After the next election

The general election due in 2010 or even this year may well be the most important for the British left as any held over the past sixty years. We can safely assume that the Labour Party will be led into it by Gordon, a man too schooled in Scottish Labour politics to let himself be sidelined by some young pretender. The fate of David Miliband, trapped into seminars on the techniques of waterboarding so that he can talk with Karzai and Netanyahu on equal terms, will remind any potential challenger of just how an old pol deals with upstarts. We may also assume that its outcome will not be a ringing endorsement of Brown’s leadership. It is what follows from the election that may prove momentous.

There are some on the left who are pinning their hopes on a hung parliament in which the price of Liberal Democrat support will be some kind of proportional representation. Possibly. But placing one’s trust in such a fickle agent is misplaced. It is only too likely that, if Nick Clegg and his cohorts get a whiff of power and a couple of junior ministries, their alleged adherence to the principles of PR will fade like snow in summer sunshine. In any event, what we are likely to see is not any transitory alliance leading a quick return to the polls. This was the politics of the 1960s and 70s when minority governments and small majorities were the rule and when there were two dominant parties with clear ideological differences with the other. (In 1970, there were just 12 M.P.s outside the big two leaving aside Northern Ireland which has never conformed to the main British pattern). The situation now is quite different for four reasons.

The first is that the two-party system has slowly loosened if not collapsed. In 2005, there were 74 British M.P.s outside it with the Lib Dems just at the threshold of becoming the party which disrupts the two-party headlock. The second is that the fabric of the British state has also begun to fray with a slow-motion secession by Scotland and Northern Ireland and a loosening of ties with Wales. Just how far this process will go is hard to predict but it does mean that the single line of cleavage which has been the basis of British politics for many years has been augmented by a national as well as, for want of a better description, the old class split. The third reason is that the two main parties are now virtually indistinguishable in their policies and underlying ideology even though they continue to fight like snakes in a sack over largely invented differences. Fourth — and this is where it becomes complicated — we are approaching the depths of a painful and protracted recession.

Economic recession can often produce political consequences which seem divergent to its causes. In the early 1980s, Margaret Thatcher almost gloried in creating the economic policies which produced mass unemployment and the destruction of much British industry. It was, she asserted, the necessary pain to assuage years of compromise with organised labour. And, assisted by splits in the Labour opposition, she managed to achieve continuing electoral success that, whilst never wholly convincing in terms of a popular vote, gave her safe parliamentary majorities. On the other hand, in 1931, the hapless Labour party was almost eliminated from Parliament when the country turned towards a government of ‘national unity’ — effectively the Conservative Party plus a small splinter of the Labour party but one led by the sitting Prime Minister, Ramsay MacDonald.

The next election may well prove to be a bit ‘wild’, that is it may throw up a number of unusual victories. The Green Party might snatch a seat in the mildly eccentric constituency that is Brighton. Ominously, the BNP might come close to victory, if not actually over the top, in some places. One or two Labour independents could hold on whilst in Scotland and Wales, the nationalists could creep closer to dominance. Of course, the main story will be the size of the Conservative majority and whether the Lib Dems manage to at least hold their own. However, this underlying ‘wildness’, a symptom of a widespread disillusion with a sclerotic political symptom, could produce other results than a few maverick MPs. The tempting prospect for the Conservatives might well be the opportunity to create a new ‘national crisis’ government, one based firmly around the Conservative party but with enough of a leavening of Labour parliamentarians, preferably ex-ministers, to give the appearance of a national coalition.

One factor in this is the existence of a ready-made department of state whose team of assorted lords and ladies will continue to sit in Parliament for the rest of their lives (or at least until democratic reform) regardless of general election results. (It is a sign of just how much the House of Lords runs the absurdly named Department for Business, Enterprise and Regulatory Reform that its senior elected minister, Pat McFadden, is named as Minister for Employment Relations and Postal Affairs, that is keeping the unions under control and privatising the Post Office. Heaven forefend, that a real job such as Minister for Economic Competitiveness (Lady Vadera) or Minister for Trade and Investment (Lord Davies) should be given to a commoner with no banking experience). The overlord of this bunch, Lord Mandelson, is unlikely to want to give up his long-lasting dance with the rich and famous and it would be surprising if a few discrete feelers were not already going round the streets close to his Notting Hill villa. If one adds to this some of those Labour ministers who already seem indistinguishable from Conservatives then one can see the outlines of a dream ticket ─ a cross-party coalition based upon English MPs which could claim to be responding to a national economic crisis and which could rule without reliance upon Celtic votes.

It is also likely that a striking sign of the general disillusion with the political process will come from falling turnout. Already in the low 40 per cents in the Labour strongholds of North and Central Manchester where I live, it would be surprising if battered Labour voters were to do other than turn away entirely from the electoral process.

However, in this mix of disillusion and wildness, one factor is missing ─ any kind of effective leftwing challenge to the present hegemony of essentially neoliberal politics. In many ways, this is the most obvious political difference between now and the previous periods when the industrial economies were battered by deep recessions, the early 1980s and during the depression of the 1930s. Of course, in the latter time, both communism and fascism were real and ominous threats to the capitalist system whilst in the 1980s, the apparent challenge of socialism was essentially a house of cards. But the challenge, nevertheless, was present in the political process. In spending some hours recently in tracking through the many websites maintained by various components of the British (or at least English) left, the absence of any such voice became drearily apparent.

Essentially, one can split the politics of the left into three parts. The first comprises those in the Labour Party who still see themselves as the ‘left’ of that organisation grouped into the Labour Representation Committee and the Compass group (which may be a pressure group, a think-tank or a political fraction depending upon sources). Both look to an individual MP (McDonnell or Cruddas) to bring light to the Labour party whilst omitting any significant discussion of any possible political process whereby this might come about. The large number, seemingly a dozen or more, of groups descended from the Communist and Trotskyist parties of the 1970s, rely heavily upon that old favourite, the rising consciousness of the working class, whilst spending much of their energies on denouncing the particular characterisation of that elusive phenomenon by their rivals. Thirdly, the Green Party (of which I am a member), which is basically the thinking-person’s social democracy, relies upon a slow-motion electoralism picking up council seats in the hope that one day this will translate into higher things.

Am I being too critical? I really don’t think so. After all, in a parallel diary, John Nicholson, someone very conversant with and committed to left politics, has described its recent history as a modern-day Life of Brian. The one common feature of all these perspectives is a lack of any desire to engage with other fractions of the left to discuss just how they could work together in some way to take any kind of role in the national political drama currently being unfolded. This is despite a very large measure of agreement on the policies, big and small, needed in national government. Nationalise the banks? Save the Post Office from privatisation? Support the Palestinians? Raise basic benefits? Get rid of nuclear weapons? Yes, yes and yes again. But effective dialogue let alone cooperation?

Such a situation is even more dispiriting given the fact that in other European countries, the most notable being Germany, Italy and France, the left has come through a couple of decades of battering and has started to try and come together in some kind of united coalition. The fruits of these endeavours have, so far, been small but the efforts have been made and could come to something.

One small and flickering light in this gloom is the Convention of the Left held in Manchester in September, parallel to the Labour Party conference, and followed up in January by a one-day gathering. This attempts to bring together all parts of the self-defined left including both those organised into political groupings and activists belonging to no group. It is unclear where the Convention is going and it is not without its sectarian squabbles. Even so, to bring together 200 people from around Manchester not to hear speeches delivered from any platform by left ‘notables’, indeed lacking any notable speakers at all, but just to discuss how the left can advance is an important achievement.

Overall, however, a realistic pessimism must reign with regard to the possibilities of any significant left intervention in the next election. Perhaps the best that can be hoped for is that there will be enough initiatives along the lines of the Convention to provide the base to allow for some coordinated response to what happens after it.

Gordon and the bank manager

Gordon Brown's upbringing in a Scottish manse is often referred to as defining his character. If this is so then the figure of the local town's bank manager must have been a big influence, perhaps a dark-suited man keeping a careful eye on the finances of local business and indulging in just one glass of sherry after work. A man one could trust and whose advice would be respected. Little else can explain his inexplicable, almost obsessive desire to look after British banks in their hour of need.
Although very complicated in its detail, the credit crunch is at its heart quite simple. Banks create money. They originally did this by issuing bank notes. Gordon would have been familiar in his youth with notes from such as the British Linen Bank and the Union Bank of Scotland, now part of the Royal Bank of Scotland, as Scottish banks, unlike English, still retain the right, closely controlled, to print money. Now banks mostly create money by lending more than they have cash on deposit, again a process fairly closely controlled. This is what Gordon's local bank manager did and, to an extent, still does.
All money is a debt and vice versa. Look closely at your English £5 note and it says in small print "I promise to pay the bearer on demand the sum of five pounds" signed by the Chief Cashier of the Bank of England. Starting with John Kendrick in 1694 down to the current holder, Andrew Bailey, all have signed banknotes promising to pay out if you claim your debt. Of course, today if you found your way in the Bank of England and demanded repayment they would presumably give you another £5 note or possibly five £1 coins. The debt that banks have to their depositors is the base which they use to create more money.
The key to the current crisis began in the 1990s when banks began to borrow from other banks, notably from foreign financial institutions, and then used these loans as the base from which to create more money in the form of loans to companies, as mortgages or to other financial institutions who then proceeded to create more money. It was this process that was almost entirely unregulated.
The money so created was quite specialised being mostly available for the purchase of various kinds of asset notably houses but also such specialised assets as Premier football clubs. So much money chasing these assets led to price-bubbles. These bubbles were finally pricked when one type of loan, sub-prime mortgages in the USA, started to fail though in truth it could have started in many other places. Once begun, the entire process of money creation went into reverse as loans were called in and could not be renewed. The credit-crunch is essentially a money shortage as stark as if all the bank-notes in circulation were piled up and burnt.
The British government response to this has been to provide some of the British banks with huge amounts of money essentially so they could restart the cycle of money creation. So far, £185 billion has been loaned to Lloyds, RBS and HBOS. Barclays and HSBC have also had money pumped in, the former from Abu Dhabi, the latter probably from China. The problem is that far from creating more loans, the money has largely been used to pay off the banks' own debts to other institutions as they fall due and cannot be renewed. The cost of paying back these loans, mostly in euros or dollars, has steadily risen as sterling has fallen.
The result is that, although the loans may have saved the banks from defaulting on their repayments, nothing has been done to stimulate domestic demand, the Keynesian recipe for combating recession. What is required is direct intervention, what is loosely called 'public works'. Yet despite vague promises, very little has actually happened. Indeed far from releasing funds for direct intervention, there has been a continuing squeeze on much public expenditure. Local councils, for example, are actually making staff redundant because of cuts in central funding. Perhaps most ludicrous of all, student grants are being cut by £200 million because demand has exceeded budget limits. It is difficult to imagine a better form of public expenditure in a recession than grants to encourage young people to spend some years training rather than go on the dole. But that is what is happening.
It does seem as if Gordon Brown's childhood vision of the bank manager has totally taken over government policy. Surrounded by appointed ministers and advisers from banking backgrounds, he can do nothing but give them more money whenever they ask for it. It is a sound recipe for disaster.

Origins of the crisis

There are many possible ways to approach the present crisis. The most superficial, and the one favoured by Gordon Brown, is to suggest that it all stems from some problems with the sub-prime mortgages in the USA which have, inexplicably, caused a global crisis. This category of debt, essentially unknown a few years ago, enables blame to be shifted on to various categories of trailer-trash in Florida and desperate house-wives in Ohio colluding with shady American mortgage salesmen; essentially the cast of an updated Arthur Miller play. An apparently deeper analysis lays great stress upon heightened greed in the entire international banking industry inventing more and more complex financial instruments which would conceal their increasingly risky nature behind a smokescreen of incomprehensible mathematics in order to pay themselves ever-larger bonuses.

As the basis for the screenplays which are undoubtedly being written at this moment, both explanations offer endless room for elaboration and they both offer partial truths.

There clearly has been incompetent, possibly criminal, behaviour by financial institutions, the extent of which will probably become clearer as the huge amount of Jarndyce vs. Jarndyce litigation, which is inevitable in the US courts, gradually unwinds. However in order to appreciate the fundamental reason for the current recession one has to dig deeper. In particular, it is necessary to appreciate that the recession derives from the working out of an underlying process in the kind of capitalism which has dominated the world economy for nearly thirty years.

It is usual to compare the present recession with that which followed the 1929 stock market crash in the USA. Certainly the comparison is better than with the recessions of more recent memory in the early 80s and 90s. These were, in effect, created deliberately by the Thatcher government to combat inflationary pressures in the economy and to stamp out the last remnants of the postwar settlement. The 1929 recession did have some common features with today, notably the collapse of a debt-fuelled speculative bubble in the USA with knock-on effects throughout the world economy. However, there are notable differences which render many comparisons dubious at best. Five are particularly important.

First, in 1929 the economic situation in the USA was very different to that in Europe where most countries had been bumping along in a fairly depressed state for much of the preceding decade. The USA, alone, had largely benefited economically from WW1 so that it was unique in having a significant consumer boom in the 1920s. Second, the huge trade deficits which have been run by the USA and the UK for many years, (the British deficit being quantitatively much smaller than the US but relative to its GNP even larger) were largely unknown in the 1920s with the consequence that there was no pileup of American and British financial debts in overseas treasuries. Third, the very high levels of personal debt seen in recent years particularly in the USA and UK and spreading throughout the industrial world were almost unknown. Buying goods on credit, hire-purchase or the ‘never-never’ was in its infancy, credit cards did not exist, most people had no bank accounts and house-purchase, growing but not by any means common, was undertaken under rather stringent financing conditions by specialist agencies. Fourth, both economies had manufacturing sectors which produced most domestic needs from cars and domestic appliances to toys and hand-tools. In both countries, buying foreign goods, whether food or products, was a rare and often rather exotic experience.

Fifth, the political context was very different. Throughout Europe, two competing extreme ideologies, communism and fascism, fought over what was widely seen as a

capitalist system in terminal decline. Even in the USA, in 1932, the White House was

protected by machine-gun posts against any possible assault by the Bonus Army encamped in its thousands in tented-towns around Washington. In contrast, the past ten years have been the calmest of political decades in most of Europe when compared with almost all the twentieth century.

The Great Depression which began in 1929 was never really relieved in peacetime not by Keynes nor Roosevelt nor, for that matter, by Hitler. The Grapes of Wrath, often seen as the classic indictment of the period, was published in 1939 as essentially contemporary reportage whilst Keynes’ General Theory came out in 1936. The most famous of several Jarrow Hunger Marches was also in 1936. Sporadic and localised economic revival occurred in most countries but it was only WWII which finally brought it to an end, particularly in the USA which benefited from 1939 onwards from a flood of orders from Britain and France for war materiél. Keynes’ most notable personal success was in the economic management of the war in Britain which avoided most of the problems of inflation and profiteering which had accompanied WW1. He was also influential in negotiating the Bretton Woods agreement which set up the framework for the postwar international economic scene though its actual form was rather different from the one he originally pursued. Keynesian intervention has, in fact, never pulled any economy out of recession as such despite the rather grandiose claims now made for his policies.

The most important impact of Keynes’ economic thought came after his death in shaping

the way in which economic management to prevent recession was undertaken in national

economies throughout Europe and, to a degree, in the USA. The three decades after 1945 are often referred to as a ‘golden age’ of capitalism in that a formula appeared to have been devised which ensured steady economic growth and full employment under

capitalism. The key point about this period is that it was a political settlement first with the economic tools of Keynesian demand management deployed to support this

settlement. It fell apart in the 1970s because of problems which lay outside Keynesian economics - inflationary pressures deriving from the three parties to the postwar settlement, capital, labour and government, each laying claim to national resources. In Britain, in particular, this inflationary crisis was accompanied by a steady fall in corporate profits to the point where British capitalism was essentially running on empty as the profit rate came close to zero. The British left failed to take advantage of the situation despite gaining political ascendancy in the Labour Party and became mired in a swamp of short-term ‘workerism’ with the prime objective an endless pursuit of money wage increases. (There is a longer exposition of this in Feelbad Britain which can be seen at .

A neoliberal government came in and managed through a turbulent decade to impose a new political settlement, one cemented by the New Labour government after 1997. This settlement pivoted around economic support for business by enlarging the share of profits in national income whilst enlisting the support of a large enough bloc of the electorate, re-badged as consumers, to ensure electoral majorities.

It is the collapse of this neoliberal settlement which is the basis of the current crisis. In future postings, I hope to go further into both the reasons for this collapse and what should be the left response.