Thoughts on the Present Crisis
Although my university training was in Political Economy, I have never practised economics, but I well remember what I learned, and my only surprise about the great financial bubble that has burst is that it took so long. I have been expecting it to do so for most of the last decade. It is useful to look at the events that have led up to the inevitable collapse of the free market economy and perhaps, in time to come, of the capitalist system itself.
The last Great Depression of the nineteen-thirties that started with the Wall Street crash in the U.S. came to a gradual end in that country through the introduction by Roosevelt of Keynesian measures: once described as employing people to dig holes and then fill them in again, but in practice by incurring national, but not corporate or private debt by funding great public works, such as large dams, and subsidising the arts, which often pay for themselves by the taxation incurred by the large number of people they employ.
Britain dithered under incompetent government until war preparations, and then the war itself, brought full employment, while Germany, under Hitler, with Schacht in control of finances, went into war preparations from 1934, thereby creating a state-controlled economy that was fundamentally socialist, with capitalist enterprises also under state control, and willingly cooperating.
When the war ended, Britain, impoverished and short of everything, went socialist under Clement Attlee, which levelled all classes financially through rationing and taxation; this led to a gradual rise in the standard of living and a welfare state such as had only been imagined by a few idealists in the past. It was from that high point of fair shares, cultural renaissance and state benevolence that the sequence of events leading to the present crisis began.
Britain had many small or medium-sized, well-run companies, often under family management, that provided good services, manufacturer’s and products. The general practice as profits rose was to put much of them into reserves against the probable return of difficult times, rather than paying most of them into increased dividends. Salaries were on the whole fair and the difference between those in management, often a family, and those employed was not that great. In 1950 the average was a pound a day and £1,000 a year was considered a directorial salary. I think, in particular from my experience of the Scottish sugar beet industry, usually consisting of family run firms with a few employees that could afford to pay everybody and survive — that died when the take-overs began as the profits were not enough to pay managers from outside plus head-office expenses. The take-overs happened because of family quarrels, death-duties making it necessary to sell, or just the temptation to sell out for quick cash.
But then the accountants got busy, and prototypal was Charles Clore, who realised that the reserves of many companies were often greater than the current share price, and would pay for the entire purchase of the share capital, giving the buyer a free ride. Tycoons such as Isaac Wolfson went on great buying sprees, taking in as many other companies as possible, and watching their own share prices rise as they owned ever more, even if they knew nothing of the companies they were buying or how to manage them. This led to the global economy which is now collapsing, of which Enron should have been a warning to governments, but did not.
Going back to the political situation from the introduction of socialism after the war, the class divide then was more cultural and visceral than economic. The middle classes, although they benefited enormously from the National Health Service, the BBC, free education etc, were unhappy at seeing the working class benefiting as well, and increasingly voted Conservative. The Conservatives, however, when in office, were unable to reverse the benefits which Labour had introduced, including the nationalisation of such essential enterprises as electricity, gas, water, public transport, coal and the new educational institutions on every level. Also, by the late sixties the welfare state was offering advantages to the lower classes with large families that made it possible for many able-bodied young workers to do nothing and live reasonably well on their benefits.
No doubt the stories about the abuses complained about were much exaggerated, but they were widely believed. And the trade unions, on whose support Labour government was totally dependent, had such power that they became overly arrogant, inspiring ever more middle-class rage. The young, affluent for the first time in history, had adopted a lifestyle that their elders could only decry, and this too contributed to the right-wing backlash, which came to a head with the arrival of Margaret Thatcher. She started by abolishing free milk in school, and ended by attacking the trade unions, and, with help from the judiciary, fatally weakening them. One result of this was the collapse of heavy industry and manufacturing, the principal employer of trade union labour, which meant that much more had to be imported from abroad, thus turning the country into dependence on the service industries.
But in order to return to power after the Wilson Government and the ineffective health administration, Thatcher had to win over the more affluent skilled workers to Conservatism and this was done by a promise of low taxes, which appealed principally to the wives at first, and by selling off council houses cheaply, thereby turning many workers into home-owners and in their own eyes, new members of the middle classes. Then came privatisation of the public industries, again sold off cheaply, usually enabling the first share-buyers to make a quick profit. Generally the public wealth, which had belonged to everyone, went into the hands of a new wealthy class, which then invested even more into globalised companies in a rising stock market, while the younger generation incurred even more debt through mortgages, credit cards, bank overdrafts and general extravagances. The point is that the globalised companies, operating in many countries, became so diverse and had been so thoughtlessly collected, that competent management became impossible.
There was no way that directors at the top of a pyramid could possibly know what was going on in the many subsidiaries that they controlled. Time had to be spent on the golf course, on holiday or in socialising, while local managers could safely build their own little empires somewhere in the middle of a globalised complex, safe for years from supervision providing they knew the many accounting tricks that could hide losses, cover up fraud, mis- appropriation of funds and theft, often going into millions. Occasionally something would come to light, such as the collapse of Barings Bank, but the lesson was never learned. Many large companies are inevitably hollow in the middle and now that the bubble has burst can expect ever more disclosures of massive losses created by mismanagement, incompetence and criminality.
In the meantime we are daily treated to mealy-mouthed attempts to disguise or minimise the true situation. We are not in danger of moving into recession, we are already deep into the worst depression since 1930, and it will go on for many years. What is coming next is massive unemployment, accompanied by equally massive decline in public services.
There are only three long-term solutions, one of them another international war that might well become a world one. Only by looking at that possibility as a real possibility and avoiding facile and dishonest reassurances can we avoid it. The other two both involve a strictly regulated and controlled economy and the more it is a nanny-state the better: one is a move to the right, towards a socialised fascism, and it would involve more than hardship for vulnerable minorities, which could expect expulsion and the destitution we see now in countries like Zimbabwe. Inevitably it would be enforced by the military and a more repressive police force. The other, and it would be the most difficult to achieve because of rival pressure groups, official obscurantism, and misinformation promulgated by the popular media, would be a new humane socialism, trying to bring all classes, cultures and wealth groups together into a narrower band of life-style, so that both great wealth and abject poverty would disappear and a new community spirit, based on cooperation not competition, honesty, competence and decency, not greed and selfishness, would begin to appear.
That this sounds utopian and unlikely, I am well aware. But so is the survival of our species on this planet, already several times overpopulated and rapidly running out of the most basic resources of food, energy, water and amenity. It is time for authority, or at least those who have access to the channels of public information, to ring the alarm bells so that we all reconsider our future without reference to our past, aware of how dangerous is the present for our very existence. We must face up to sacrifice and deprivation, and only a new community spirit can make that possible.