The news that Britain has not escaped recession brought a deep sense of gloom to big business. It also exposed deep rifts within the ruling class over what to do next.
Gordon Brown is now little more than a corpse. At the start of this year he was being praised for using state funds to “save” the banks. Now he is scorned in ruling class circles.
His announcement to G20 finance ministers last week that he backed a variation of the Tobin Tax – albeit one to secure the international financial system rather than reduce poverty – simply brought derision from world leaders, the International Monetary Fund (IMF) and business.
Brown’s plan to use printing new money or “quantitative easing” to solve the economic crisis is floundering.
Last week the Bank of England injected another £25 billion into the British economy, bringing the total spent on quantative easing to £175 billion so far this year.
Over 98 percent of this money has been spent on buying government securities which underpin the £140 billion the government guaranteed to Britain’s ailing banks.
The idea is that this will encourage the banks to start lending again.
Yet the money handed over to the bankers has not been made available to you or me to borrow, nor to big business.
Instead bankers have used it to carry on gambling on the investment markets, taking advantage of low prices caused by the recession, or used it to boost their own share price.
One book by Chris Arnold doing the rounds in financial circles paints a grim picture of zombie banks kept on life support by government cash but too weak to lend, a zombie government with a budget deficit so large it will not spend and zombie companies too fearful to invest let alone expand.
The gloom surrounding Britain’s economic situation means that the hawks on the right are growing ever more confident. Last week the IMF warned that Britain’s budget deficit left it “uniquely vulnerable”. It wants tax rises and cuts in spending.
The right have been screaming that Keynesian measures will lead to inflation, pointing to the increased state debts.
They want a repeat of the Thatcherite agenda of the early 1980s when interest rates and the pound were pushed up, increasing the cost of exports, so that “inefficient” firms were forced into bankruptcy and those that survived cut jobs and increased productivity in a Darwinian race for survival.
Karl Marx pointed out that bankruptcies and collapse can provide an escape route from economic crisis by allowing surviving firms to buy up machinery and stock on the cheap.
Businesses can also use unemployment to try and force employed workers to work ever harder.
Today the fear is that if giant concerns such as Royal Bank of Scotland or General Motors (GM) go to the wall, they’ll pull the whole economy down.
Yet attempts to shore up firms can fuel national tensions. Last week the German and Russian governments were angrily denouncing the US after GM pulled the plugs on a planned buy-out of its European operations and decided to scrap the planned sale of Vauxhall and Opel.
The US government is the majority shareholder in GM.
The debate among the ruling class is a cynical one based purely on a concern about what will benefit multinational capital the most.
It’s between those who say keep up the life support for a year and then slash welfare spending, and those who want to swing the axe now.
The bad news for corporate Britain is for the next seven or eight months there is effectively no government.
The right await David Cameron’s election, but with a sense of unease, because they doubt he is the Thatcherite saviour they desire.
For their side it’s potentially seven months of limbo. For ours it’s seven months to build resistance and get organised. Let’s not waste that time.