The current financial crisis means a fall in living standards for the working class. This is already visible and obvious, something the ruling class is no longer trying to hide. From Gordon Brown, whose ‘first concern' is for people "struggling to make ends meet", promising to do "whatever it takes", to David Cameron putting aside party political differences in a crisis, or the meeting between Alistair Darling and George Osborne, all are speaking the language of truth, telling us that we will suffer in this global crisis. Credit is close to unobtainable; we can only trust the banks with our money if they are backed by the state, but we will end up paying for every bank rescue through taxes; prices of everyday necessities are rising far higher than official inflation; unemployment is up and growth at a standstill.
"I want your money"
This was how The Economist (27/9/08) depicted Henry Paulson's plan for a $700bn bail-out of the US banks and his brutally honest admission that it would cost the taxpayer. The Northern Rock nationalisation alone represents a greater proportion of British GDP than the Paulson bail-out plan does of the US GDP (‘Finance crisis: in graphics', BBC news online). The Sunday Times has estimated that it will cost 5p in the pound in extra taxation (21/9/08).
However, while the banks need more and more money put in to shore them up, borrowing from them is harder and harder. Mortgage lending is down more than 90% on a year ago as the housing market seizes up and average house prices have fallen by 12.% on a year ago according to a Nationwide Building Society report, while house prices at auction fell 25%. Homeowners are no longer taking equity out of their houses. Repossessions rose 17% to 38,000 in the second quarter of the year, and this is expected to worsen - more working people falling into arrears will be evicted, despite the government's plan to encourage housing associations to buy up these homes and rent them back.
Credit is also being squeezed for business, fuelling recessionary tendencies. British factory output is falling at the fastest rate in 17 years, having already shed 1 million jobs in the last 10 years. Fords in Southampton, for example, has announced a 4-day week. The building industry is in full recession with new orders down 15% in the 3 months to August and new housing orders down 33% with the Construction Products Association predicting a 3 year slump. The CBI has optimistically estimated only 10,000 jobs in finance will go in the next 3 months. Even the service sector is at a standstill. Overall the economy fell 0.2% between June and August.
Unemployment is up 81,000 to 1.72 million in May to July, with the claimant count up to 904,900 in August, up 56,000 in the last year. Along with workers in construction, industry and banks, council workers can also expect job losses, with the Local Government Association predicting a £1bn shortfall caused by inflation. And cuts in services will inevitably accompany the cuts in jobs.
No-one in Britain is unaware of inflation, officially 4.7%, but in reality, for any worker, anyone on a modest income, it is far higher as all the basic necessities have increased in price - in the year to June food up 10.6% with many basic foods rising even more steeply, petrol up 24%. House prices may be falling, but mortgages are more expensive and so is rent. Even a pay rise equal to the nominal inflation rate would represent a significant cut in living standards - but in reality pay is being pegged well below that, usually between 2 and 3% in the public sector after Gordon Brown called for rises to be kept to 2% this year.
"We're very sorry"
These are only the most immediate effects of the credit crunch and bank failures. We know that over the last few years many thousands of workers have lost some or all of their pensions, and that is bound to continue and worsen with the financial crisis. Things are tough for the working class at all levels, and the perspective is that they will get worse. Various media commentators are at pains to tell us that this is not as bad as the depression in the 1930s, but what is the reality of the situation? It is true that all the money pumped into financial institutions to keep them afloat is aimed at ensuring that there is enough liquidity in capitalism to prevent a sudden and severe slump, and to that extent they have learned the lessons of 1929. Ben Bernanke, the Chairman of the Federal Reserve, has apologised for it, "We did it. We're very sorry... we won't do it again" (The Times 1/10/08). So it was all a big mistake by the economists, and if only we put our trust in the state bail-outs going on all over the world, and accept a bit of austerity, tighten our belts, put up with a common or garden recession, there will be no slump, no Depression.
Experience tells us otherwise. The older generation can remember the Labour government in the 1960s telling us that if only we accept unemployment of 1-2% we can avoid unemployment of one or two million. Well we got unemployment of a million in the following decade with the next Labour government, and it has never gone below that. We can remember the last time that the bourgeoisie talked the language of ‘truth', warning us that there was ‘no alternative', in the Thatcher years, when unemployment rose to over 3 million officially, only coming down with a policy of forcing people to claim incapacity benefit instead of the dole, as well as with a whole pile of statistical manipulations. In any case the financial bail-outs will be paid for in inflationary pressures and taxes - only wages will be held in check as the working class is asked to pay for the crisis, just like the ‘social contract' in the 1970s, just like Gordon Brown's demand last January to keep public sector pay rises to 2%.
The Times article on Mr Bernanke's speech helpfully reminds us that "The stock market decline was more a reaction to, rather than a cause of, the deteriorating economic conditions". Exactly. So how will skilful management of today's stock market decline and bank failures reverse the deteriorating economic conditions? They may continue to deteriorate more slowly than immediately after 1929, but they have surely continued to deteriorate over the last 40 years for all the Asian tiger, dot.com and housing bubbles on the way, and with them the conditions of the working class have declined. The only way to stop them doing it again is to develop the struggle of the working class in response (see back page) with the perspective of overthrowing capitalism.