When the Bank of England takes up Corporal Jones' cry of "Don't panic!" it is clearly time for the working class to take a good hard look at the economy. On 12 February the Bank "attempted to avert a crisis of confidence in the economy as it urged the public not to panic about the country's prospects" (The Times Business 13.2.03). So, what is it we should not be panicking about?
This advice followed the Bank of England's surprise quarter-point cut in interest rates which triggered a near 90 point drop in the FTSE 100 index, and the repeated cut in its predictions for growth this year and next - now down half a percentage point on 3 months ago at between 2 and 2.5%, and a whole point below the Chancellor's Pre-Budget Report forecast last November. In addition the pound has fallen against both the Euro and the dollar and the governor of the Bank has told the Treasury Select Committee that he has no idea how low it will fall or how long it will go on.
Behind all this we can see some very disturbing statistics. Corporate debt defaults higher than at any time since the Depression, with 141 companies defaulting £163billion. Investment has fallen £11.7 billion or more than 10% since 2001, the largest fall in Britain since records began 36 years ago. In manufacturing the fall was 17.7% with investment at its lowest since 1984. The trade gap has increased to £34 billion after exports fell to a 3 year low. Business confidence is down, with a CBI survey showing manufacturing confidence down in every region. Bosses are worried about the fact that house prices are not rising so quickly, since the housing market was fuelling consumer spending. They are also concerned about the insolvency of pension funds. And, as always, the loss of business confidence means brutal attacks on the working class, with the CBI survey predicting 42,000 job cuts.
Economic crisis in Britain, part of the crisis of capitalism
The CBI is criticising the Chancellor for hampering business with too much tax and too much red tape, the Engineering Employers' Federation and the T&G union is demanding the government take urgent measures to encourage investment, but the present economic problems are not confined to the UK and are not the result of faulty government policy. The fall of the pound shows that Britain is not doing as well as its competitors, but problems for British business are just expressions of the weakness of capitalism globally. While manufacturing is in recession here, in Germany industrial production fell 2.6% in December. While Britain has a huge balance of payments deficit of 2.1% of GDP, the USA deficit is 4.6% of its much larger GDP. And consumer confidence has also fallen sharply in the USA.
The present economic difficulties are part of a long series of crises since the end of the 1960s. Recently we have seen the dramatic convulsions in Latin American countries, affecting Argentina, Uruguay, Brazil and Venezuela, following on from the collapse of the 'tiger' economies in 1997-8. Despite all the hype about new technology and globalisation the reality is that the world economy has been slowing steadily. Growth rates in the OECD countries fell from 5% in the 1960s to 3.5% in the '70s, 2.8% in the '80s and 2.6% in the '90s. Even this has been based on increased debt, both public and private, necessary to provide a market to fuel the current very modest growth rates. In the USA, the massive balance of payments deficit and projected record budget deficit of $304 billion (without taking account of any spending on war in Iraq), and the fact that American households are on average in debt to the equivalent of one year of their income, are just some of the most immediate illustrations of this trend.
Attacks on the working class
The best the British ruling class can hope to do in this crisis is to make its industry more competitive on the world market, try and outdo more of its competitors and take a bigger share. That competitiveness is always obtained at the expense of more attacks on the working class.
Despite the projected loss of 42,000 jobs (and the continual announcement of factory closures such as Boots skincare plant in Airdrie which will cost another 1000 jobs), recent government statistics appear to show some hope. The total out of work and claiming benefit fell in January to 928,500. It is claimed to be a 27-year low, but since the way of counting unemployment has changed so much, and the government itself admits to 1.5 million out of work, no-one really believes the figures. At the same time income tax revenues fell 5% on the same month a year ago, which is a government statistic that gives a far more honest idea of the reduction in working class living standards. In effect workers are faced with more low paid and temporary and insecure jobs.
The prospect of war
While the information about the economy in general is largely confined to the business pages, speculation about the effect of a war in Iraq is much more up-front. A short successful war would be a fillip, according to the Bank of England; a long war would be harmful as it could fuel panic buying of oil. The prospect of war is blamed for many ills, particularly reduced consumer confidence in the USA. This is compared to the fall in confidence after September 11, but without ever pointing out that the economic problems of the time and the loss of confidence started way before the fall of the Twin Towers. War is not the cause of the economic crisis, but is a result of the increasingly bitter competition between nations that flow from it. Nor can war against Iraq provide a real stimulus to the economy in 2003, any more than it could in 1991. It will have no more benefit on the economy than war in Afghanistan or the Balkans, whatever may be the momentary ebbs and flows of speculative capital. But if the aftermath of war destabilises the Middle East it has the potential for a distinctly negative effect on the economy as well.
What the crisis and the approach of war really show is that capitalism has nothing to offer humanity but misery and war. It shows the importance of the working class understanding the need to overthrow the system that's based on its exploitation.