Instead of fighting for pay and industry, we’ve been queuing up for loans…
What happens when trade unions that were geared to fight wage struggles in 1979 find that many members are able to enhance or maintain their consumption, not through winning higher wages but instead by access to credit? During this 30-year span the economic consequence of Britain’s reliance on credit rather than production has become increasingly apparent.
What is less obvious is that from a political perspective credit has tended to negate the collective bargaining power of trade unions. It has also served to mask capitalist decline and has allowed the apologists to talk as though globalisation (imperialism) is something new and exciting.
It is collective bargaining power that makes the workplace strong. But the largely deflationary environment of the past 30 years has seen mostly uncontested wage increases linked to inflation year on year.
The average British wage is currently around £25,000. Thirty years ago it was around £8,000. This represents annual wage increases of broadly £560 (or around 4 per cent a year). Compare this series of tiny wage increases to the bloated price of credit-backed assets such as housing and suddenly the delusional gap between ever rising credit and a preparedness to accept low wages becomes clear – rather than a fight for wages there has been a queue for credit.
This is not to suggest that credit has been the only instrument to undermine collective bargaining, but the early period (1979 to 1981) saw:
All of this and more set the path to where we have ended up now. How often during this period have we heard questions such as, How can we as a nation afford this? Where is the money coming from, as we no longer make anything to pay our way?
Rather than ask questions, many people have preferred the insecurity of credit to the stability of production. One particularly irritating example has been where bodies such as the TUC have stated that Britain, on the basis of Gross Domestic Product (GDP), is the 4th largest economy in the world. Well, dig a little deeper and you find that in Britain’s instance GDP is measured by consumption per head of population. Many other countries measure their GDP on the basis of production per head of population. Spot the difference.
What these points do is to remove some of the theatrical stage props that have masked the past 30 years, during which time trade unions have been deemed unnecessary. The line of least resistance has been advocated as the best approach.
We are not alone in taking this view. Recently the Chairman of Rolls Royce said that “until the financial crisis hit, the view over the years has been that other less fortunate countries could get on with the business of making things”. He went on to say that we “must stop hiding behind the myth that Britain is a post industrial economy as if that was a praiseworthy ambition”.
What of the facilitators of this dream? For example, how did a couple of provincial banks in the late 1980s – the Royal Bank of Scotland (RBS) and the Bank of Scotland – suddenly become capitalised to the extent that they could embark upon breakneck expansion…leading to implosion? It would be interesting to find out how each bank’s capital was initially sourced (probably through international banking syndicates).
But undoubtedly the political result was that the inflated Scottish banks provided the Euro quislings with an image of independence that gave them the opportunity to promote the separation of Scotland from the rest of Britain.
Among the many questions concerning RBS is the role it played in the acquisition of the Dutch bank ABN Amro in 2007. The purchase of ABN was fronted by Santander (Spain), Fortis (Belgium) and RBS. Even at 2007 values, the purchase price of ABN was considered ludicrously inflated.
The question that now arises is how much of what was a Dutch bank’s liability is now lodged via RBS as British public debt, and why did Santander as a bank come out of the deal so strong?
That leads to the next question: How much of the financial collapse has been choreographed? Certainly at the end of 2006 it was generally expected that 2009 and 2010 were going to be difficult years because of the amount of short-term debt that was either up for renegotiation or due for repayment.
Mervyn King, the Governor of the Bank of England, used the term “toxic debt” as early as 2006 and at the same time his US counterpart Ben Bernanke was quoted as saying that if necessary he would get into a helicopter and chuck out sacks of dollars (in other words, the printing of money by quantitative easing). Twelve months later, at the time of the collapse, both “toxic debt” and “quantitative easing” had already become common parlance within the “credit crunch” waffle.
Carrying the can
The working class is expected to carry the can for all of this. Why? We should kick it straight back: “Can’t Pay! Won’t Pay!” and instead begin to address what Britain needs to rebuild itself.
We hear much of the emerging economies of China, India, Brazil and so on. Paradoxically, the trade surplus that China in particular has built up from its exports has for some time been recycled back as credit to Britain and the USA. The effect of this is that China’s trade surplus becomes the very source of credit that along with deindustrialisation has led to our demise.
Meanwhile, China and Japan are the biggest holders of the trillions of dollars of US government debt held as US Treasury Bonds. Remember Japan? Up until 1990 books on Japan’s economic success were being devoured and we were told that the USA was getting ready to play second fiddle to the Japanese. It all sounds fairly familiar, but now it is China and not Japan that is put up as the rising economic star.
The devaluation game
What is not spoken about is that the USA is trying to play the same dollar devaluation trick on the Chinese currency as it did to the Japanese yen in the early 1990s. China’s current trade surplus is held in 2 trillion US dollars, and China’s own currency, the renminbi, is pegged to the dollar at a fixed rate. Both the US and the EU currently want China to revalue its currency – but China has refused.
The reason for this is because revaluation of the renminbi would result in China’s dollar surplus becoming effectively devalued when measured against its own then revalued currency. Not only China’s trade surplus but also a number of its other assets would have to be repriced downwards, as happened during Japan’s deflationary experience of the 1990s.
Curiously it has recently been suggested that Britain is facing a similar deflationary experience to Japan’s. Daydreaming again. Japan still has an industrial infrastructure together with a strong savings culture. In Britain, we have neither – which is why the slump is so deep, and set to last for so long.