After months in the political doldrums, Gordon Brown finally has something to be cheerful about. At one point nearly removed by an internal Labour Party coup, he's now feted by Nobel Prize winning economists for saving the world economy through the example set in the bailout of British banks.
The key components of Brown's UK bank rescue package are: (a) £200 billion made available for short-term loans through the Bank of England; (b) support for interbank lending between British banks to the tune of £250 billion; and (c) a recapitalisation programme for the banks of £50 billion (£25 billion initially, more later if needed). This has meant the effective nationalisation of big High Street banks including LloydsTSB-HBOS, RBS (owner of NatWest) and others, a total cost of £500 billion, approximately 37% of current UK GDP. To put this figure in perspective, the UK's total government expenditure for the 07-08 year is estimated at around £519 billion!
Although a large proportion of the money is not necessarily being given away or actually spent, but issued as loans and/or guarantees which the government hopes to be able to recoup, this is still a massive plan. So why has the UK bourgeoisie found it necessary to effectively nationalise large proportions of its financial apparatus?
The importance of finance to Britain
Britain's productive sectors have suffered from a century of decline since the end of the 19th Century as other capitalist nations began to industrialise and compete with Britain on the world market. After World War 1, Britain stagnated throughout the ‘roaring 20s' and was then savaged by the Great Depression. World War 2 saw its dependence on the US colossus grow to the point of ultimate submission. It emerged from the conflagration in hock to Uncle Sam and was forced to surrender the British Empire.
Even the post-war boom saw several short-but-sharp slowdowns and when the boom came to an end in the late 60s, Britain was one of the worst hit by the new crisis. British manufacturing is now seriously diminished, with some sectors reduced to next to nothing. Today, British industry is a moribund shadow of its former self and for all the blather about the ‘knowledge economy', the principle method of survival for UK manufacturing is not through the development of new technology but through attempts to increase the productivity of the working class.
In August 2008 the UK had an overall trade deficit of around £4.8 billion. The deficit in goods is a staggering £8.2 billion but is countered by the £3.5 billion surplus in services. What are the ‘services' that prevent the deficit position from becoming an outright disaster? In large part those are provided by the financial sector. London is the world's largest financial centre, while Edinburgh is the 5th largest in Europe. Over 500 banks have offices in London and the UK exported over £21 billion of financial services in 2005. The finance industry accounts for approximately 9.4% of GDP.
Britain is thus acutely exposed to the current financial crisis. It has the potential to annihilate the main sector that has allowed the British bourgeoisie to keep its head above water in the face of chronic economic stagnation.
State intervention is no solution
The British bourgeoisie has moved quickly to prevent the last of the family silver - the financial industry - being destroyed by the ‘credit crunch'. It has been followed by similar efforts in the other main capitalist states. However, the ‘credit crunch' is only a symptom of a far deeper problem: the economic crisis that has been unfolding since the end of the post-war boom. The credit bubble that is now exploding is the result of a series of state capitalist policies employed in an effort to contain this ever deepening crisis of overproduction. It is this very strategy that is now blowing up in the bourgeoisie's face.
To make matters worse, the vast bailouts orchestrated by the state must ultimately be paid for by increasing taxes on wages and profits. They may prevent outright collapse - although this is far from certain - but only by placing further burdens on real wages and capital accumulation, thus pushing the contradictions of capitalism even further to the edge of disaster.
Workers should not be fooled by the rhetoric of the bourgeoisie. The bailout does not represent a ‘solution' to the crisis. It is simply a vast IOU by the state on behalf of the working class. Workers will pay it in the form of a brutal decline in jobs, wages and working conditions. The only alternative is for the working class to present its own bill to the bourgeoisie - the communist revolution.