The crisis and spending cuts: cause and effect
The Lib Dem-Tory government stands accused of making cuts in public spending that are purely “ideologically driven”, that are “unnecessary” and being carried through just to please their rich City friends.
In launching the Coalition of Resistance in The Guardian this week, former Labour cabinet minister Tony Benn wrote: “We reject these cuts as simply malicious ideological vandalism, hitting the most vulnerable the hardest.”
In the same spirit, writer and blogger Richard Seymour claims that “there is no urgent need to pay off Britain’s debts”, and that the cuts agenda was driven by big business interests. This view is shared by many trade union leaders.
If, as is suggested, the Coalition’s intentions are essentially “ideological” and not necessary, it follows that they can be stopped in their tracks and even reversed by a great deal of protest and systematic opposition.
After all, the cuts are but a policy decision taken by a right-wing government when there are other options available. Or so it is implied. So if sufficient pressure is applied, the Coalition might be persuaded to change course.
This is the first of several difficulties with this approach. It helps to foster the illusion that the Coalition could be for turning and that there are more rational, progressive options available.
Nor is it true that all sections of business support the cuts programme. There are at least 1 million private sector jobs that are dependent on public sector contracts who are already losing out, while the risk of plunging the economy deeper into recession are very real.
What is sidestepped and even ignored is the profound and deepening crisis of the capitalist system as a whole as the source of the cuts. In fact, the term “capitalism” isn’t used by Benn once in his otherwise forthright appeal to come together to fight the cuts.
The truth is that the budget crisis facing Britain is but one aspect of the great unravelling of decades of debt that sustained the global economy and the financial system.
Debt increased at every level, from consumers to companies to banks to whole countries. A survey by the McKinsey Global Institute found that average total debt (private and public sector combined) in ten mature economies rose from 200% of GDP in 1995 to 300% in 2008. In Iceland and Ireland, debt-to-GDP ratios reached 1,200% and 700% respectively.
In 2007, the bubble began to burst when poor Americans were unable to pay for their subprime mortgages. The following year, the global financial system went to the edge of collapse, plunging capitalist economies into a deep recession which is worsening.
Even The Economist had to acknowledge the connection. In a special edition on debt, the magazine acknowledged:
Hyman Minsky… argued that these debt crises were both inherent in the capitalist system and cyclical. Prosperous times encourage individuals and companies to take on more risk, meaning more debt. Initially such speculation is successful and encourages others to follow suit; eventually credit is extended to those who will be able to repay the debt only if asset prices keep rising (a succinct description of the subprime-lending boom). In the end the pyramid collapses.
There is, therefore, a material cause-effect relationship between the crisis of the system as a whole and the mountains of debt that leave the British state having to find £40 billion a year in interest payments on government bonds. Attempts to buck financial markets failed in Greece, Ireland and Spain, which led all the major British parties to pledge substantial cuts during the election campaign.
Capitalism has to drive down living standards to sustain the profit system and the cuts are part of this onslaught. We don’t need to try and find a substitute budget to help capitalism out of its problems. The challenge is to develop an alternative to capitalism itself and build a coalition of forces to challenge for state power through a network of People’s Assemblies.
6 August 2010