All moribund capitalism can come up with now is to take away everything workers have. And it’s turning on young people – using credit to bind them into a lifetime of repayments...
There are two simple questions that have been puzzling a lot of people: Why do the banks lend to people who can’t repay their loans? And more particularly, why is so much being lent to young people before they have even started earning money?
The answers lie in capitalism’s constant need to maximise profit. As Karl Marx foresaw over a century ago, competition between capitalists leads to a fall in the rate of profit. That leaves billions and trillions of capitalist profits desperately searching for high returns. For a century capitalists saw imperialism as the answer, creating fresh profits by opening up new markets around the world. But that’s history, and there are few new lucrative markets left.
The solution for many in finance was to move into the loan-sharking business, or, to put it politely, to lend money to workers on a huge scale. Then you “make money” – itself a typically confusing capitalist phrase, since here nothing is made – by impoverishing your own workers.
For decades workers had used their bargaining power and union organisation to increase their wages in real terms. But every penny going to a worker meant a penny lost to the capitalist. Now it’s payback time. Alongside cuts in services and below-inflation wage rises, governments are pursuing the impoverishment of the working class. All the gains made are to be swept away in the name of being “globally competitive”. Meanwhile workers are encouraged to take out loans to maintain their standard of living.
The average British household is now shelling out £2,284 a year in interest repayments (August 2012 figures). With average household incomes around £2,150 a month, that means that the average household is paying a month’s earnings a year just to service its debts. The result is impoverishment for the many, but soaring revenues for the capitalists – a huge transfer of money from workers to capital. No wonder the earnings of the top 1 per cent are soaring relative to everyone else.
It seems like the ideal business. The “product” isn’t even tangible – just money, itself an abstraction. No messy materials and manufacturing to do. And with rates of return on mortgage and credit card lending so attractive, it looked like an easy way to hike those profit rates back up again.
Too good to be true
It all looked too good to be true, and it was. Banks lent billions to people who had no means of repaying the loans – unless, of course, property prices continued to spiral upwards. We all know the result: crash, slump, depression.
Workers allowed themselves to be sucked into the illusion that you could borrow your way to prosperity. Take the United States. As reported in Business Week, using figures from the Washington-based Economic Policy Institute, inflation-adjusted hourly earnings for production and non-supervisory workers – 80 per cent of the workforce – rose by a mere 0.1 per cent a year between 1979 and 2007.
The increase in the standard of living over that period, cited by apologists as proof that capitalism works, was financed entirely by debt. Faced with stagnant wages and rising aspirations, American workers sought to borrow their way out of trouble, or into a new car or house.
Predictably, household debt in the US as a proportion of disposable income rose and rose: from 68 per cent in 1980 to 128 per cent in 2007. The combined effects of tighter lending and bankruptcies led to a fall in 2011, though only down to 112 per cent of average earnings.
British capitalists were slower than those in the US to grasp the attractiveness of credit, but once they started, they went in even harder – aided by workers unwilling to fight for wages to keep their heads above water. We are now even more indebted than US workers. In yet another legacy from Labour, average personal debt first exceeded average income in 2007, and has grown since. According to money education charity Credit Action’s figures for August 2012, the average adult owed £28,754 (including mortgage debt) – around 117 per cent of average earnings.
Personal debt in Britain now stands at £1.412 trillion, mostly made up of mortgage debt, but with significant amounts of credit card and other borrowing. To put that figure into context, it is 93 per cent of the total economic output of the country in 2011 (£1.519 trillion), even worse than the US, where personal debt accounts for 86 per cent of economic output.
Two trillion of debt
And things are set to get much, much worse here. The British government’s Office of Budget Responsibility says that personal debt will soar to over £2 trillion by 2015.
It’s capitalism’s dream profit machine, but it’s a nightmare for workers, employed and unemployed. Every day, according to trends for the second quarter of 2012, some 299 people become bankrupt, 93 homes are repossessed and 279 renting households are evicted by landlords.
There has, though, been one very clear effect of the slump: household debt has declined, albeit not by much, as workers have been trying to pay off their debts whenever they can. In terms of a market, employed workers are getting too savvy to dig themselves even further into debt. Money is tight, too tight even for some employers. As the chief executive of Morrison’s, announcing the supermarket chain’s profits last year, said, “One third of our customers have no disposable income left at the end of the month.” No wonder Wonga can find customers for its payday loans at an APR of 4,214 per cent (yes, over 4,000 per cent annually, according to its own figures).
So in its search for a new market to replace the old, capitalism has turned to the young. The new wheeze is to get workers into debt before they have even started working, so that by the time they get a job and start paying a mortgage (or paying someone else’s mortgage, which is what renting has become), they truly will be handing back the biggest chunk of their income straight to finance capitalists.
The only snag is capital won’t invest in production any more, so there won’t be the jobs to provide the income to generate the cash to repay debt. But that kind of thinking is too long term for capitalism. All that matters is this year’s profits.
One group of employees has been doing rather well recently – university vice chancellors and their most senior administrators. They say they are concerned with quality, but you might be forgiven for thinking that they are being rewarded for collaboration with the government. Certainly, the loudest voices calling for huge increases in fees were the university administrators themselves, led by the Russell Group of “top” universities.
When the fees were set, their greedy smiles were so wide they could surely have been seen from space. Look at the table below, from the Higher Education Funding Council for England. It shows clearly that universities charging more than £7,000 a student are receiving more money per student than the previous year. In fact, according to a survey by The Guardian, 72 of 108 English universities are charging the full £9,000, a further 30 are charging £8,000 or over, and only six less than £8,000. Not one has set the level at less than £7,000.
It’s not surprising that the Council felt emboldened to claim that for “the large majority of institutions” the regulated fee limits for full-time undergraduates would “generally be sufficient to allow institutions to maintain or increase their income”. It went on: “The Government’s reforms of higher education therefore allow the sector to remain in strong financial health.”
And it would all have ended happily – except, that is, for the legions of students plunged into long-term debt – had not the real world intervened. Faced with the prospect of a lifetime in the red, many A-level students just said no. Now, with 54,200 fewer new students than last year – a fall of 14 per cent – fee revenues have plunged and the universities are left looking at big deficits. More fool them. ■
What universities receive per student
|Price group:||A (Clinical years of study)||B (Lab-based subjects)||C (Intermediate cost subjects)||D (Classroom-based subjects)||
2011-12 resources for old-regime students
|HEFCE teaching grant||£13,335||£4,894||£3,426||£2,325|
|Maximum regulated fee*||£3,375||£3,375||£3,375||£3,375|
2012-13 resources for new-regime students
|Approx HEFCE teaching grant||£9,804||£1,483||£0||£0|
|Maximum regulated fee||£6,000 - £9,000||£6,000 - £9,000||£6,000 - £9,000||£6,000 - £9,000|
|Total||£15,804 - £18,804||£7,483 - £10,483||£6,000 - £9,000||£6,000 - £9,000|
Notional full-time undergraduate basic rates of resource for 2011-12 and 2012-13. Group A covers those years when medical students are hospital-based, Group B Science generally, and Group D the Arts and Humanities generally.
Student debt will, of course, make its own contribution to the shabby total of overall debt. A survey by the university guide Push UK in 2011 concluded that British students starting this year will emerge from their university course with average debts of £53,400. For students in England alone, paying much higher fees, that average debt climbs to £59,000. (These figures are adjusted for the much-vaunted bursaries and fee waivers already in place.)
Falling student numbers
So while in 2004 the average student was accumulating debt at the rate of around £3,400 a year, those starting this year will be sliding into the red to the tune of almost £15,600 a year. No wonder young people are being put off further study: as Workers reported in October, figures from UCAS show a 14 per cent drop from the previous academic year in the number of British and European Union students taking up places in England – down by 54,200 (see Box).
Debts for students, the Push survey’s authors say, are rising faster than inflation. The reason: a combination of the disproportionate effects of above-inflation increases in travel and energy costs, and the difficulty of finding part-time employment. You don’t need a degree to work out the overall effect: 800,000 students getting into the red at the rate of £15,600 a year will mean a debt total rising by more than £12 billion a year.
Even the government-friendly Institute of Fiscal Studies reckons that most students starting now will still be paying off their fee loans into their 50s and admits that graduates who do not fully pay off their debt face what is in effect a “graduate tax”. For those who began their studies before this year, that tax will be 9 per cent of their income above £15,000 for 25 years. Those starting this year will be condemned to 30 years of paying 9 per cent of their income above £21,000 (indexed in line with earnings).
And don’t expect much relief from Labour. Ed Miliband has been promoting the policy of a real graduate tax, unlike the scarcely hidden one now in place. ■