As stock markets tumble again, the recovery Osborne was boasting about rests on shaky foundations
2016 began with a period of turmoil in the world's major financial markets. From New York to Tokyo, rattled traders were busily looking to dump shares and sell off assets in the belief that whatever the new year heralded, it wasn't going to be good.
Meanwhile the Chancellor, George Osborne, who had just over a month before been boasting that the British economy was “stronger than expected” and all but promising broad sunlit uplands to come, was making doomladen speeches about the “cocktail of threats” bearing down on Britain.
It’s best to take both of these reactions – market panic and Osborne’s warning – at something less than face value. Financial markets are a blunt instrument; they have no magic insight. As the film The Big Short amusingly shows, they are institutions that reward the lucky and the amoral, not the hard working and the virtuous. If there’s panic today, it could mean disaster tomorrow, and sometimes it does – if panic spreads, it can become a self-fulfilling prophecy. But equally panic today can mean a calm tomorrow. All that is guaranteed is that someone, somewhere, will be making money out of it.
As for Osborne, he’s getting his excuses in early. Five years of austerity, the slashing of public spending, with still more cuts to come, have done nothing to address the fundamental weaknesses of the British economy that the Credit Crunch in 2008 so graphically revealed: household debt (particularly on things like credit cards and payday loans) is shooting up once more, Britain borrows colossal sums from the rest of the world, productivity has slumped and economic growth is now slowing, real wages are still lower than they were in 2008.
The cherry on Osborne’s domestic cocktail is the extraordinary unwinding of the controls put on Britain’s financial institutions in the wake of the 2008 crash. Osborne has overseen the sacking of the head of the financial regulation authority for doing his job a little too well, the cancellation of enquiry into banks’ previous bad behaviour, and the removal legislation intended to hold bankers to account.
All of this means that our bloated banks and rapacicous financial institutions are back to their bad old ways. The rest of us are again being left exposed to the risks that they take – but, as 2008 showed – refuse to bear the consequences of when their bets turn bad.
We shouldn’t be surprised by this. Half of donations to the Conservative Party come from the financial sector. They are the Bankers’ Party, and Osborne is the Bankers’ Chancellor.
At the centre of both Osborne’s fears and market jitters is the problem of China, and the so-called “emerging markets” more generally. Since 2008, when the heartlands of global capitalism in the West suffered a catastrophic crash and recession, it has been the global South that has delivered growth, with China at its centre. Reflecting an epochal shift in the balance of global power away from the countries of the West, China and other major emerging market economies have powered on through the half-decade since the crisis.
But, in a grim reprise of the pre-crash boom in the West, this growth has been fuelled by debt. It was a debt bubble that kept the good times rolling in the 2000s in the West. Consumer spending (and therefore profits and growth) was sustained by massive borrowing (as real wages barely kept pace). It was the bursting of this bubble that brought about the inevitable collapse.
Since 2008, global borrowing has actually risen, by something over $32,000 billion. This has been concentrated in the global South, particularly in China which has inflated its own enormous debt bubble. It’s not clear that the Chinese authorities, whilst retaining huge reserves and the political capacity to act, will be able to control and restrain any serious economic mishaps. They are also now having to contain social unrest.
The existing order in reality faces serious challenges. It is these, rather than the daily froth of the markets, that will shape the future. We could, over this year, run into a major crisis, like 2008; but an exact repeat is highly unlikely. More probable is ongoing turmoil combined with unimpressive growth and crises on a smaller scale. What determines the outcomes in a period like this, as in other periods of transition under capitalism, are the politics.
Osborne offers one version of the future: super-charged neoliberalism in which major corporations call the shots to states which jump to when told to.
We have to offer a better alternative. Opposing austerity is about more than stopping the cuts: it’s about beginning to define the kind of society and economy we want to live in.
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