Why public sector cuts are not inevitable

The Tories claim that massive cuts are necessary because of New Labour’s excessive public spending on services and welfare. This is a giant con trick, which every capitalist party – including New Labour – is colluding in. Nothing could be further from the truth. Under New Labour, as under the Tories before them, public spending on measures that decrease poverty has fallen back and as a result inequality and – for much of New Labour’s tenure – poverty, have increased.  

High quality council housing, unemployment benefit or a pension that is possible to live on – these are now distant memories. Jobseekers Allowance, at £64.30 a week, is equal to just 10% of average gross earnings compared to 17% when Thatcher was in power. It is the lowest in the developed world. Even in sectors where public spending has increased, such as health, it has not been enough and has been linked to increased privatisation.

 

When New Labour was elected in 1997 total public spending had fallen to 37.7% of Gross Domestic Product (GDP), its lowest level since the 1960s. New Labour kept it at this level for its first two years in power. By 2008 it had increased marginally to around 41%, although this remained extremely low compared with other major European countries such as Germany, and particularly France where it was still 53%.

Since then, in Britain it has jumped again to 45% (still low, this is the same level as in 1985 – when the Tories had been in power for six years!). However, the jump has nothing to do with increased spending on public services – and everything to do with the bailout of the banks. The Treasury spent £109.5 billion on the banking system in 2008/09 – an increase of 49,891% on the previous year! This vast sum of money was slightly more than the entire spending on health for the year.

Similar sums were spent bailing out banks by capitalist governments around the world, regardless of their political stripe. In the US even George Bush’s ultra-neoliberal government spent a fortune propping up the banking system. If the Tories had been in power in the autumn of 2008 when the banking system was within 48 hours of total meltdown, they would have taken fundamentally the same measures as New Labour did.

The current crisis is not caused by New Labour’s profligacy but by the worst crisis of capitalism in seventy years. This is a crisis of the private not the public sector. It is more fundamental than simply being the responsibility of a few greedy bankers. The severity of the economic crisis that began in 2008 is a consequence of the increasingly parasitic nature of capitalism over decades. Capitalism has always been a system based on the exploitation of the majority – the working class – for the profits of a small minority at the top.

There was a period of economic growth from around 1950 to 1973 when at least in the more economically developed countries, including Britain, working class people were able to win a few crumbs from the capitalists’ table. In Britain the NHS and a mass council house building programme made a real improvement in workers’ lives.

However, when capitalism went into crisis, it set about restoring its profits by driving down the share of the wealth taken by the working class. Production was moved abroad to countries with cheaper labour, wages were driven down, and spending on public services was cut back. The consequence of this was that by 2007 in the G7 countries the share of total income taken by the working class (wages plus benefits) had fallen to a post-war low of 53%.

During the last boom, profits reached an all-time record. However, the capitalists had difficulty finding profitable fields to invest in. Investment in science, technique and production remained at an historic low. Why? Because working class people lacked the means to buy the goods that could potentially be produced. This is the terrible reality of capitalism. It didn’t matter that two billion people are without the basic necessities of life – they are not a ‘market’ because they lack the money to buy what is produced.

Gambling

Instead of investing in industry, much of the capitalist class made their profits in the last boom by gambling on the world’s stock markets in a speculative frenzy. To try to increase their markets they gave us not crumbs from the table but bubbles – the working class got its own little share in the credit frenzy through cheap credit cards and mortgages. But when the bubbles burst, much of the bankers’ debts were nationalised – handed to us to pay off via cuts in our public services, while our debts – the £1.5 trillion consumer debt overhang from the boom – remain like millstones round our necks.

Socialists argue that the rich should be the ones who pay for the crisis, via dramatically increased taxes for the super rich and the big corporations. For most of the 1970s the tax rate for the highest band of income was 83%. Likewise for most of the 1970s, big corporations paid 52% of their profits in tax, but that percentage has been reduced step-by-step ever since, to now being just 28%. Also, as the civil service union PCS points out, even with the existing low levels of taxation for the rich, more than £120 billion goes uncollected every year.

But while we favour taxing the rich, we also recognise that the ‘markets’ – the big corporations or the bond traders who are holding whole countries to ransom – will never meekly accept dramatically increased regulation and taxation.

Alternative

So what is the alternative to this market madness? The starting point is to refuse to accept the cuts. Faced with a determined working class, big business will be forced to retreat. However, in its relentless pursuit of profit, capitalism would then come back with other ways of making the working class pay for the crisis, for example by using inflation. That is one of the reasons why we need a socialist solution. For a start we call for the nationalisation of the big banking and finance companies. Compensation should be paid on the basis of proven need – without one penny going to the rich speculators who bear much responsibility for the crisis.

It would then be necessary to introduce a state monopoly on foreign trade, so that it would be a democratically elected government rather than the market that controls imports and exports, including capital.

A socialist, nationalised banking sector would be democratically run by representatives of banking workers and trade unions, the wider working class, as well as the government. Decisions would be made to meet the needs of the majority, for example offering cheap loans and mortgages for housing and for the planned development of industry and services, and ending repossessions of people’s homes.

However, that would only be the start. Capitalism has led to enormous economic and environmental destruction. In Britain around 10% of wealth has already been lost as a result of the recession, due to factories and workplaces closing, resulting in over 2.5 million – and rising – unemployed. Nor is there any foreseeable prospect of a return to healthy growth.

Nationalisation

That is why a crucial step towards solving the economic crisis and developing society on a sound basis would be to take the big corporations that dominate Britain’s economy into democratic public ownership. This would then allow production to be planned for need and not for profit. Even some of the representatives of capitalism have inadvertently recognised that this is the only way to solve the crisis.

Alan Greenspan, head of the US federal reserve during the boom years – once treated as a god by capitalism and now reviled as being responsible for the crisis – recently excused his role in the crisis by saying: “Unless there is a societal choice to abandon dynamic markets and leverage for some sort of central planning, I fear that preventing bubbles will in the end turn out to be unfeasible. Assuaging their aftermath seems to be the best we can hope for”.

In the coming years, on the basis of their experience of capitalism, millions of workers will draw the same conclusion as Greenspan. ‘Central planning’ in Britain – in the sense of a democratically planned economy – would mean that building workers, for example, could be put to work building and refurbishing high quality, environmentally friendly, affordable social housing for the five million people who want it.

Huge resources could be put into the development of environmentally friendly technologies. The working week could be cut, without loss of pay. This measure, combined with an expansion of public services, could quickly eliminate unemployment. All of these, and much more, would be possible on the basis of a democratic socialist plan of production.

Of course, capitalism is an international system, and any alternative could not stop at the shores of Britain. However, if a democratically elected socialist government in any country was to begin to implement the kind of programme outlined here it would act as an enormous inspiration to workers in the rest of the world struggling against capitalism’s devastation of their living standards. The ideas of genuine democratic socialism would spread like wildfire.

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