaid and their own existence was put in question. This crisis exposed the structural weakness underlying all of the spectacular growth of recent years. This weakness is capitalism’s inability to accumulate according to the basic laws of the production and realisation of surplus value. The speculative bubble arose from the difficulty of finding profitable outlets for capital; the credit crunch reflected the bourgeoisie’s recognition of this. One of the main responses has been the resort to debt to try and keep the economy functioning. Although capitalism has returned to growth over the last two years the structural issues have not been resolved. In particular the weight of debt worries the international bourgeoisie.
2. The recession in Britain has been the deepest since the Second World War with a peak to trough fall of 6.4%. Even after several quarters of growth, GDP was still 4.7% below its pre-recession level in the second half of 2010. The bursting of the housing bubble, which had helped to fuel the British economy, led to sharp drops in house prices and sharply reduced the growth in personal borrowing that had been at the heart of the economic growth under Blair and Brown. The manufacturing sector was the most severely hit and the construction sector was savaged with a fall of nearly a third. The impact on the service sector was greater than in previous recessions and its weight in the economy meant that it contributed most to the overall decline in GDP. Imports and exports in both manufacturing and services fell as global trade declined. The number of companies going bankrupt escalated from twelve and a half thousand in 2007 to nineteen thousand in 2009. The stock market reacted with a sharp decline from mid 2007 to early 2009 with its recovery punctuated in early 2010 as fears of highly indebted countries defaulting on their loans spread. The pound fell more sharply against other currencies than since the breakdown of the Bretton Woods Agreement in the early 1970s.
3. The crisis posed a particular threat to Britain because of its reliance on the financial sector. From the last part of the 19th century, Britain exploited its empire and its position as the “world’s banker” to compensate for the loss of its manufacturing dominance; this tendency was further accentuated after the First World War. Following the Second World War and the US’s assertion of its dominance Britain was forced to look for other ways of appropriating a share of the global surplus value. The route it took was to develop its financial sector with the result that this went from accounting for about 1.5% of profits between 1948 and 1970 to 15% today. The state has supported this development with successive governments from Thatcher onwards pursuing the liberalisation of the financial markets. By 2006 the assets of British banks totalled more than five times the national GDP. In comparison, US banking assets rose from 20% to 100% of GDP over the same period. The spectacular growth in assets was matched by the equally spectacular decline of the banks’ capital ratio, which fell from 15-20% at the start of the 20th century to just 5% at its end. All of this meant that when the crash came the British economy was particularly exposed and the bourgeoisie was confronted with a threat not only to its financial sector but also to the economy as a whole and to Britain’s international status.
4. The immediate response of the British bourgeoisie reflected the scale of the threat facing it. The state did not hesitate to assert itself to defend its class interests. Despite its ideology about the greater efficiency of the free market, the bourgeoisie did not hesitate to nationalise some banks and force others to merge. It cut interest rates to the lowest level on record and effectively below the rate of inflation. It injected £200bn of “quantitative easing” into the economy and gave guarantees to the banks worth hundreds of billions of pounds in the name of kick starting lending and, thereby, the whole process of accumulation (in fact the banks mainly used this fictitious capital to restore their finances and resume speculation). It cut VAT and introduced the car scrappage scheme to try and stimulate consumption. It even used terrorism laws against the Icelandic banks. The total cost of this intervention was £121.5bn in 2009 and the immediate consequence was a rapid increase in the total state debt to £926.9bn in July 2010. The effect was to prevent any further bank collapses, to stabilise the financial sector and facilitate the modest recovery recently seen.
5. Today the bourgeoisie has moved from the immediate containment of the effects of the crisis to an attempt to restore the profitability and standing of British capitalism. The first step in this is to try and reduce the national debt in the name of winning the confidence of the financial markets. This is the immediate purpose of the attacks on pay and conditions. The problem of such large debts is that in addition to the interest payments being a further deduction from the total surplus value produced – and hence a deduction from future profits unless the proportion of the value produced that goes to the working class can be reduced - its existence poses questions about the long term capacity of the economy to produce profits. The second is to reduce the cost of labour and the amount of the national product taken by the state in the medium to long term in order to increase the productivity and competitiveness of British manufacturing and services and hence the profits available to the capitalist class. In this effort a renewed importance is being given to manufacturing which, despite its continued decline, is still a significant part of the economy, especially as regards exports where it accounts for a much larger proportion of the total than the service sector.
6. The recession did not affect the working class as severely as might have been expected during its official phase. In particular, although unemployment went up by nearly a million, the increase was less than in previous recessions and one million less than indicated by the fall in GDP. One of the reasons for this was that the decisive intervention of the state limited the immediate impact of the recession, protecting both industry and the workers employed from the full force of the crisis. The other was that the working class accepted low wage settlements, reductions in hours and other changes to its working conditions as the price of keeping jobs. However, as in past recessions it is likely that unemployment will continue to rise for several years after the formal end of the recession and it is now clear that there will be unprecedented cuts in the social wage in the years ahead. In this sense the intervention by the state can be seen as a way of spreading the impact of the recession in order to minimise its social consequences while still achieving its ‘beneficial’ outcomes of destroying surplus capital, eliminating the least competitive producers and reducing the cost of labour. For the working class this will add to a situation that is already characterised by high levels of hidden unemployment and underemployment. Moreover the state has indicated its determination to force workers off benefits such as incapacity - one of the means previously used to hide the real rate of employment - into low-paid work or lower rate benefits. Most workers already have high levels of personal debt in the form of mortgages and unsecured borrowing; and although the rate at which it is increasing has slowed under the weight of the crisis, it still amounts to nearly one and half trillion pounds, or more than the total produced in the country each year. The consequences of this can be seen in the increase in the number of people effectively going bankrupt. It also finds a reflection in the increase in poverty over the last few years, from 18% to 22% of the population. In short, while the immediate effects of the recession have been slightly muted, the situation of the working class has become more precarious over recent decades and is likely to worsen in those ahead.
7. What are the perspectives for British capitalism? This cannot be separated from that of capitalism as a whole where growth of some kind will continue. Official figures are already showing several quarters of increasing GDP – slower in the developed economies, faster in the emerging ones. This is to be expected since capitalism cannot exist without expansion, without growth. However, the basis of growth in recent decades has been the use of increasing amounts of fictitious capital and a global reduction in the proportion of value taken by the working class (one of the main results of China’s entry into the global economy has been to reduce the cost of labour power by massively increasing its supply). The repeated flight of capital – fictitious or otherwise – to speculation rather than production suggests that the underlying conditions for the production and realisation of surplus value remain weak. Given this, the conditions that historically pushed Britain towards reliance on the financial sector will not be overcome and the attempt to raise the competitiveness of British manufacturing will meet the challenge that all are trying to do the same and that many are in a better starting position. This does not mean that there can be no change in the economy, just that such changes will almost certainly be only marginal. To illustrate the scale of the problem confronting the bourgeoisie, a recent report revealed that the total (public and private) debt of the UK will reach £10.2 trillion by 2015, nearly six times GDP. The bulk of this debt is held by the private sector, giving the lie to the current ideology that it is government debt that is the main problem. British capitalism as a whole is bankrupt and this will undoubtedly be expressed in further and deeper convulsions.
8. The imperialist situation continues to be largely defined by the drawn out crisis of American imperialism as its ability to dominate the globe other than through shows of military strength continues to decline, and by the increasing complexity of the situation as the lesser powers seize the chance to advance their own interests. This is especially evident in the area comprising Pakistan, Afghanistan, Iran and Iraq where a range of strategic and economic interests collides. For the US it increasingly resembles a trap where leaving carries as many risks as staying.
9. British imperialism is also struggling in the impasse that it got into as a result of the failure of its imperialist policy under Blair. The attempt by Blair to adapt to the American offensive that followed 9/11 led to Britain being sucked into the chaos in Iraq and Afghanistan with the result that its position on the world stage became further weakened, continuing the decline seen for much of the previous century. Attempts to assume international leadership, such as during the Israeli invasion of Lebanon and at the Copenhagen climate change summit, have been rebuffed, leaving Blair and Brown sidelined and humiliated. This humiliation has continued, first in Iraq where the British Lion withdrew with its tail between its legs after its failure to control the situation in Basra, and then in Afghanistan with its failure to contain the conflict in Helmand province. In both cases the US had to come in and sort things out. However, for now Britain is hanging on in Afghanistan because it considers it necessary to keep at least a toehold in this centre of imperialist conflict.
10. Despite these failures the British bourgeoisie has not given up the pursuit of its imperialist interests around the globe. Forced to recognise the decline in its status and power it has not given up the ambition or the pretence to be a significant global player. Even before the election there were efforts to develop an approach that would escape the impasse by adopting a new approach that reached out beyond the dominance of the US and Germany (as the main power in Europe). The coalition has begun to try to develop this in practice, most notably through Cameron’s foreign tour in July 2010 when he proposed taking a more robust approach towards the US and sought to cultivate better relationships with powers such as Turkey and India. The support for Turkey’s application to join the EU seems designed to water down German domination of Europe by expanding it and bringing in countries that may be more hostile. The treaties signed with France to increase co-operation may indeed have a practical dimension, as has been emphasised in the media, but they are also seem to be an attempt to counter German and US influence.
11. The pursuit of economic interests is being given a greater significance in the new strategy being put together. This was evident in the trip to India in July 2010 when a deal to sell military equipment was signed, and has been confirmed in the visit to China in November 2010 with the proposed signing of deals to supply the Chinese market, reportedly worth several billion pounds. The reason for this development is the economic crisis and the attempt to build up the role of manufacturing in order to counter the dependence of the British economy on the financial sector and its consequent vulnerability to further crises when future speculative bubbles burst.
12. Despite these efforts British imperialism will find it very difficult to find a way out of the impasse and all but impossible to regain the power it has lost. At a practical level, the scale of the cuts in the defence budget means that it will be less able to intervene. The contradiction between its ambitions and this reality is revealed in the almost comic decision to build aircraft carriers without any aircraft. At the strategic and political level it has to continue to acknowledge the reality of American power in the world and German domination in Europe. While the growing imperialist power of China and to a lesser extent other emerging countries like India offer new fields for action it is unlikely that the former will become a serious challenger to the US in the near future while the latter remains focussed on its regional ambitions. Moreover the imperialist situation will continue to be characterised by great complexity since there is no real dynamic towards the formation of new blocs that would impose some order on the situation. The inescapable reality for Britain is that like most of the lesser powers it is dependent on grasping opportunities from the evolution of a situation that is shaped by greater or better positioned powers. Increasing the size of the special forces may enhance its ability to undertake covert operations but these can rarely gain more than tactical victories. In terms of developing networks beyond the major powers Britain has relatively little to offer such powers while the baggage it still carries from the days of empire and the legacy of its arrogance towards lesser powers and peoples that it retained even after the sun set on the empire is a hurdle to forging alliances of any duration or stability.