"ANDREA: Unhappy the land that has no heroes!
"GALILEO: No, unhappy the land that needs heroes."
Bertolt Brecht (The Life of Galileo)
He is the Hero of the Hour, the man who single-handedly has saved the world financial system from meltdown. When all around were panicking and in despair, here was a man who kept his head and, emanating a sense of absolute calm akin to the Buddhist Nirvana, issued the command that re-established the Order of the Universe. Nothing remotely similar has been seen since that far-off time just before the Big Bang when the Almighty pronounced the immortal words: Let there be Light. And there was Light. And God saw the Light, that it was good.
Now whereas the ancient Israelites were forbidden to utter the name of their God, we are now at liberty to reveal the name of our modern Saviour. It is James Gordon Brown, born 20 February 1951, the son of John Ebenezer Brown, a minister of the Church of Scotland. He was a strong influence on his son, who to this very day carries the gloomy facial expression that was the hallmark of every Scottish clergyman since John Knox.
Gordon is currently employed as the Prime Minister of the United Kingdom of Great Britain and Northern Ireland, an office that he assumed, after a long and agonizing wait, on 27 June 2007. This was only three days after becoming leader of the Labour Party, after the late and unlamented Tony Blair finally stepped down.
Prior to this Gordon had served his Country loyally as the Chancellor of the Exchequer from 1997 to 2007, becoming the United Kingdom's longest serving Chancellor since Nicholas Vansittart in the early 19th century. He had waited patiently for years to be Prime Minister. He had to be patient since Tony was in no hurry to relinquish the post. It may well be the case that Mr. Blair decided to step down because he knew that hard times were coming and that it was time to pass the poisoned chalice - and who better to pass it to than his old friend Gordon?
There is an old Chinese tradition that when two old friends like Tony and Gordon part, it is customary to leave a present - such as a box with a poisonous snake inside. Having held the Highest Office in the Land for almost twelve months, he discovered that it was not such quite the pleasant experience that he had long anticipated. In fact, Gordon soon became the most unsuccessful and unpopular Prime Minister of recent times. He was so unsuccessful and unpopular that by comparison, even Tony Blair began to look a bit less bad than he was. And that was a considerable achievement!
The most unpopular leader
Gordon Brown was unpopular with Labour voters because they had expected him to bring about a change in Labour's politics, which under his predecessor were practically indistinguishable from those of the Conservatives. But change was there none. Gordon continued along the well-trodden path of New Labour, which leads inexorably to defeat. Poor Gordon succeeded in losing one by-election after another. Under his leadership, the Labour party lost even the safest seats. The Party plummeted in the opinion polls and the Tories rejoiced.
Gordon was equally unpopular with the rich and powerful, who were more comfortable with Tony Blair and were suspicious that maybe Gordon was a bit more susceptible to pressure from Old Labour and the trade union leaders. Would he perhaps be tempted to increase government spending to finance undesirable and wasteful projects such as better hospitals, schools and pensions? And why was he always so damn dour?
The gentlemen of the City showed not a scrap of gratitude for all that Gordon had done for them. In his time as Chancellor he faithfully served their interests. He lost no time in announcing that he was going to stick to the Conservatives' spending plans, which he did religiously for a two-year period. And by immediately transferring interest rate setting powers to the Bank of England he handed control of a key instrument of monetary policy to the bankers, who, as we all know, are highly responsible people and could be trusted to look after the National Interest far better than any elected government.
By these means, and by repeating the mantra of "economic prudence and responsibility", he immediately sent the right message to the City. He said to the bankers: "Look, I understand that you are the real rulers of Britain and that Her Majesty's Government only exists by your kind permission. I realize that you will only allow us to govern as long as we guarantee benign economic conditions for Capital. This means low corporate taxes and high profits."
In allowing the Bank of England to determine interest rates, Gordon effectively renounced one of the most important levers of monetary policy. Instead of the elected government, it was to be the unelected High Priests of Capital who would determine policy, strictly in line with Market Forces (that is to say, profits). And the High Priests of Capital saw this, that it was good.
The gentlemen of the City and their friends in the Bank of England took full advantage of these benign economic conditions to make themselves extremely rich. Vast fortunes were made in the boom years of the nineties. True, there were some who pointed out that the whole thing was a speculative bubble that would eventually burst, leaving behind a lot of very unhappy people. They pointed out that the rising price of houses was unsustainable and must lead to a collapse. But who listened to these miserable Cassandras? After all, clever people always make hay while the sun shines. And everybody knows that what is good for the banks is good for Britain.
Brown boasts that his chancellorship saw the longest period of sustained economic growth in the history of the United Kingdom. It is true that Britain experienced a long period of economic growth, as did the rest of the world. This was claimed to be, not a result of the boom in the world economy but of the wise economic policies of Brown and Blair. Now that the boom is over, however, it is all the fault of the world economy (especially the Yanks) and nothing to do with the policies of Her Majesty's Government, its Chancellor or its Prime Minister.
Gordon Brown showed his sound grasp of economics in other ways too. Between 1999 and 2002 he sold no less than 60 percent of the UK's gold reserves at $275 an ounce. Convinced of his superior economic wisdom, he even pressured the IMF to do the same, but it sensibly resisted. Our Gordon had sold off Britain's gold at close to a 20-year low. This was later attacked as a "disastrous foray into international asset management", since gold is now selling at $854 and is forecast to rise to $904. This is what is called in New Labour circles prudent financial management. It earned him the ironic nickname "Golden Brown", after the song by The Stranglers.
This period saw a huge increase in profits and obscene wealth for a small minority. It also saw a huge increase in inequality. The New Labour leaders claim that they have reduced poverty in Britain. But the Centre for Policy Studies has found that the poorest fifth of households, which accounted for 6.8% of all taxes in 1996-7, accounted for 6.9% of all taxes paid in 2004-5, while their share of state benefit payouts dropped from 28.1% to 27.1% over the same period.
If one reads all the speeches of Gordon at Labour Party Conference ‑ both before and after his elevation to High Office - it immediately becomes evident that they are directed, not to the Labour Party or the working class, but exclusively to the ladies and gentlemen of the City - his true Electorate. But despite all his efforts they still remained unconvinced about his real intentions. They could trust Tony Blair, because he was a bourgeois politician and a man of their own class. But could they trust Gordon?
The Prime Minister in waiting was determined to settle the matter once and for all. Even before he stepped through the door of Number Ten Downing Street, he presided over the removal of the 10p tax rate in his final 2007 budget, leaving those earning under £18,000 as the biggest losers. This measure may have gone down well in the City but it caused uproar in the Labour Party. Backbenchers started to rebel. The press took advantage to launch a series of ferocious attacks on Mr. Brown.
After this fiasco, it was downhill all the way for Gordon. Defeat followed defeat. In the local elections on 1 May 2008, the Labour Party suffered its worst results for 40 years finishing in third place with a projected 24 percent share of the national vote. Subsequently the party has seen the loss of by-elections in Nantwich and Crewe and Henley. Then in Glasgow East the unthinkable occurred when a seat in one of Labour's safest heartland areas was lost to the Scottish National Party, with a massive swing of 22.54 percent.
The Party suffered a slump in the polls. The press crew, like a pack of hounds scenting blood, harried him and his Ministers unmercifully. Cameron and the Tories were closing in for the kill. It seemed that nothing could go right. Then a miracle occurred. The threat of a collapse in the banking system caused a wave of panic. Bush made an apocalyptic speech in which he warned Congress that unless they approved his $700 billion bailout, the entire financial system would be in meltdown and the USA would be plunged into an economic catastrophe on the lines of the Great Depression.
On this side of the Atlantic the bankers and capitalists were in a state of panic. Major Banks teetered on the verge of collapse. The erstwhile prophets of Free Market Economy were now queuing up to demand that the Government should act. These were the very same people who for the last 30 years have been demanding precisely the opposite. They were the ladies and gentlemen who in the 1980s made a bonfire of all regulations and gleefully danced round the flames.
The Hero of the Hour
Bankers are an ungrateful lot. They soon forget all the favours they have received from New Labour in the past. Like the Israelites of old, they are quick to go whoring after the Golden Calf. Despite all the efforts of Brown and Blair to woo them, they were always more inclined to the Tories, and in recent months they came out in their true colours. The press was building up the Tory leader David Cameron. As for poor Gordon, he was mercilessly pilloried as inept, incompetent, stupid and unfit to be in charge of a municipal rubbish dump in Hartlepool, never mind the affairs of the Nation.
When the effects of the US sub prime mortgage crisis made themselves felt in Britain with the collapse of Northern Rock, the government dithered. What should a Democrat do in a situation like this? Obviously, he should act in the interests of his constituents. Who are Brown's constituents? Are they the unemployed, the homeless, the pensioners, the workers? Of course not! They are the bankers.
Terrified of the very word "nationalization", Brown and Darling could not make up their minds what to do. Finally, they decided to bail the bank out with a large amount of public money and, in effect, nationalize it. The Economist commented: "Indeed, this bail-out was a form of political capitulation, as the Labour government for the first time intervened both pre-emptively and strategically to shore up the banking system."
Were they satisfied by this generous assistance? They were not! Instead of thanking Mr. Brown, they mercilessly pilloried him for his indecision. With what contempt did they treat him! He was reduced to a figure of fun, the laughing stock of the entire population. Oh yes, how they laughed at him! But our Gordon had the last laugh after all. While they were complaining loudly about his lack of action in the face of the financial crisis, Gordon was preparing his masterstroke. This was Gordon Brown's Dunkirk Moment. He suddenly saw a once in a lifetime's chance to turn the tables on all his critics. He would teach them all a lesson!
Cloistered together with his chief stooge and Chancellor of the Exchequer, Alistair Darling and other Mandarins of the Treasury, he was preparing a bombshell. When the details of the Brown plan were finally announced, the whole world gasped and rubbed their eyes in disbelief: over £400 billion was to be thrown to the banks. This was a far greater sum than George W. Bush had handed over to Wall Street. Overnight, Mr. Brown was THE HERO OF THE HOUR.
Suddenly the attitude of the British media changed. In place of the contempt and ridicule that were the main features of every article and editorial on the Prime Minister, we had an outpouring of praise, almost of reverence. Now our Gordon was seen as the Man who had saved the System. The prospect of this golden rain of liquidity pouring down on the heads of the hapless bankers immediately set the stock markets soaring. The Financial Times writes: "The stock market roared its approval, with the FTSE 100 rising 8.3 percent, its second largest one-day gain, as the British plan was echoed by a wave of European government bail-outs."
Brown in Europe
Previously, the European heads of state had been unimpressed by the sour-faced man in the crumpled suit who always came late to EU Summits and left early (when he came at all). His speeches were as exiting as a plate of cold porridge, and as uninspiring in content as they were tedious in delivery. Now an even greater miracle was being prepared. Gordon's reputation in Europe was rising almost as rapidly as the bank shares on the stock market. How could they have been so blind? How could they have failed to notice that behind the dreary exterior of the Man from London lay an extraordinary intellect and all the qualities of a Great Statesman?
It is well known that for the mouse there is no stronger animal than a cat. Since none of the European heads of state had the slightest idea of how to tackle the crisis, a man who at least appeared to have half an idea struck them dumb with admiration. In fact, what he was doing was not so difficult. All that Gordon had to do was to listen to the advice so generously supplied by his Treasury advisers. In other words, all he had to do was to follow the marching orders sent from the City of London.
With the narrow single-mindedness that has always characterized him, he stuck to his course; or rather, he stuck to the course that had been prescribed to him by his Treasury officials. If one accepts (as Gordon accepts without question) that the bankers and capitalists must rule, then the solution to the crisis is childishly simple: to restore Confidence, it is necessary to keep the bankers happy. And a child of six will understand that the way to keep the bankers happy is by showering them with money.
Since this was what he has been doing all the time, it did not even imply any particular change in his normal routine. He appeared to be calm because he was calm: calm and tranquil in the knowledge that he was doing his Duty to the Creators of Wealth. And what more could be asked of him? A more imaginative mind would perhaps be moved to terror at the prospect of a global meltdown of the banking system. But imagination is the last thing one could accuse our Gordon of.
It really does not require a genius to throw billions of pounds at the banks. Our Gordon threw bucketfuls of taxpayers' money at the banks, crossed his fingers and hoped for the best. The idea was not so brilliant and original after all. But the sheer scale of it was what took people's breath away. The sheer audacity of robbing the public purse in order to pay the debts of the bankers (and this by a Labour Prime Minister!) this is what aroused the admiration of the Merkels and Sarkozys. And they immediately began to follow suit. And lo! The stock markets rose and all was Sweetness and Light. And the hero of the hour basked in the warmth of universal praise.
Of course, it is impossible to make everybody happy. Amidst all the chorus of Hosannas, there was bound to be some discordant notes. The Tories and sections of the press persisted in raising awkward questions: all this borrowed money will have to be repaid sooner or later. Will it be paid for by tax increases or cuts in spending?
To these unpatriotic questions Gordon failed to give a straight answer. Instead, he expressed his complete faith in the Banks (the very same banks that have just brought the world financial system to the verge of a catastrophe). The Prime Minister has absolute Faith in them and Faith, as we know, can move Mountains: "London in my view is the great financial centre, working with New York [...] I don't see that changing," the prime Minister told the bankers at Canary Wharf.
Gordon dimly senses that public opinion is not exactly enthusiastic about bankers. If a worker makes a mess of his job, he gets the sack. But if a banker makes a mess of the bank and places the entire financial system at risk, he gets £400 billion. This is something most people find hard to understand. He therefore made a statement to the effect that "irresponsible" bankers must be "punished". Since all the bankers have been shown to be irresponsible, the public is waiting impatiently to see how this "punishment" will be meted out.
Common decency could expect no less. But common decency is unknown in the jungle that is the Market. The market fell when it was hinted that no bonuses would be paid this year and no dividends would be paid for a couple of years. After pocketing billions of public money, these gangsters demand that they continue to keep their hands in the till. They decided that the time had come to apply a little pressure to Gordon's private parts. Once again the markets fell. And the government let it be known that it was "reconsidering" the position. In other words it was in full retreat.
The Hero of the Hour has seen his hour come and will now see it go. After all the fine promises, we now see the results. The British economy is in recession. Unemployment stands officially at 1.79 million - the highest increase since 1991, at the height of the recession. In the last three months unemployment has gone up by 164,000, and this figure does not include the jobs lost in the financial sector. According to some estimates one job in six in the City will disappear by the end of 2009.
Let us recall that the financial sector was supposed to be the motor force of the "post-industrial" British economy so beloved of New Labour. Instead, London and the South East will be hard hit by this recession. In the North East, unemployment stands at 7.7 percent, but in London it is already 7.5 percent. The latest estimates predict that unemployment in Britain will reach three million by the end of next year.
Falling house prices have hit construction. But manufacturing is also in a bad state. In Grimsby, North East Lincolnshire, there are 3,000 people employed in food processing, of whom over 500 will lose their jobs as a result of a factory closure. There are similar cases all over Britain. Many people who thought they had a job for life are now out of work. Employment levels are falling, meaning fewer openings for the young. More unemployment means less taxes and increased expenditure on unemployment benefit. It means falling demand, which in turn means more bankruptcies and unemployment, which means a further fall in demand. It is a downward spiral, which the economists call a "negative feedback loop". All the factors that impelled the economy upwards now combine to push it down. And nobody can say where the bottom lies.
"No more boom and bust"?
Once upon a time, Gordon Brown talked of the "end of boom and bust". But now there is no boom and Britain is well and truly bust. The Economist in a recent editorial informs its readers: "Capitalism has always engendered crises and always will." Well, better late than never! The sad fact is that all the measures taken by governments and central banks will not prevent a devastating slump on a world scale. And the British economy is in a particularly vulnerable position.
The huge sums given to the banks will have no effect in detaining this downward spiral. But they will lead to a huge increase in borrowing and hence government indebtedness, which is now roughly equivalent to the entire British National Income. The interest on the debt will have to be paid, leading to higher taxes and cuts in public spending. It will mean a whole period of falling living standards and austerity - although not for the bankers. Big cuts in public spending will only serve to deepen the economic crisis. People will ask: if the government could find so many billions for the banks, why can't they find money to stop firms going bankrupt and help the unemployed?
The huge sums that are being pumped into the pockets of the bankers will have to be paid for some time, somehow, by somebody. Who will foot the bill and how. Traditionally, the state raises money from taxation. According to the OECD UK taxation in Britain increased from a 39.3% share of gross domestic product in 1997 to 42.4% in 2006, going to a higher level than Germany. This increase has mainly been attributed to government policy, and not simply to the growing economy.
Above all, New Labour has constantly increased indirect taxation, which places the heaviest burden on the poor, while reducing taxation for the rich. Corporation tax fell under Brown, from a main rate of 33% to 28%. Now, as Britain enters the most serious recession in decades, Gordon has decided to lower the level of VAT by a princely 2.5%. This means that in order to save a couple of pounds, one would have first to spend £100. This is hardly likely to set off a furore of consumerism. And it still begs the question of how all this massive increase in borrowing will be paid for.
Individual consumers and businesses will not be inclined to spend more, partly because the threat of unemployment and falling house prices make them fearful of the future and reluctant to part with what money they still have. In a recession, the supply of money always dries up. The banks are reluctant to lend because they do not know if they will get their money back. The interruption of credit in turn exercises a paralysing influence on all economic activities. Falling prices contribute to the problem, since people will postpone big purchases in anticipation of further falls, creating a downward spiral. All the efforts of governments and central bankers will not be able to halt this slide, which has a logic of its own.
The market has failed
The depth of the crisis is such that many people who in the past never thought about politics or questioned the system are now beginning to question capitalism. The bankrupt theories of New Labour have been weighed in the scales and found wanting. The Tories cannot say anything, because the ideas of New Labour are merely a repetition of Thatcherism in a false guise. They were all based on Market Economics, which has now ignominiously collapsed.
Now Gordon Brown, after decades of slavishly pursuing market economics, has been forced into an ignominious U-turn. In this he is not alone. The same road has been taken by George W Bush and by every government in the world, "left", right or centre. They are all desperately trying to save the system by pumping in colossal amounts of public money. But all they will succeed in doing is enormously increasing indebtedness - which was already very high in Britain and the USA. This will not prevent the spread of recession, which all the economists now admit will be deeper and longer than they anticipated. In the end, they will be faced with the problem of paying off these debts, and that can only be done by increasing taxation and cutting state spending on schools, hospitals, houses, roads etc. That is to say, we are facing a whole period of cuts, austerity and falling living standards.
In 1983 the Conservatives described Labour's election manifesto as "the longest suicide note in history" - because it mentioned nationalization of the banks. In 2008, the New Labour government has been forced to nationalize a big sector of the banks and nobody even blinks. The argument is that it is necessary to nationalize the banks in order to save them from collapse. This means that the private owners have brought the banks to ruin and are incapable of saving them. So if the private bankers are incapable, why should we not nationalize the lot? It is said that the state is incapable of running the banks. But it can hardly do a worse job than the private owners!
There have recently been murmurings form the government and even the Bank of England that if the bankers will not lend, despite the colossal state handouts, the government must force them to lend. But this is really empty rhetoric. How can the government say to the owners of private banks: "you must lend money"? If the banks are privately owned, then the owners must take such decisions in accordance with the laws of the market, and the first Law, as we know, is to make a profit for the owners, the bigger the better. In a crisis, the banks will want to husband their capital and reduce lending. If the government wants to decide on the economic policy of the banks, it must take the obvious step of nationalizing them altogether.
The conclusion is inescapable: market economics have failed. In the first decade of the 21st century, it is unacceptable that the lives, homes and employment of millions of people should be determined by a system that works like a gigantic casino. It is necessary to nationalize, not only the banks and finance houses but also the giant corporations that dominate our lives. A socialist programme of nationalization has nothing in common with the present scandalous bailouts that only benefit the rich. Socialist nationalization means that the working people will exercise democratic control over the banks and industries. It will put an end to the economics of the casino once and for all. Only then can we begin to create a rational economic system based on production for the many, not the greed of the few.
London, November 25, 2008