Tinkering with the system won’t solve the fundamental contradictions
If anyone is in debt, they need to be helped to climb out of it. And the best way of doing this is to provide them with the means of earning sufficient income and ensuring repayment stages are realistic and feasible. Seems common sense, doesn’t it? But the IMF and the European Bank are doing exactly the opposite in their treatment of the chief debtor nations of the Euro-zone. This can only make a bad situation worse.
The main reason these countries are in big economic trouble and why most of the developing countries are too is the result of lax banking regulation. Priority number one should be for governments worldwide to impose proper regulation on banks’ lending and investment policies. Once that has been done, you’d think the next priority would be to redirect investment to public infrastructure projects. This would create employment, increase tax revenues and be a second step on the road to paying off the enormous debts. It would also ensure social cohesion. These are the sort of policies Roosevelt pursued in the thirties and what the Labour government did after the end of the war. These aren’t socialist solutions, they’re a means, if there are any left, of saving capitalism. But the dogma of neo-liberalism has penetrated so deeply into government psyches and economic thinking that such suggestions are viewed as the worst form of apostasy. Their view is that it would tantamount to admitting that ‘free market capitalism’ has not worked.
It is one of the central contradictions of capitalism that profits are most easily increased by reducing wage bills and cutting jobs through ‘efficiency’ savings, but the corollary of this is that workers have less income to spend, or little at all if they are unemployed. Thus there is less money in circulation to buy manufactured goods, so company profits are reduced yet further and the vicious circle continues. This is exactly what is happening in Europe and in the wider world now.
Taking the examples of Spain, Greece and Portugal, the austerity measures demanded by the bankers have meant drastic wage reductions, rises in unemployment to unheard of levels, while at the same time cut-backs in public spending are imposed. Young people are queuing up to leave these countries simply to find work. There is social breakdown, mass poverty and anger. There is no chance in hell of these countries being able to emerge out of the present mess through such policies. Where can the impetus come from? Who will invest in such unstable and volatile countries? Why can’t even the wise capitalists see this? The main reason is that the ruling elites are locked into a neo-liberal way of thinking, and also because, despite the chaos brought about by the financial institutions, and the flak they have taken for this, they are still calling the shots. The global financiers can only see Pound, Euro and Dollar signs in front of their eyes and can’t relate to real production, manufacturing and society. They want to squeeze interest out of the indebted countries come what may.
The increased financialisation of the whole capitalist system over recent decades has also meant that investors have sought more rapid returns on their money and bigger and bigger profits than can easily be obtained by investing in manufacturing or sustainable agriculture. This has accelerated the take-over frenzy, asset-stripping and closures. It is short-termism gone insane. It has meant companies are no longer able to undertake long-term planning as investments are now made on the basis of short-term profitability potentials. The insatiable greed of the big banking institutions means that they are demanding big returns now, and don’t care what happens a few years down the line. This attitude has been behind hedge fund casino economics, the derivative markets and price movement speculation in raw materials, shoddy building projects and internet bubbles.
These are the central contradictions and unless the leadership of the Labour Party is prepared to address them, no amount of tinkering at the edges, as Ed Balls appears to be suggesting, will help.