What happens if the state turns off the ‘life support’?
The UK remains in recession – and in denial about how capitalism has been kept alive by massive state support, secret loans and a pact of silence.
The Bank of England has just admitted that in October 2008, at the height of the financial panic, it extended emergency loans totalling £61.8 billion to two of the UK’s biggest banks – the Royal Bank of Scotland, and what was then HBOS. There are two remarkable things about this revelation. One is the size of the emergency loans – as some have pointed out, a total greater than the government’s schools budget – that had to be provided, on top of the existing multi-billion pound bailouts we all know about, to prevent these top UK banks from going bankrupt.
The other, even more remarkable feature of this use of public money is that it was kept secret from the public for more than a year until the Bank of England revealed the loans this week. This undercover operation confirms the contempt in which the government and banking authorities hold ‘ordinary people’, whom they fear and loathe too much to trust us with the truth about the dire state of the economy. That contempt even extends to the people’s elected representatives; the deputy governor of the Bank admitted to these loans on Tuesday while giving evidence to the House of Commons Treasury select committee, which was the first that even that important group of MPs – whose job it is to keep watch over public finances – had heard of it.
It might come as no great shock to learn that we are being kept in the dark about the true state of affairs regarding the state’s support for the ailing economy. Yet the secret loans can also be seen as indicative of another problem: the inability of the authorities themselves to face up to the scale of the crisis, their willingness to put off confronting the problems and taking hard decisions in the hope that something will turn up. Whether or not British and Western capitalism is still technically in recession, there seems little doubt that those running the system are still in denial.
Far from being one-off measures, it is now becoming clear that the state bailout of banks in the West has become an ongoing, semi-institutionalised process. The UK government has not only nationalised Northern Rock, but retains an 86 per cent share of the Royal Bank of Scotland and 43 per cent of the huge Lloyds banking group, formed after prime minister Gordon Brown got Lloyds to take over the stricken HBOS. Earlier this month the Treasury agreed to put another £30 billion into the two big banks, as part of plans to restructure them. According to one City editor, this meant that ‘the taxpayer has now been required to rescue the semi-nationalised banks three times’ and that, including all the state’s capital injections and guarantee schemes, ‘The total outlay so far has reached £1,200 billion or an astonishing £20,000 each for every person in Britain’. And that was before the secret loans were added to the running total.
And even more mind-boggling than those numbers is the suggestion that there might be worse to come. In his address to the Confederation of British Industry this week, the head of the International Monetary Fund admitted, almost as an aside, that global banks had so far only revealed around half of their losses from the financial crisis: ‘Probably a little more has been disclosed in the US and a little less in Europe.’ So despite all the talk of the crisis having passed, the fact is that European and UK banks have ‘probably’ only owned up to less than half of their multi-billion pound losses. Is the other half of the credit crunch still to come? Who knows? Across the capitalist world, insolvent banks are being kept afloat only by formal and informal state support and a pact of silence about how bad their books really are. There seems little prospect of the UK banking sector re-emerging from state control in these circumstances. The ’emergency’ measures of control are looking more permanent all the time.
Yet all we hear is that the financial crisis has passed, the emergency loans have been repaid, things can only get better. Capitalism has always been an opaque system where the ‘hidden hand’ of the market and disguised process of exploitation mean that little is as it appears to be on the surface. But there is a particular air of unreality about economic discussion in UK and the West today. Amid all the talk of recovery and the self-congratulation about how marvellously the elite has managed the crisis, it appears that nobody really wants to face up to the fact that only massive infusions of state support have saved their system, and how that support will have to be paid for sooner or later.
Nobody in power wants openly to admit the scale of the problem and address the hard questions about what should be done. And few outside power seem willing to shout out that the emperor has no clothes. So things drift on into the New Normal of no/low economic growth, while the mountain of government debt continues to rise.
Indeed, apart from the secret loans, the other remarkable economic news this week was that Brown came close to making a rare admission of reality. In his address to the CBI, putting the case for continuing large-scale state support for the economy through such measures as ‘quantative easing’ (aka printing money), Brown said that ‘choking off recovery by turning off the life support prematurely would be fatal to world growth’. That intended rhetorical flourish revealed more than Brown intended. We are familiar with life-support machines being used to keep the comatose and very ill alive beyond their bodies’ natural capacity, and turning them off normally means death. Brown was inadvertently admitting that a moribund capitalist economy is only being given the appearance of life by the massive infusion of public funds. What happens when the life support is switched off is a question that he does not wish to consider. They would rather put reality on hold until after the General Election.
There is nothing new about state support for the capitalist economy. There has been no such thing as the free market for a very long time. (For an overview of the history of state intervention, see Capitalism after the credit crunch by Frank Furedi.) Today, an economy such as the UK relies on state support as never before. As a consequence of the crisis, the UK’s public sector borrowing topped £87 billion between April and October this year, bringing Britain’s total public debt to a staggering £829.7 billion, equivalent to around 59 per cent of the country’s gross economic output. Everybody with a brain knows that this increase in public borrowing and debt is not sustainable indefinitely. Yet it seems all Brown and Co. can do is keep pouring the money in and hope that something, somewhere turns up to save them, warning that the ‘life support’ of public funding should not be turned off until the private sector has recovered.
Yet what sort of recovery could there be in the UK, where economic growth over the past decade has been driven by credit, the financial sector and yes, public spending? It has just been confirmed that, even with all the life support from the state, the UK economy remained in recession in the third quarter of 2009, lagging behind the other developed economies. Even if the recession ends on paper some time soon, in the real economy there is no dynamic driving growth.
Worse, while everybody remains in denial about the real state of affairs and public money keeps things limping along, there is not even a debate about what sort of dynamic economy we might need for the future. Conservative leader David Cameron tried to carve out a distinctive line at the CBI this week by tempering his familiar call for austerity with a declaration that he is ‘unashamedly pro-enterprise’ (not even a Tory leader feels comfortable using the F and C words – Free-market Capitalism – these days) and wants not only to cut public spending but to invest in growth. That is unlikely to mean much beyond the usual promises to cut red tape and sponsor some low-level eco-enterprise schemes. Even Cameron’s business friends at the CBI announced this week that the new business model coming out of the recession will involve less risk-taking. So there seems little chance of any bold enterprise coming from there.
We are left with the prospect of the worst of all worlds – a state-subsidised capitalist economy, but one denuded of the dynamic side of capitalism that Karl Marx long ago identified alongside the system’s destructive aspects, and which has driven economic growth through the modern age.
The top bankers and businessmen of the UK might have proved themselves worse than useless. But an economy managed by state bureaucrats will be no better. Especially when the state in question has lost its own sense of purpose and authority, and is keen to hand matters over to a shambolic army of consultants and contractors. This is a far cry from the old left dream of the state seizing the commanding heights of the economy. Nor should anybody be under illusions that public control of the banks or the economy is better for the working population. Ask the (ex-)bank employees suffering the consequences of restructuring, or the public sector workers in line to pay the price for those spending cuts that everybody is trying not to talk about.
One reason the authorities have been able to use the state to survive the economic crisis so far and avoid facing up to the realities is because of the absence of political pressure from without. The absence of a working-class movement struggling to defend jobs, wages and conditions as in past recessions has given the government and employers a relatively easy ride to date (see Why unemployment is no longer a political issue, by Brendan O’Neill). But surviving by default is a far cry from coming up with a positive solution for the future.
In these circumstances it is not really possible simply to dream up an economic alternative. But we should at least insist that an honest and sober discussion of the options for a new economy must begin by admitting the truth about the old one. For starters, all of the facts about the banking system and state finances should be brought out in the open and faced up to, before we can debate what needs to be done. We owe it to ourselves and our future to insist that there should be no more secret deals, denial or officials being economical with the truth.
Mick Hume is spiked’s editor-at-large.
Previously on spiked
Mick Hume warned that the no/low-growth economy might become the New Normal. Rob Lyons said banker bashing is a blame game you can bank on. Daniel Ben-Ami argued that blaming bankers glosses over long-term economic decline. Tim Black praised London Underground workers for demanding more. Or read more at spiked issue Economy
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