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Is the pound the problem?

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Issue 1693

What do socialists say?

Is the pound the problem?

NEARLY HALF of manufacturing industry in Britain risks closure over the next few years, say leading economic commentators. Some 122,000 manufacturing workers were thrown on the dole in the 12 months to January.

Industrial output has been falling for the last three months. Now the axe hangs over car plants in Longbridge and Dagenham, shipyards on the Clyde and the Tyne, textiles and many other industries. Economists agree that the high value of the pound compared with the euro, the European currency, is one of the key reasons behind the crisis. The pound has risen by 20 percent against the euro since its launch in January 1999. That makes British exports sold on the continent 20 percent more expensive.

There is pressure on workers in Britain to work 20 percent harder, so bosses can sell goods at a competitive price, or face mountains of unsold goods and the threat of factory closures. The government says it cannot bring down the value of the pound. It has given the power to set interest rates to the unelected Bank of England.

The level of interest rates heavily influences the value of the currency. Interest rates in Britain have been rising. That has led international speculators to shift their wealth from other currencies into British pounds in order to get the extra interest payments. This in turn has raised the exchange rate of the pound. The government could easily take back control of the Bank of England and reverse this process. It could cut interest rates and thereby bring down the pound, easing the pressure on manufacturing.

But Tony Blair and Gordon Brown say doing that would lead to disaster. If interest rates came down, they say, there would be a surge in the prices of goods in Britain. Lower interest rates would allow the rich and the middle classes to borrow money more cheaply and spend it on posh housing, fancy cars, shares and other luxuries.

That would accelerate the rise in prices that we have already seen in, for example, housing in the south east of England. Those increases would then feed into the rest of the economy, leading to a general rise in prices, known as inflation. This part of their argument is correct. But it is possible, even within the bounds of conventional economics, to lower the value of the pound without a huge jump in prices. At the moment wealth taxes in Britain are so low that rich people across Europe are rushing to buy property here which they do not even then live in. They price out working people who contribute to society.

Most papers and politicians denounce poor people who come here as refugees. Yet they also praise the low wealth taxes which attract the rich here. If the government taxed the rich, and squeezed the fat cats and yuppies, interest rates and the pound could come down without a huge splurge of luxury spending. That in itself would not stop the crisis, particularly in manufacturing. A lower pound would make exports cheaper, but it would also make imports more expensive.

The price of food and other essentials could rise, hitting workers. The government could make up for that by using some of the money raised through taxing the millionaires to pay workers more. It could also force the handful of supermarket chains which sell 80 percent of food to hold down prices. That would cut into their profits, but that is exactly the kind of redistribution of wealth needed.

There would still be other problems. Take the example of the car industry. There is world-wide overproduction of cars. Some 40 percent more cars are produced than there are people who can afford to buy them. Bosses are threatening to close car plants in every industrialised country, no matter what the level of the local currency. So redistributing wealth and controlling the prices of goods can only bring temporary relief from the madness of capitalist competition.

Those measures would need to be part of a broader economic programme that struck right at the heart of capitalism. Other steps would include taking control of production through nationalising industries.

Socialist Worker outlined the key measures that would be needed in an Action Programme for jobs printed 18 months ago when turmoil swept the financial markets. The government would take such measures only under intense workers’ pressure. The capitalists would resist them here and internationally. But they would encourage workers in other countries to push for the same rational policies. That would open the possibility of workers seizing control of the whole of the world’s resources and using them in a planned way to meet our needs in a sustainable way.

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