The IMF has declared that, of all the most developed economies, Britain's will be hit hardest by the recession.
This has provoked a backlash from some commentators, who are piqued at this evaluation of the adaptive capacities of the British economy. The IMF is probably correct, but at least one point that the commentators have made is true. Whereas the German bourgeoisie, for instance, are apt to admonish the undisciplined behaviour of countries, like Britain, that run a permanent deficit, the commentators point out that one's man's deficit is another man's surplus, so the German surplus is dependent on the lack of discipline of countries that buy goods without actually bothering to pay for them - or rather, that buy on credit.
The German economy is suffering from the contraction of global demand. Even more dramatic is the case of Japan. The main exporting companies in Japan are posting financial results that are unprecedented. Gordon Brown is right to insist that the crisis is global, that the fate of all countries is interconnected. But the IMF has noted the dependence of the British economy on the financial sector and judges that this will be enough to put Britain at or near the bottom of the league of performance of the major economies during the economic downturn.
We must put this in the context of the world economy because Britain no longer has the power to dictate to the rest of the world as it did for much of the nineteenth century. If London's capital markets were not used by the bourgeoisie of the whole world, if they did not perform any function for the bourgeoisie in other countries, then they could not still have the importance that they do at an international level. Therefore the question of the role of finance capital cannot be considered in isolation from the general features of the world economy. The most important point to understand is that the activities conducted by the bourgeoisie at the financial level, however exotic and fanciful some of the ‘products' of this ‘industry' may be, are part of the bourgeoisie's response to the ever-deepening crisis of decadent capitalism.
Finance manipulations: consequence not cause of the crisis of capital
Our article on the crisis in International Review 136 (now on ICConline) points out that the explanations provided by the bourgeoisie for the present economic debacle lack historical depth and, by and large, get the explanation of the crisis back to front. In the typical media presentation we are told that the crisis began as a financial crisis (caused by the excesses of bankers over the last decade or so) and is spreading out into the general economy, causing a slump in demand and lay-offs in manufacturing and areas of the service sector that are not directly connected to the financial sector.
This is true in an empirical sense but it masks the fact that the crisis is fundamentally a crisis of overproduction - a form of crisis unknown to modes of production previous to capitalism. The excesses that have occurred in the sphere of finance are a response to this problem, not its fundamental cause. Although we can see how, in the end, the financial crisis can exacerbate the speed of the open crisis once it appears.
The constant extension of credit, overseen and approved of by the state, is based on the recycling of an excess of capital in money form generated above all by the states that are in surplus - China being the most famous example. It seems perverse for the Chinese to basically give back to the Americans a great part of the money they make from selling goods to America in the first place, thus financing a growth in the standard of living in the US (for the upper echelons of the population). But unless the surplus capital is recycled in some way, the debtor nations - like the US and Britain - would have no way to purchase yet more goods from the countries in surplus.
The addiction to finance capital
In the past both the US and Britain have been the dominant manufacturing countries in the world - in the case of Britain that is a long way back, but it is a key part of its history. It is precisely because of this history that the US and Britain have developed the most sophisticated financial sectors. Finance capital in both the US and Britain had, at a certain point of development, to assume a key role in the world economy and to develop mechanisms to allow the full development of international trade and investment.
As a result of this, both the US and Britain tend to act as beacons for the international economy - and this is typically reflected in the financial sphere. A very important example of this was the end of the years of economic expansion after the Second World War. This is the period that some continental commentators call the 30 Glorious Years, although the term has little currency in the Anglo-Saxon countries These years, though very successful in the terms of the bourgeoisie, were not really that ‘glorious', since they required a permanent intervention by the state apparatus to push along the economic expansion. Neither did they last for 30 years. Although relative prosperity did continue into the 70s, the end of the boom years was signalled quite precisely by the run on the British pound in the late sixties and by the US being forced off the gold standard in 1971. It is quite usual that the end of a period of economic history that appears stable on the surface is signalled by phenomena at the financial level. And it is also to be expected that the US and British economies would show the strain first since they have the leading role in international finance.
In the articles ‘Evolution of British imperialism' which we have recently reprinted from Bilan, the publication of the Italian communist left in the 1930s (see WR 312, 313). it is shown that the weight of the financial sector in Britain was pivotal to the way the British bourgeoisie responded to the expression of the capitalist crisis after the First World War. In 1925 the British bourgeoisie took the decision to favour the financial sector over the needs of the relatively uncompetitive manufacturing sector of the economy:
"Benefiting from the ‘failure' of the first Labour government, which had been unable to solve the problems posed by the industrial bourgeoisie, the banks, following the coming to power of Baldwin, launched a vast ‘deflationary' offensive in 1925, with the aim of revaluing the Pound. The return to the gold standard was decreed in April of the same year. The antagonism between industrial capital and finance capital, which in Britain remained much more tenacious than in Germany, France or the USA, for the reasons we have indicated, was settled for a long time to the advantage of the banks."
The bourgeoisie in Britain has a great difficulty in envisioning economic solutions that do not give a preponderant weight to the financial sector.
In the period after the Second World War the British bourgeoisie tried to resuscitate the competitiveness of its manufacturing sector but failed, so it has had to resort for several decades now to relying on the financial sector and the services it offers to international capital as a source of profits to try and balance its books with the rest of the world (i.e. to finance its trade deficit).
What Bilan did not anticipate was that the US, having become the dominant power in the world, would eventually be forced into the same position. Bilan thought that this development of the priority of the finance sector in Britain was simply a manifestation of Britain's relative industrial decline. The British bourgeoisie are described as parasitic and accused of enjoying an inept and idle existence. There is nothing to disagree with here, fundamentally. But there is another, more serious insight in another passage:
"The structural particularities of finance capital constitute both a weakness and a strength: a weakness, because, due to its intimate links with the mechanisms of world trade, it suffers from their perturbations; a strength because, cut off from production, it retains a greater elasticity of action in periods of crisis."
The essence of the present period of the world crisis could hardly be better expressed. The Financial Times recently ran an article commenting on the latest conference at Davos. It observed that although the assembled leaders spent their time in denunciations of the US and its ‘inept' financiers for allowing the current situation to develop, they were also looking to the US to find the necessary ‘elasticity' to re-launch the world economy and revive the demand that would allow Germany, Japan and China to pour forth more products from their very efficient industrial systems. In reality that means a further plunge into the abyss of credit and fictitious capital which can only intensify the contradictions of the world economy.