Gordon Brown is feted to the skies for his supposedly adroit management of the British economy. Even his most hardened critics—like Tony Blair—grit their teeth and claim Brown is the “most successful chancellor for 100 years”.
Brown-nosing has also become second nature for many in Labour circles disillusioned with Blair. But in flattering the man, they sign up to his mythology.
Once, the soft left condemned the ascendancy of the City of London and its cosy relationship with the treasury.
Now under Brown, the dense network of contacts and contracts established between Whitehall, the major financial institutions and ever present management consultants is lauded to the skies.
City suits become Whitehall mandarins with ever greater frequency. Government spending on management consultants has risen every year under Blair, reaching over £1,000 million in 2004.
One third of all consultancy income in Britain now comes from the public sector.
And there is a revolving door between lucrative consulting jobs and senior government posts.
Sir Michael Barber, Blair’s top adviser on policy “delivery”, transferred to McKinsey, the secretive US management consultancy firm.
Around the same time the former McKinsey consultant David Bennett stepped in as Blair’s top adviser on policy “reform”.
The flourishing offspring of intimate relations between the treasury and financial institutions is personal debt.
This has soared to a record of over £1,000 billion in Britain, 80 percent of which is used to finance house buying.
With rising property prices underlined by easier access to credit and low interest rates, millions of people in Britian have been able to borrow and spend far beyond their earnings—fuelling a consumer boom.
More recently, this private sector debt has been joined by a public deficit, with Brown’s increases in public expenditure pushing government borrowing upwards.
Both have enabled British capitalism to simultaneously squeeze take-home pay and yet maintain high levels of consumption expenditure, keeping inflation low while promoting a boom.
Gordon Brown’s economic policies have created a dangerous bubble that barely conceals the creaking economic gears beneath. The collapse of Rover was only the most visible point of a tremendous strain placed on British manufacturing industry, with over 800,000 manufacturing jobs lost since 1997.
From Tony Blair’s first election victory onwards, almost the entire rise in spending on consumption goods has gone on imports.
Britain’s trade deficit now stands at 5.2 percent of gross domestic product (GDP)—nearly as high as under the worst years of the 1980s.
Business investment has fallen since 1997 to just over 10 percent of GDP, close to the levels of the 1990s recession and significantly below that of other developed countries.
Each British worker uses 25 percent less capital than their US counterpart, and 60 percent less than each French worker.
This helps to explain Brown’s failure to significantly close the “productivity gap”.
British capitalism is a ramshackle edifice, even in the context of a global capitalism that has been unable to sustain economic growth and maintain profits for the last three decades.
What the economist John Maynard Keynes called the “liquidity trap” has reappeared.
Instead of risky investment in productive industry, capital is retreating into property and consumer debt, actively encouraged by the government.
The risks in the system are thrown onto individual workers expected to compensate for low wages through borrowing, but who cannot afford the consequences of a burst economic bubble.
The possibility of that bubble bursting grows daily.
Should property prices fall, banks will become uneasy about their mortgage liabilities and consumers consequently wary of spending.
Such an outcome could be disastrous, breaking the debt-consumption-debt cycle that Brown has relied so heavily upon up until now.
A socialist alternative would promote the use of the public sector to democratise investment decisions, wresting control away from the City and the treasury.
The case for nationalising the pensions funds and the banks, removing them from shareholder diktat, is there to be made.