The second bank bailout
Confronted with the unwelcome outbreak of the Russian Revolution of February 1917, the sociologist Max Weber comforted himself with the following reflection:
Even when the rebellious masses have leaders who are as able [as the bourgeoisie] and at least to some extent unselfish, as they undoubtedly are in Russia, there is one weapon they lack which will always be vital: creditworthiness. This weapon is, however, possessed by the bourgeoisie. And on the basis of this creditworthiness the bourgeoisie can obtain the funds which are necessary for the organisation of a permanent administration, whether or not it calls itself “revolutionary”, as for any other organisation which exercises power.1
Unfortunately for Weber, the credit ratings agencies weren’t able to prevent the October Revolution. But we are witnessing today a demonstration of what he called “the impersonal but ineluctable power of the money market”.2 Austerity is currently ricocheting around Europe, as the Greek crisis has morphed into something much bigger, driven above all by the demands of the market for government debt.
What has happened fully vindicates the argument we put forward in our last issue’s Analysis—that the present economic crisis must, like the Great Depression of the 1930s, be understood as a historical phenomenon that embraces a number of different phases. Nouriel Roubini and Arnab Das offer this characterisation of the latest phase: “The largest financial crisis in history is spreading from private to sovereign entities”.3
One could put it like this. The crisis has deep roots, above all in a long-term crisis of overaccumulation and profitability, but it was precipitated by the behaviour of the banks and quasi-banks (hedge funds, private equity funds, and so on) that have become increasingly powerful in the neoliberal era. Taking advantage of the cheap credit readily available in the middle of the last decade, they massively expanded their borrowing to take part in various speculative bets, particularly centred on the housing market in the US. The crisis started, in August 2007, as these bets unravelled.
The ensuing financial crash led to the biggest economic slump since the 1930s. In 2009 world gross domestic product (GDP) fell by 0.9 percent and world trade by 11 percent.4 States weren’t able to prevent the slump, but they helped to stop it from reaching the scale of the Great Depression and also to halt the collapse of the banking system, through huge infusions of money. As a result of this extra spending, and of the impact of the Great Recession on state finances, government debt is projected to exceed 100 percent of GDP in the advanced economies by 2014, an increase of about 35 percentage points since the start of the crisis.5 The global budget deficit is now 6 percent of world GDP, up from just 0.3 percent before the crisis.6
The surviving banks, reinvigorated by all this state support, are now campaigning for drastic reductions in budget deficits—and therefore severe cuts in public services, jobs, wages and pensions. This programme was recently embraced by the G20 finance ministers. Meeting on 5 June, they (as the Financial Times put it) “ripped up their support for fiscal stimulus”, ie extra spending to sustain growth, declaring, “The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability”.7
As Weber noted, the banks and their allies (for example, the credit rating agencies) have the power to enforce their demands by assessing states according to their creditworthiness. The bonds issued by governments perceived to be especially indebted and/or insufficiently committed to austerity are sold, causing their prices to fall. This acts as a self-fulfilling prophecy, since a government whose bond prices fall ends up paying more interest on its debt, and therefore finds itself under a growing burden of repayments. If, like the Greek government, it is reliant on short-term loans, the situation is even worse, since the state concerned has constantly to “roll over” its debt, trying to find new buyers for its depreciating bonds.
The banks and quasi-banks that have been betting against countries like Greece aren’t motivated by malice. They are seeking extra profits by probing at fault-lines. In the process they have exposed the structural flaws inherent in the eurozone. These were discussed at length in our last issue’s Analysis. In the first place, the eurozone is a monetary union that lacks the fiscal powers to tax, spend and borrow—crucial in a crisis such as the present one—that a genuine state possesses. Secondly, this arrangement binds together Germany, a huge export economy based on domestic wage-repression, with much weaker economies, especially in southern Europe, that in the 2000s borrowed heavily from French and German banks in order to import—particularly from Germany.8
Markets probing the weaknesses of the eurozone have badly destabilised the world economy in several ways. First, the Greek crisis polarised the eurozone between Germany and most of the other member states. Berlin has demanded in exchange for “rescuing” Greece, not just austerity, but a tightening up of European monetary union that would allow it to monitor the taxing and spending of other governments and permit the suspension from the eurozone (and from European Union voting) of fiscally “irresponsible” states. This seems very unlikely to happen, and so the EU’s political deadlock will deepen.
Secondly, the markets’ icy gaze has shifted to other EU states, including Portugal, Spain…and Britain. The British bond market opened three hours after voting closed in the general election to be ready to sell off sterling and gilts. Targeted governments have responded by rushing out austerity programmes: the Conservative-Liberal Democrat coalition’s rapid announcement of £6.2 billion worth of immediate cuts is an example. But states are caught in a Catch-22 situation.
In late May the credit rating agency Fitch downgraded Spain’s creditworthiness, explaining, “The downgrade reflects Fitch’s assessment that the process of adjustment to a lower level of private sector and external indebtedness will materially reduce the rate of growth of the Spanish economy over the medium term”.9 In other words, Spain is being penalised because of the slower growth that the cuts demanded by, among others, Fitch and other rating agencies are likely to cause! The depression into which the savage cuts imposed by the government of George Papandreou is driving the Greek economy is one reason why it is widely believed that Greece will eventually default on its debts.
Table: Banks’ holding of Greek and southern European assets10
|Holdings of Greek assets|
|Share in the total external claims of the banking sector (%)||2.1||1.4||0.7|
|Share in total banking sector assets (%)||0.8||0.5||0.1|
|Banking sector capital and reserves ($bn)||354||413||1410|
|Holdings of Greek, Portuguese and Spanish assets:|
|Share in the total external claims of the banking sector (%)||9.1||10.1||79.3|
|Share in total banking sector assets (%)||3.6||3.7||0.6|
Thirdly, the activities of the banks and their allies have rebounded onto themselves. French and German banks have lent heavily to Portugal, Spain, and Greece (see table above). If the markets force these states into default, this could threaten banks still carrying heavy losses from their failed gambles during the credit boom. This helps to explain why the German chancellor, Angela Merkel, was eventually dragged into accepting a eurozone “rescue” by the EU and the International Monetary Fund at an acrimonious summit on 9 and 10 May. France’s president, Nicolas Sarkozy, is reported to have threatened to withdraw from the euro unless Germany signed up. Pressure from Barack Obama and his Treasury Secretary, Tim Geithner, also played a part. Fears that the US would be dragged into the maelstrom led the Federal Reserve Board, as part of the deal, to reinstate the currency swap lines it provided at the height of the financial crisis to allow European banks access to dollars.
“This bailout wasn’t done to help the Greeks; it was done to help the French and German banks,” the Tory economic historian Niall Ferguson told the New York Times. “They’ve poured some water on the fire, but the fire has not gone out”.11 Organising interventions designed to save the Western banks is how the US and the IMF responded to the financial crises in Mexico in 1994-5 and in East Asia in 1997-8. The eurozone rescue amounted to €750 billion, about $925 billion—even more than the notorious $700 billion Troubled Assets Relief Program, the US bank bailout of October 2008.
This latest bailout indicates that all is still not well with the banks. Even after the package was announced, European banks were finding it hard to raise the short-term loans they normally rely on from American money market funds. Libor—the interest rate banks charge each other—has risen sharply. European bank shares fell by nearly a fifth in May.
The European Central Bank (ECB) gloomily announced at the end of May that the eurozone was faced with “hazardous contagion” as a result of the debt crisis. It also predicted that European banks would have to write off a further €195 billion of losses by 2011.12 The credibility of the ECB itself as the most monetarist major central bank was undermined when it was forced, as part of the rescue package, to go back on previous undertakings and start buying European government debt, thus directly propping up vulnerable states such as Greece.
The eurozone crisis has thus seen the return of the kind of financial instability that precipitated the world into the Great Recession in 2007-8. But, in some ways, the situation is worse. The New York Times pointed out:
Financial policy makers find themselves running out of weapons in their arsenal.
After borrowing trillions to stimulate their economies and ease credit concerns during the last wave of fear in late 2008 and early 2009, governments cannot borrow trillions more without risking higher inflation and shoving aside other borrowers like individuals and companies. Short-term interest rates, already near zero in the United States, cannot be lowered any further. And vital steps like raising taxes or cutting spending increases could snuff out the beginnings of a recovery in northern Europe and worsen the pain in recession-battered economies like Spain, where unemployment recently passed 20 percent.13
The big unknown is the broader impact of the eurozone crisis on the world economy. In recent months there has been growing optimism in bourgeois circles that the recession is over, thanks in particular to massive fiscal stimuli in the US and China. Both the IMF and the Organisation for Economic Cooperation and Development (OECD) are forecasting a rise in global output of around 4 percent this year. But worries about a double-dip recession—the return to slump that, like a spectre, haunts the dreams of the world’s rulers—have increased as a result of the eurozone crisis, helping to drive down world stock markets.
One justification for these worries is the issue of the so-called “global imbalances” that have become a key feature of the world economy over the past two decades. Creditor states—above all China and Germany—hold down wages and export vast quantities of manufacturing goods to debtor states like the US, Britain and the smaller eurozone economies. A significant portion of the proceeds of these exports are lent to the debtor states so they can carry on importing. There has been a great deal of chatter since the outbreak of the crisis about the need to “rebalance” the world economy by getting the creditor states to expand their domestic markets and hence consume more and export less and the debtor states to invest and export more.
The big problem with this strategy is that it involves unravelling the deeply embedded class interests that sustain the prevailing global flows of capital and commodities: thus the profits and power of the US, Chinese and German ruling classes depend on the existing set-up.14 These interests are an active factor in the present situation. Thus the German ruling class is both demanding that the weaker European economies implement austerity measures and shift resources from consumption to investment in export industries and, by refusing to expand their own domestic demand, denying them markets for these exports. The danger is therefore that the austerity programmes will, as in the 1930s, generate a downward spiral of shrinking effective demand that could lock Europe in a protracted slump.
The eurozone crisis has also rebounded negatively on the increasingly tense relationship between the US and China. In recent months this has focused on demands by Washington that Beijing allow its currency (the renminbi), which for the last two years has been pegged to the dollar at a rate designed to keep Chinese exports cheap, to rise against other currencies. The Financial Times reported:
Many market participants expected, following careful diplomacy by the US, that Beijing would announce in May or June a resumption of the slow appreciation in the renminbi that it put on hold in 2008. But with the euro falling sharply as a result of the Greek crisis, investors have downgraded such expectations. China has little wish to find its export sector losing competitiveness simultaneously against Europe and the US, its two main markets. With the dollar rising, the US target of doubling exports in five years, which had looked unlikely, now borders on the quixotic.15
Global capitalism is thus adrift in a sea of uncertainty. But one thing’s for sure. In Europe at least, the ruling classes are agreed on the necessity of imposing austerity measures on their populations. Indeed, they may hope that the ferocious cuts being implemented in Greece will make an example of the most combative workers’ movement in Europe. The semi-insurrectionary quality of the general strike of 5 May, when vast, angry crowds surrounded the parliament building in the centre of Athens, shows the risks involved in such a strategy. The Spanish government’s austerity programme provoked the unions into calling a public sector strike on 8 June. The fear of successful resistance is feeding into the anxieties that have been shaking the financial markets. Workers’ collective power can trump the markets’ blackmail.
Britain: the mould cracks
In Britain the drive to austerity is framed by the formation of the Conservative-Liberal Democrat coalition government. The novelty of such an arrangement in recent British politics has provoked an intense media hullabaloo focused on the persons of the new prime minister, David Cameron, and his Lib Dem deputy, Nick Clegg. In fact, as historians were quick to point out, coalitions are not so unusual: they dominated British politics from the 1880s to the outbreak of the First World War, reflecting the dominance of the House of Commons by four parties—Liberals, Tories, Liberal Unionists and Irish Nationalists—and then again between the wars, when Labour was still in the process of supplanting the Liberals as the Conservatives’ main opponent.
The failure of any party to win a parliamentary majority on 6 May confirmed what has been the trend since the Social Democrats split from Labour and allied themselves to the Liberals in 1981: the old Labour-Tory duopoly has been replaced by a multi-party system. As John Curtice puts it:
In the immediate post-war period Britain certainly did have a two-party system. It appeared that the replacement of the Liberal Party by Labour as the principal opposition to the Conservatives had run its natural course…the proportion of people voting for either the Conservatives or Labour increased from just over two-thirds in 1922, when Labour first outpolled the Liberal Democrats, to nearly 97 percent in 1951.
But since then the third party vote has gradually increased again. Now it is back to the level of the 1920s. At just over 65 percent, the proportion of votes across the UK as a whole cast for either Labour or the Conservatives was lower this time around than at any election since 1918… The Liberal Democrats may not have fulfilled the expectations of the campaign opinion polls, but at 23 percent, their share of the UK-wide vote was still their second highest score since 1929. Meanwhile in Great Britain alone an all-time record high of nearly 10 percent of the vote was cast for smaller parties.16
The Lib Dems are now the strongest of a plethora of challengers—the Scottish Nationalists and Plaid Cymru, the nationalists and loyalists in the north of Ireland, UKIP and the BNP on the far right, the much weaker and more fragmented forces to the left of Labour (the Greens, Respect, the Trade Union and Socialist Coalition—TUSC).
So the breakdown of the two-party system has finally produced a hung parliament. But there was something else about the election result: there’s a case for saying that all three major parties lost. As David Runciman puts it in a perceptive analysis, “on the morning of 7 May it was hard for any of the party leaders to avoid feeling that they had received the cold shoulder. There was a delightful, unnerving symmetry about it; each side had received just enough votes and seats to let them have a sniff of power, but not enough votes or seats to be able to grasp it”.17
The most obvious electoral losers were the Lib Dems. The “Cleggmania” generated by the TV debates proved to be a mirage, garnering a gain of only one percentage point in the Lib Dems’ share of the vote and a fall in the number of seats they won. But, faced with a deeply unpopular Labour government and a hapless, bumbling prime minister, Cameron failed to lead the Tories to a parliamentary majority. His setback went deeper. The pollster Stanley Greenberg summarises the results of a detailed survey of voters’ attitudes:
The Conservatives failed to make it an ideological election and failed to dislodge Labour on the economy or public services. Few voters supported Tories because of their “big society” or low-tax themes and they failed to move the country from its progressive or centre-left worldview. The voters that gave the government its mandate also want more financial regulation, not less; more government involvement, not more markets; taxes rather than public service cuts; and more government investment, not more freedom of enterprise. About 60 percent of all voters favoured these, including 70 percent of those who voted for Liberal Democrats.
While the Conservatives emerged as the biggest party in parliament, they failed to deliver electoral changes that would suggest a new hegemony. They failed to establish dominance with young voters or beyond the rural areas such as in London or the suburbs.18
The details of Greenberg’s survey are indeed striking. Respondents split 57:40 percent in agreement with the statement “I’m more worried that we will go too far in cutting social spending and public services.” The statement “This is a time for government to get more involved” was supported by 71 percent of people, compared to only 22 percent for “This is a time to depend more on markets” (even Tory voters split 65:25 on this). Just 30 percent wanted less government regulation, as opposed to 65 percent who wanted to see the government encourage investment. Although there was overall a dead heat of 48:48 percent backing respectively “greater opportunity” and “less inequality and more fairness”, both Labour and Lib Dem voters heavily favoured the latter.19
This shows the persistence of a broadly social democratic popular consciousness in Britain, despite the political and ideological dominance of neoliberalism since the 1970s. We shouldn’t overstate the coherence of this “progressive or centre-left worldview”: Greenberg’s survey shows that 38 percent of voters took a “very cool” attitude towards immigration, rising to 51 percent among unskilled manual workers.20 Nevertheless, popular attitudes on socioeconomic issues confirm that the Con-Lib coalition can claim no mandate for its austerity programme and indicate, more broadly, that support for Thatcherite free-market policies is very weak.
This is an important constraint on the Cameron government. But it also underlines the historic failure of New Labour. Despite broadly supportive popular attitudes, Labour heavily lost the election. This was reflected in a slide in its support among skilled manual workers, from 47 percent in 2005 to 34 percent in 2010, and unskilled manual workers from 47 to 36 percent.21 Greenberg’s judgement is damning: Labour’s working class support “crashed… People voted for Labour to defend public spending. But there was no vision that brought people to Labour. Voters who participated in this election have a worldview but the politics of Britain didn’t touch it”.22
The implication of Greenberg’s argument is that Labour failed to tap an underlying social democratic consciousness. The reason is obvious: New Labour’s embrace of the market and the disastrous consequences of the devil’s pact that Tony Blair and Gordon Brown struck with the City meant it was completely unable to offer a credible alternative. But there is another side to the picture that those on the radical left who argued that New Labour’s appalling record of neoliberalism at home and imperialism abroad meant that it should not be supported against the Tories fail to take into account.23
Labour’s achievement was to minimise the scale of its inevitable defeat. Its overall share of the popular vote fell from 35.2 percent in 2005 to 29 percent in 2010. This was a bad result, but not as bad as the opinion polls had been predicting. Not simply did the Tories’ 36.1 percent share of the vote fall far short of the landslide that had seemed to be on the cards just a few months earlier, but Labour hung on to enough of its core vote to avoid ending up in third place. Moreover, it made some unexpected gains.
Labour came first among voters aged 18 to 24, with 37 percent to the Lib Dems’ 31 percent and the Tories’ 29 percent.24 It recaptured councils that it had lost, particularly at the height of Blair’s unpopularity after the Iraq invasion in the mid-2000s, including Coventry, Doncaster, Ealing, Enfield, Harrow, Hartlepool, Hounslow, Islington, Lewisham, Liverpool, Oxford, Southwark, St Helen’s, and Waltham Forest. In inner London the Labour vote increased, and there was a swing from the Tories to Labour of just under 1 percent in Scotland. Voters’ return to Labour—alongside determined campaigning by Unite Against Fascism—explains the serious setback the BNP suffered in the election.
Runciman puts this pattern down to the complexity of the British political system now that a significant degree of devolution has taken place:
In England (and to a certain extent in Wales) the Conservatives were the obvious vehicle for voters wanting to express their dissatisfaction with the government. But in Scotland, where the SNP is in government and Labour the main opposition, the Tories made almost no progress at all. There the party that showed the biggest improvement in its vote share from 2005 was Labour. It’s true that the swing from SNP to Labour was negligible (around 0.1 percent), but the mere fact that Labour was putting on votes in Scotland while shedding them by the bucket load elsewhere in the United Kingdom shows that there were two different elections being fought at the same time. Indeed, it’s just possible that there were three. The other place in the UK where the Labour vote held up much better than expected was London, and London is another place where Labour can claim to be in opposition, to Boris Johnson’s do-nothing, know-nothing mayoral administration.25
No doubt there’s something to this explanation. But the election result also bears witness to the enduring strength of Labourism. Even the battered, exhausted, discredited New Labour government could still call on the residual, grudging loyalty of large numbers of working class people. Brown was widely criticised by media pundits for running an entirely negative campaign that concentrated on attacking the Tories for their planned cuts and seeking to rekindle memories of working class suffering under Margaret Thatcher. But this message got home to enough Labour or ex-Labour voters to limit the electoral rout.
There is an important lesson here. The 1990s saw the transmutation of European social democracy into social liberalism. In other words, the social democratic parties that were able to win office across Europe in the second half of that decade thanks to popular revulsion against neoliberalism themselves proceeded to continue the policies of privatisation and public sector “reform” introduced by their centre-right opponents. New Labour under Blair and Brown took this furthest, but it was a general trend.26
Many on the radical and revolutionary left drew the conclusion that social liberalism marked the definitive transformation of social democracy into straightforwardly capitalist parties with no more relation to the organised working class than the centre-right. But this analysis is mistaken. Even New Labour remains (to borrow Lenin’s classic formulation) a capitalist workers’ party with important ties to working class collective organisation.27
This doesn’t mean nothing has changed. The Blair government oversaw an acceleration of a much longer-term process of alienation of Labour from its working class roots. This was true positively—New Labour involved the systematic subordination of the party to the leader and his team of advisers, locked in a perpetual media struggle with their opponents (not all of them within the Labour Party). Negatively, the experience of New Labour in office also demoralised and drove away large numbers of party activists and ordinary voters.
But these processes did not break the umbilical cord connecting Labour to organised workers. The main link remains the trade union bureaucracy, which has always mediated the relationship between social democratic parties and the mass of workers. As Labour’s traditional decision-making procedures have withered under successive leaders, the role of the unions as the bearers of the party’s residual social democratic
aspirations has become more important. The Blairites’ aim of breaking the union link proved completely utopian: the falling away of initial business backing for New Labour has made the unions’ financial support even more indispensable.
The shrivelling of Labour’s activist base has also given trade union officialdom a central role in getting the vote out at election time: its visibility in these situations paradoxically rose in the Blair era. But New Labour has also benefited from a more diffuse loyalty from large numbers of working class people who may not be party members, let alone activists. This involves both a sense that Labour is still “different” from the other parties and a deep and enduring hatred of the Tories. These feelings may have weakened under Blair, partly because of the anger his warmongering and lies provoked, and partly because a Tory victory was so improbable in 2001 and 2005. But they have been rekindled more recently.
This analysis is of broader application than merely to Britain. Greece’s Panhellenic Socialist Movement (Pasok), thoroughly Blairite in recent years, tacked left to win the general election last October. This example points to the dual nature of social democracy. For within months the Pasok government was driving through an unprecedented programme of cuts. Social democratic parties are capitalist workers’ parties. In office they implement policies that work in the interests of capital, just like the centre-right parties.
But this doesn’t alter the fact that organised workers have a different relationship to them from the one they have to straightforwardly bourgeois parties. One feature of the Greek crisis is the convulsions it is causing in the trade unions aligned with Pasok. Understanding the continuing role of Labourism in both expressing and containing workers’ resistance to capital is an essential element of any effective strategy against the Con-Lib government.
An unprincipled combination?
It is important not to dismiss the new coalition as a passing phenomenon, the chance meeting of opportunism and parliamentary arithmetic dictating that an alliance of Tories and Lib Dems had a majority while a Lib-Lab government would lack one. Andrew Adonis, one of the team Labour fielded to try to strike a deal with the Lib Dems after the election, said that it “rapidly became clear that the Lib Dem negotiators had all but decided to back a Tory deal, and were playing us in to squeeze final
concessions from Cameron on electoral reform”, and fiercely denounced the coalition as “the most unprincipled governing combination in Britain” for more than 200 years.28 A former Lib Dem himself and Roy Jenkins’s biographer, Adonis is a strong supporter of a “progressive” Lib-Lab coalition, so his anger no doubt reflects political disappointment, but he knows what he’s talking about.
On the Lib Dem side, support for a coalition with the Tories seems to have been driven by the economic liberal right wing of the party. David Laws—briefly Chief Secretary to the Treasury before he became yet another victim of the parliamentary expenses scandal—was co-editor of a collection of essays called The Orange Book that sought to shift the Lib Dems in a pro-market direction.
Clegg’s first major policy speech as party leader in January 2008 explicitly identified with the book’s argument, and called for “marrying our proud traditions of economic and social liberalism, refusing to accept that one comes at the cost of the other”, along with an end to Lib Dem support for tax increases, using the private sector to deliver public services, and introducing Swedish-style “free schools”.29 All this underlines what a catastrophic mistake it was for as prominent a spokesperson for the radical left as George Monbiot to sign a letter to the Guardian calling for a vote for the Lib Dems as “today’s change-makers” who “could drive fundamental change in our political and economic landscape”.30
On the Tories’ side, straightforward political calculation played its part. Coalition with the Lib Dems gives Cameron a stable parliamentary majority. But more strategic thinking was also involved, as this analysis by Danny Finkelstein, a leading Tory public intellectual, makes clear:
Finding it hard to gain even 40 percent of the vote, the Conservative Party has, for years now, been threatened by the possible emergence of a unified progressive Left.
Blair advisers such as Lord Mandelson and Lord Adonis have long seen this. They regard the split in the Left between Labour and the Liberals that took place at the beginning of the 20th century as having ushered in a Conservative century. They are probably correct. That split has been a very important reason for the election of Tory governments, particularly in the past 40 years.
If the Conservatives had won a small majority, it isn’t hard to imagine them being swept out in five years’ time by an alliance—either explicit or implied—of Labour and Liberal Democrats. Something like that happened in 1997 and produced the Blair landslide. Now a combination of the new maths of the Commons and Cameron’s boldness has disrupted this.
And in doing so, changed politics for years. The Liberal Democrats have been picked up and put down in a different place, partly by Nick Clegg of course, but largely by a Cameron offer of partnership that they weren’t expecting. The anti-Conservative majority is, in an extraordinary political coup, no longer an anti-Conservative majority. 31
This broad appreciation is shared by the Blairite journalist Andrew Rawnsley. He reports:
During the coalition negotiations, it was the Tories who pressed for a five-year deal rather than the four-year compact initially preferred by the Lib Dems. The Lib Dems’ other important concession in those talks was to fall in with the Tory plan, also formed with an eye on the electoral clock, to start those cuts this year rather than next. 32
In other words, Cameron rejected the approach taken by the Labour leader Harold Wilson after the February 1974 general election delivered the last hung parliament—to form a minority government and call another election as quickly as possible in the hope of winning an overall majority (which Wilson just managed to do the following October). The priority Cameron and his Chancellor of the Exchequer, George Osborne, give to public spending cuts made it too risky to contemplate an early election while the immediate impact of these cuts was making itself felt.
Coalition with the Lib Dems gives Cameron the prospect of riding out the resulting wave of unpopularity and securing re-election in four or five years’ time. It also spreads the political costs of the cuts: the Tories have been careful to insist a Lib Dem take the post of Chief Secretary to the Treasury, the minister actually responsible for implementing the cuts. Vince Cable had the sense to refuse this poisoned chalice; Laws eagerly seized it, and has now been replaced by Danny Alexander, Clegg’s ex-chief of staff.
The coalition doesn’t simply mean the Lib Dems take some of the flak for austerity. Cameron’s strategy since become leader has been to extract the Tories from the Eurosceptic mire into which they descended after Thatcher’s fall and the expulsion of the pound from the European Exchange Rate Mechanism in 1992 and to reposition the party on the centre ground seized by Blair. As we have seen, this didn’t prove very successful in the general election. But Cameron also has the problem that the Eurosceptic right remains very strong in the Tory rank and file and on the back benches, and is now constantly fed by a venomous blogosphere.
The old, more Keynesian and pro-European “One Nation” current, represented in the cabinet by the ageing Ken Clarke, has been almost completely marginalised in the broader Conservative Party. The coalition therefore has the great advantage for Cameron of providing, in the shape of his Lib Dem allies, a counterweight to his own right wing. To quote Rawnsley again, “the beauty of the coalition, from David Cameron’s point of view, is that it has given him the perfect excuse to ditch commitments which he had come to regret because they were dated, unaffordable, distracting from the central economic challenges facing this government or just plain stupid”.33
No one should imagine that Cameron’s manoeuvres against the Tory right mean that this will be anything other than a nasty government. The conservative critic of neoliberalism John Gray wrote before the election, “Ideology has not disappeared, of course. Quite the contrary: all three main parties adhere to versions of the same ideology, which aims to re-engineer social institutions on the model of the market. In the real world the market has imploded, but the political class continues to insist that society must adjust to market imperatives”.34
Fundamentally Cameron hasn’t abandoned the ideological mix that defined Thatcherism—an incoherent but potent fusion of economic liberalism and the more traditional themes of Family, Church and Nation as organic unities binding society together. His rhetoric of the “broken society” has tilted the balance more in the organic direction, and has been taken to the point of absurdity in Phillip Blond’s “Red Toryism”, which denounces “economic and cultural liberalism” for destroying the traditional values of British society.35 But the detail of Tory social policy points rather to a continuation of Blair’s attempts to privatise public services. Thus education secretary Michael Gove has declared he has “no ideological objection” to private companies profiting from running the academies and free schools that he wants to replace comprehensives.36
But the cement binding the coalition together is provided by the drive to cut the budget deficit. During his brief stint as chief secretary, Laws defended (to the approval of the Tory back benches) the Lib Dems’ decision to abandon their opposition to the immediate implementation of cuts by saying, according to the Financial Times, that “the debt crisis in the eurozone had changed the equation since the election and that he now believed cutting the deficit this year was essential”.37 Cable, hitherto more Keynesian, has also accepted the priority of deficit reduction.
In Britain, as in the rest of Europe, it will be the politics of austerity that dominates the landscape for some time to come. We’re a long way from the heights that resistance has reached in Greece. Nevertheless, the coalition is vulnerable. It has no mandate for the policies it is seeking to impose on a society in which, as we have seen, social democratic values are deeply embedded.
Despite the Tories’ persisting Thatcherism, this is not 1979. The coalition is not a cabinet of experienced class warriors and it is the bankers, not the unions, whom everyone blames for the crisis. The Lib Dems, who have reached office by presenting themselves to disillusioned Labour voters as more authentically progressive than Blair and Brown, will find themselves under particular pressure from sections of their activists and supporters. This can in turn widen the cracks already visible in the government over issues such as capital gains tax. The Lib Dems’ sensitivity about being attacked from the left was indicated when Clegg claimed that cuts could be “progressive” and promised: “We’re not going to do it the way we did in the 80s”.38
But the decisive factor will be whether real coalitions of resistance develop to the cuts that are about to deluge us. Talk of coalitions isn’t just rhetorical here. Labour, thrust into opposition, will seek to rebuild support by campaigning against many of the cuts that, in office, they prepared (the revelation that Ed Miliband and Ed Balls think the Iraq War was a bad idea is a symptom of the kind of reversals we’re likely to see). This repositioning will be driven largely by electoral considerations—for example, exploiting the Lib Dems’ vulnerability. But Labour is entering a febrile period of manoeuvring and debate about its leadership and policies in which more genuine left wing voices may make themselves heard.
The development of the Right to Work Campaign, which has now held two successful conferences in the first few months of 2010, will depend on its ability to provide a framework in which activists from the Labour Party, from the revolutionary left and from no party at all can build resistance to the cuts. For those seeking to develop a political alternative to the left of Labour this will be a complicated task.
The radical left suffered in the election for its divisions, but was also squeezed by Labour’s successful mobilisation of anti-Tory fears. Nevertheless, TUSC offered a positive example of political cooperation, and had some impressive campaigns, notably in Tottenham. The decline of the two-party system will continue to create openings for the radical left. So the effort to regroup and build a left electoral challenge to Labour has to carry on—but not at the price of failing to building unity in action with militants who have still to break with Labourism but want to fight the coalition.
Rogue state at sea
News of the Israel Defence Forces’ (IDF) atrocious attack on the
flotilla bringing aid to Gaza reached us as this journal was going to press. It falls into the pattern of behaviour that Israel’s rulers have displayed in recent years. They believe that they can use ferocious violence against the Palestinians (or, in this case, their supporters) with impunity, for three reasons: first, such measures are supported by the bulk of the Israeli Jewish electorate; second, the US can be relied on to shield Israel from any serious international backlash; third, the Palestinians are themselves divided between a supine Palestinian Authority and the more militant but isolated Hamas.
All the signs are that Binyamin Netanyahu, the Israeli prime minister, is calculating that he can, for these reasons, ride out the storm created by his commandos’ piracy. He is probably right that he can avoid any direct punishment, but the attack on the flotilla is likely to be a costly one for Israel. In the first place, it further undermines the already weakened strategic alliance between Israel and Turkey that was formalised in a 1996 military treaty. This relationship has been very extensive, as this summary in the Israeli daily Haaretz indicates:
Joint exercises with the armies of Turkey, the United States and sometimes Jordan; the use of Turkish airspace for Israeli air force manoeuvres; counter-terrorism cooperation; sales to Turkey of unmanned aerial vehicles, tank upgrades, F-4 aircraft upgrades, Israeli missiles, and sophisticated electronic systems; and just as importantly, a warm, friendly, almost familial relationship between the two nations’ top military officials.39
Relations have been deteriorating since the IDF assault on Gaza at the end of 2008. It doesn’t help Israel that the Turkish prime minister, Recep Tayyip Erdogan, has moreover been increasingly in conflict with the military leadership, particularly over the Ergenekon conspiracy by Kemalist secular ultra-nationalists against the ruling Islamist AK Party. He has also been shifting Turkey’s strategic orientation, which has been traditionally based on alliance with the US and Israel and membership of NATO. Partly in reaction to the EU’s refusal seriously to consider Turkish membership, Erdogan has moved towards pursuing a more active policy in the Middle East, and cultivating closer relations with the Arab states and Iran. Israel’s piracy (denounced in these terms by Erdogan) will probably strengthen this reorientation, further isolating the Zionist state.
George Friedman of the strategic intelligence website Stratfor has highlighted the capabilities Erdogan can draw on to project Turkish power in the Middle East and Central Asia:
Turkey…is now the world’s 17th-largest economy. It boasts a gross domestic product (GDP) that is larger than that of every other Muslim country, including Saudi Arabia; larger than that of every EU country other than Germany, the United Kingdom, France, Italy, Spain and the Netherlands; and nearly five times larger than that of Israel. In per capita GDP, Turkey ranks much lower on the global scale, but national power—the total weight a country can bring to bear on the international system—frequently depends more on the total size of the economy than on per capita income. (Consider China, which has a per capita income less than half that of Turkey’s.) Turkey is surrounded by instability in the Arab world, in the Caucasus and in the Balkans. But it is the most stable and dynamic economy in its region and, after Israel, has the most effective armed forces.40
The IDF’s bare-faced brutality makes it harder for the Obama administration to maintain some semblance of order in the Middle East. Even Hillary Clinton, the US Secretary of State, has denounced the blockade of Gaza as “unsustainable and unacceptable”. The US and Israel (and others complicit in the blockade such as the EU and Egypt) may be forced to relax it. The episode may also make it harder for Obama and Clinton to hold together the coalition they have been developing against Iran’s nuclear programme. One of their main aims has been to prevent an Israeli strike against Iran, which could badly rebound not just on the Zionist state but on broader Western interests in the region, including the forces still occupying Iraq.
The difficulties the US faces in the Middle East illustrate a wider problem. The Obama administration’s new National Security Strategy, published in May, acknowledges the significance of rising capitalist states in the global South:
The United States is part of a dynamic international environment, in which different nations are exerting greater influence, and advancing our interests will require expanding spheres of cooperation around the world. Certain bilateral relationships—such as US relations with China, India, and Russia—will be critical to building broader cooperation on areas of mutual interest. And emerging powers in every region of the world are increasingly asserting themselves, raising opportunities for partnership for the United States. 41
Promoting the G20 to replace the G8 as the main forum for international economic cooperation is an element in Obama’s attempt to draw “emerging powers” into “partnership”. But, as the Financial Times points out, “on a range of issues, from climate change to nuclear proliferation, the US has become painfully aware that it cannot take emerging powers’ support for granted”.42 Washington reacted with baffled fury in May when Erdogan and President Lula of Brazil flew to Tehran to meet Mahmoud Ahmadinejad and sign an agreement allowing Iran to send uranium abroad for further enrichment. The world continues to spin out of US control.
But probably the most important effect of the attack on the
flotilla will be its contribution to the process that successive Israeli atrocities, beginning with the 1982 Lebanon War, have cumulatively produced—the gradual development of a global movement in support of the Palestinians and for the isolation of Israel. The campaign for boycott, divestment and sanctions (BDS) against Israel can and must gain strength from this latest outrage. We will be carrying an article on BDS in our next issue.
1: Weber, 1995, pp242-243.
2: Weber, 1995, p152.
3: Roubini and Das, 2010.
4: OECD, 2010, p8. For Marxist analyses of the crisis, see Harman, 2009, Callinicos, 2010, and Harvey, 2010.
5: IMF, 2010, p6.
6: Schwartz and Dash, 2010.
7: Giles and Oliver, 2010.
8: See also the excellent analysis in Lapavitsas et al, 2010.
9: Mallet and Hughes, 2010.
10: OECD, 2010, p13, Box 1.1
11: Schwartz and Dash, 2010.
12: Atkins, 2010.
13: Schwartz and Dash, 2010.
14: For a fascinating study of the relationship between financial flows and class interests, see Schwartz, 2009.
15: Beattie, 2010.
16: Curtice, 2010.
17: Runciman, 2010, p3.
18: Greenberg, 2010.
19: Greenberg Quinlan Rosner Research, 2010, pp45, 48, 49, 51.
20: Greenberg Quinlan Rosner Research, 2010, pp14, 17.
21: Greenberg Quinlan Rosner Research, 2010, p18. The social categories used in the survey to identify working class voters-C2 (skilled manual) and DE (unskilled manual)-are extremely unsatisfactory, for reasons explained by Chris Harman many years ago (Harman, 1985), but evidence viewed through a distorting lens is better than no evidence at all.
22: Curtis, 2010.
23: For example, Wood, 2010.
24: Greenberg Quinlan Rosner Research, 2010, p19.
25: Runciman, 2010, p3.
26: See, for example, Callinicos, 2001.
27: See Cliff and Gluckstein, 1988.
28: Adonis, 2010.
29: Assinder, 2008.
30: Reeves et al, 2010.
31: Finkelstein, 2010.
32: Rawnsley, 2010a.
33: Rawnsley, 2010a.
34: Gray, 2010, p20.
35: Blond, 2010.
36: Barkham and Curtis, 2010.
37: Parker, 2010.
38: Rawnsley, 2010b.
39: Bar’el, 2009.
40: Friedman, 2009.
41: USA, 2010, p43.
42: Dombey and Rachman, 2010.
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