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From International Socialism 2 : 146, Spring 2015.
Copyright © International Socialism.
Copied with thanks from the International Socialism Website.
Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
The present situation – both in Britain and globally – resembles nothing more than a car crash unfolding in extreme slow motion. Everyone watching the film knows it’s going to end badly, but things move forward so slowly that the ultimate crash is hard to get one’s head round.
Take the case of Britain. The general election on 7 May promises to repeat the outcome of its immediate predecessor just under five years earlier. Both the main parties will lose. The polls suggest that neither the Tories nor Labour will win a parliamentary majority – indeed it’s quite possible that neither together with another smaller party will have enough seats to form a coalition comparable to the present Conservative-Liberal government. [1] So, out of the multi-party patchwork that is likely to dominate the next House of Commons, David Cameron or Ed Miliband will have either to form a more complex coalition or to take the risky course of minority government.
This doesn’t mean that there will be no winners, but the most likely ones threaten the integrity of the British state. If the UK Independence Party does well, that could push Britain towards a referendum on its membership of the European Union. “Brexit” is something that all but the most venal British-based capitalists mortally fear. [2] The coalition’s own review showed that Britain’s present situation, within the EU but on the edge of the dysfunctional eurozone, works to the advantage of the capitalist interests based here. [3]
But there’s another prospect being talked up by the Tories and their media allies. A main reason why Labour may not win a majority in the House of Commons is the Scottish National Party’s storming advance in the Westminster polls since the independence referendum last September. Miliband might still make it to 10 Downing St, but only with the SNP’s support. Hence the Tory propaganda that Alex Salmond and the SNP first minister Nicola Sturgeon would use Labour’s dependence on their parliamentary votes to push Scotland closer to the exit. The two threats are connected: if Cameron manages to hang on to office, and blunders into a referendum that ends UK membership of the EU, it’s a racing certainty that Sturgeon and Salmond will react by calling another Scottish vote to end the Union as well.
So the general election will in all probability exacerbate the long-term crisis of the British state analysed in our last issue. [4] Given this scenario, constitutional politics may well dominate the next British parliament in a way we haven’t seen since the years immediately before the First World War, when the Irish demand for Home Rule and the House of Lords’ obstruction of the Liberal government’s redistributive legislation sharply polarised the Westminster scene.
The constitutional drama will interact with the politics of austerity in ways that are hard now to predict. Austerity is a bipartisan project. Because Tory chancellor of the exchequer George Osborne has struggled to reduce the budget deficit, what he has achieved doesn’t differ that much from what his Labour predecessor Alastair Darling planned to do back in 2010. Osborne’s 18 March budget narrowed the gap between the two main parties by reducing the projected budget surplus at the end of the next parliament in 2019–20 from the £23 billion in his Autumn Statement last year to £7 billion.
It’s dubious that this shift means a significant relaxation in austerity. Osborne’s own Office for Budget Responsibility complained that his revised plans implied “a rollercoaster profile of public services spending”. [5] It now forecasts “‘a much sharper squeeze on real spending’ in 2016–17 and 2017–18 than seen in the past five years”, followed by a jump in public spending in 2019–20, conveniently timed just before the next scheduled general election. [6] According to the Guardian:
The Institute for Fiscal Studies said the chancellor’s plans require welfare cuts that have eluded ministers over the past five years.
Spending on welfare, tax credits and public sector pensions faces an extra cut of £20 billion compared with last year’s budget – but the Treasury has yet to identify which areas would be most affected.
However, speaking on the BBC after George Osborne delivered his budget, IFS director Paul Johnson said the plan would prove difficult while spending on pensions, which account for half of the welfare budget, were protected. [7]
The OBR also pointed to the longer-term difficulties behind Osborne’s stale rhetoric about “the comeback country”. In the three months to January the rate of employment among 16 to 64 year olds was 73.3 percent, the highest figure since the current statistical series started in 1971. The rate of unemployment was 5.7 percent, half the eurozone figure of 11.2 percent. [8] But productivity – output per worker – has stagnated since 2008. According to the OBR, “our latest forecast assumes that potential output was almost 11 percent lower than an extrapolation of the Budget 2008 forecast by 2013–4 and ... almost 14 percent below that extrapolation by 2019–20”. [9] In 2013 output per hour in Britain was 27 percent below that in France. [10]
The output gap partly reflects the deep economic damage big financial crises typically cause. Stagnant productivity, however, results from capitalists not finding it profitable to make large-scale new investments. On the OBR’s figures, the current recovery is mainly consumption-driven. But this is likely to bump up against the limits imposed by the continuing stagnation of real wages. The private sector employment figures look good because employers have been willing to hang on to existing workers or take on ne]w ones. But they have felt strong enough to minimise labour costs by keeping nominal wage increases low or non-existent. [11]
Bear in mind, moreover, that Osborne is right that, by comparison with most of the other advanced capitalist economies, Britain is a success story. The stagnating eurozone was facing the prospect at the beginning of 2015 of following Japan into deflation: the collapse of the oil price threatened to lock continental Europe into a vicious spiral of falling prices that increased the burden of debt and further reduced demand. This threat allowed Mario Draghi, president of the European Central Bank (ECB), in late January finally to force through quantitative easing (QE) despite strong German resistance. The ECB has committed itself to buying €60 billion a month of government bonds till it is confident that inflation in the eurozone is near the bank’s 2 percent target rate.
Technically QE is supposed to be a way of making borrowing and investment cheaper when nominal interest rates are at, or close to zero (as they are in the major Western economies). If pumping lots more money into the financial system by buying bonds pushes up the inflation rate, then real interest rates will become negative. [12] The yields on some ultra-safe German government bonds were already negative – ie lenders seeking security were paying to hold them – before Draghi launched QE. So, as John Authers of the Financial Times wrote then, “the critical aim must be to weaken the euro”. [13] Euro devaluation might make European exports more competitive and thereby boost output; by simultaneously increasing the prices of imported goods it could help fend off the deflationary menace.
And indeed the euro fell so quickly that by early March there were predictions it would reach parity with the dollar. But this then highlights the lack of synchronisation of the major economies. The United States central bank, the Federal Reserve Board, launched its own QE programme in the immediate wake of the 2008 crash. By October 2014 it felt the American economy was growing robustly enough to end QE. For the past few months the Fed and the financial markets have been engaging in an elaborate dance over when it will start raising interest rates from the ultra-low levels they were pushed down to in response to the crash.
The very prospect of a US interest rate rise has helped to drive the dollar up in foreign exchange markets in recent months. The ECB’s decision to move in the opposite direction to the Fed has reinforced this process: the euro fell 4 percent against the dollar in the five days following the actual launch of QE on 9 March. The Financial Times complained:
Central banks around the world are ... engaged in “competitive easing”; Sweden’s Riksbank, for example, this week pushed its main interest rate even deeper into negative territory. Behind the dollar’s recent rise against the euro has been a widening transatlantic interest rate gap. The “spread”, or difference between the yield on 10-year US Treasuries versus German equivalents, had also smashed through levels not seen since the 1980s. [14]
But this then poses a problem: the US recovery isn’t so strong that policy-makers can be confident that a higher dollar won’t inflict a severe blow to it by weakening the competitiveness of American firms. Fed chair Janet Yellen has complained about the “notable drag” on net exports caused by the rising dollar. [15] The hedge fund boss Ray Dalio caused much fluttering in financial dovecotes when he compared a premature interest rate rise to the Fed’s monetary tightening in 1936-7, which helped to precipitate the sharpest recession in American economic history. [16] Accordingly Yellen’s language about when and how much interest rates will rise is becoming increasingly impenetrable. Amid this currency instability the drive by the dominant forces in the EU to strangle the Syriza government in Greece, which risks precipitating a chaotic Greek exit from the euro, looks like the same kind of hubris that helped push Ukraine into civil war.
Meanwhile, it’s anyone’s guess whether the huge accumulation of debt that has driven Chinese growth these past few years – with the development of financial instruments to allow property developers and local governments to keep on borrowing as “creative” as any invented by Wall St during the bubble of the mid-2000s – can be gradually shrunk or will instead help produce a much sharper economic collapse.
Amid all these economic uncertainties, the geopolitical fractures that opened up last year show no sign of closing. [17] A second Minsk agreement has at least paused the vicious war in south eastern Ukraine between supporters of the Western-backed Kiev government and the forces demanding local autonomy and receiving various forms of assistance from Moscow. But the US is pressing the EU to maintain and if possible to strengthen the sanctions regime imposed on Russia last year. Western rhetoric demonising Vladimir Putin and declaring a new Cold War has reached absurd and dangerous levels.
Meanwhile, the war against ISIS in Iraq and Syria doesn’t seem to be going anywhere very quickly. When we went to press, Iraqi government forces had still not recaptured Tikrit, which doesn’t bode well for the campaign to take back Iraq’s second city, Mosul (bizarrely announced by the Pentagon as taking place in April). The big winner in all this (apart, of course, from ISIS itself) is Bashar al-Assad’s regime in Syria. His success in portraying himself as an indispensable ally against the Islamist threat was indicated by US secretary of state John Kerry’s admission in mid-March that Assad could have a role in any negotiated end to the Syrian war. [18]
The same brutal logic is pushing together the US and Assad’s main backer, the Islamic Republican regime in Iran, which seems to be orchestrating the Iraqi government’s counter-offensive against ISIS. Kerry made the remarks while in Switzerland to negotiate with the Iranian foreign minister about Tehran’s nuclear programme. Washington’s search for a nuclear deal with Iran has infuriated key Middle Eastern allies, notably the Saudi royal family and Israeli prime minister Binyamin Netanyahu. The latter’s successful – and blatantly racist – re-election campaign is yet another Middle Eastern headache for Barack Obama, who was already irritated by Netanyahu’s grandstanding 3 March speech to Congress denouncing the emerging deal with Iran.
George Friedman of the intelligence website Stratfor has written an interesting analysis of the evolving US strategy in the region:
Having failed to pacify Afghanistan or Iraq, the United States has come to the conclusion that wars of occupation are beyond American capacity. It is prepared to use air power and very limited ground forces in Iraq, for example. However, the United States does not see itself as having the option of bringing decisive force to bear.
Therefore, the United States has a double strategy emerging. The first layer is to keep its distance from major flare-ups in the region, providing support but making clear it will not be the one to take primary responsibility. As the situation on the ground deteriorates, the United States expects these conflicts to eventually compel regional powers to take responsibility ...
The second layer of this strategy is creating a balance of power. The United States wants regional powers to deal with issues that threaten their interests more than American interests. At the same time, the United States does not want any one country to dominate the region. There are four such powers: Turkey, Iran, Saudi Arabia and Israel ... The United States wants to get rid of Iran’s weapons, but it does not want to shatter the country. It is part of a pattern of regional responsibility and balance. [19]
It’s worth stressing that this strategy of maintaining US hegemony in a strategic region through balance of power politics isn’t confined to the Middle East. It is, in essence, the game that Washington is playing to cope with China’s increasing assertiveness along the Asian littoral, playing on the fears Beijing has provoked in its neighbours. [20] But, although the strategy is the same in different regions, dealing with China, expressed by the so-called “pivot to Asia” that aims to shift 60 percent of US military assets to the Asia-Pacific, remains Obama’s top priority, despite the mayhem at the heart of the Arab world and close to the EU’s borders. The Foreign Policy website argues:
President Barack Obama’s 2016 budget for national security is a reflection of the administration’s desire to hold fast to its Asia-Pacific pivot strategy even as newer threats like the rise of the Islamic State and Russia’s aggression in Europe impose new spending demands on various US agencies ...
Secretary of state John Kerry, in his department’s budget submission, called the pivot to the Asia-Pacific region “a top priority for every one of us in [Obama’s] administration” ...
“If your budget is a truest indicator of where your strategy is headed, then what the budget is telling us is a pivot to [the] Asia-Pacific” remains the Obama administration’s focus while “the current conflicts in Iraq, Syria, and in Ukraine are more near-term challenges” ... said Todd Harrison, a budget analyst at the Center for Strategic and Budgetary Assessments. [21]
In his new National Security Strategy, published in February, Obama preaches the virtue of “strategic patience and persistence”. The document nevertheless asserts the administration’s commitment to maintaining US global hegemony (usually dressed up as “leadership”), backed up where necessary by force. Thus, “if deterrence fails, US forces will be ready to project power globally to defeat and deny aggression in multiple theatres.” Despite Pentagon cuts, “although our military will be smaller, it must remain dominant in every domain.” The fine balance between avoiding George W. Bush’s gung-ho unilateralism and showing challengers a flash of steel that Obama sought to maintain in his West Point speech last May is reaffirmed: “The use of force should not be our first choice, but it will sometimes be the necessary choice. The United States will use military force, unilaterally if necessary ... we prefer to act with allies and partners” – and so on. [22]
One commentator argues that the National Security Strategy shows Obama aligning himself with the wing of his administration that reckons that “the United States faces difficult threats and challenges, but ... rejects the notion that the return of geopolitics is a game changer or that the regional order in the Middle East is collapsing”. [23] But this is of little comfort to Europe’s ruling classes.
They may be able to kid themselves that, as Draghi claimed in early March, the euro crisis is over, but in their own region Russia has been able to play the balance of power game quite effectively. France, Italy and Spain have all expressed their reluctance to continue with sanctions; even in Central and Eastern Europe, Hungary, the Czech Republic and Slovakia all oppose the Russophobic stance taken by Poland and the Baltic States. And Europe’s rulers can see the fires of war spreading along their borders – in Ukraine and the Arab East, and along the southern coast of the Mediterranean, where Libya is imploding into civil war.
The cycle of imperialist intervention in the Islamic world and terrorist attacks within the Western bourgeois democracies took another vicious twist in early January with the killings at Charlie Hebdo and a Jewish supermarket in Paris. It is worth asking why the reaction to these massacres was so intense, when previous terrorist atrocities in Madrid in 2004 and London in 2005 had much higher body counts. Two factors seem important. First, the economic crisis and the rise of racist right wing parties have increased the stigmatisation of the Muslim minority in Europe, explored by Hassan Mahamdallie and Jim Wolfreys elsewhere in this issue.
Secondly, there is the ISIS factor. As Anne Alexander showed in our previous issue, the growth of this sectarian organisation has causes specific to the Arab world – above all, the catastrophic invasion of Iraq and the counter-revolutionary reaction to the 2011 uprisings. [24] But ISIS’s particularly brutal form of armed propaganda – facilitated by skilful use of the social media version of the society of the spectacle – has had a galvanic effect on friend and foe alike.
Like Al Qaeda before it, ISIS has encouraged a small minority of disaffected young Muslims across the world to rally to its banner and take armed actions in its name. Simultaneously, it has given concrete shape to the worst fears of Western imperialism and its allies and clients. This can act as a tool of political mobilisation – undercutting opposition to the new US-led military campaign in the Middle East and propping up counter-revolutionary regimes in the region, notably those of Assad in Syria and Abdel Fattah el-Sisi in Egypt.
The danger is that these developments can lead to new and even more vicious twists in the cycle, further strengthening Islamophobic demagogues such as Marine Le Pen and Nigel Farage. But they don’t represent the only face of Europe today. The meltdown of the mainstream party system we analysed in our previous issue doesn’t just favour the racist right. It can lead to breakthroughs for the radical left as well, as we see with the victory of Syriza in the Greek elections and the advance on Podemos in the Spanish state.
These developments show what is possible. But, as Panos Garganas argues in our following piece, electoral success poses a new set of problems. We wrote in our last issue: “Despite the rhetoric of novelty that surrounds particularly the more left wing challengers, the laws of political gravity continue to operate: parties aspiring to govern must confront the question of whether they are seeking to confront or collaborate with capital.” [25]
This prediction was confirmed remarkably quickly, when the new Greek government headed by Alexis Tsipras was forced on 20 February to make a deal with the Eurogroup (the eurozone finance ministers) that threatens to unravel the programme for ending austerity on which it was elected. Of course, as Garganas shows, the new phase in the struggle opened by Syriza’s victory is far from over. But the experience so far shows that what the radical and revolutionary left needs is not so much a celebration of our few successes but careful critical analysis that can learn from both advances and retreats and map out a strategy for ultimate victory.
In Britain we’re still far from this. Miliband’s pursuit of austerity-lite and his defence of the Union in Scotland help to explain Labour’s less than stellar performance in the polls. The resulting frustration, and the desire for a real alternative are reflected in Labour voters switching to the SNP or, south of the border, to the Greens. But in office (in both Holyrood and local Scottish councils in the case of the SNP, in Brighton in the case of the Greens) both these parties have shown themselves willing to implement austerity.
The Trade Union and Socialist Coalition – drawing together a spectrum of radical left forces – is making a determined effort to offer a socialist alternative in constituencies across Britain. This is an honourable venture that deserves every success it can achieve. Unfortunately TUSC unites only one part of what remains a highly fragmented British left. This is a shameful situation, but not one that is likely to shift before the general election. Achieving a robust and united radical left remains a work in progress in Britain.
1. www.theguardian.com/politics/ng-interactive/2015/feb/27/guardian-poll-projection.
2. Agnew, 2015.
3. Emerson, 2015.
4. Callinicos, 2015.
5. Go to http://tinyurl.com/oj82grm.
6. Stacey, 2015.
7. Inman, 2015.
8. Jones, 2015.
9. Giugliano, 2015.
10. Guigliano and O’Connor, 2015.
11. For more on Osborne’s budget see Roberts, 2015.
12. QE is an application of one of Marx’s bugbears, the quantity theory of money: for a critique, see Roberts, 2014.
13. Authers, 2015.
14. Atkins, 2015.
15. Atkins, Fleming, and Jones, 2015.
16. Sender, Foley, and Fleming, 2015. Economic historians have cited other causes of the 1937–8 recession, for example, industrial firms’ running down inventories and the Roosevelt administration’s attempt to balance the federal budget – Kindleberger, 1987, chapter 12, and Eichengreen, 1995, chapter 12.
17. Callinicos, 2014.
18. Gordon, 2015.
19. Friedman, 2015.
20. Luttwak, 2012.
21. Ratnam and Brannan, 2015.
22. Obama, 2015, pp. 2, 8.
23. Wright, 2015.
24. Alexander, 2015.
25. Callinicos, 2015, p. 16.
Agnew, Harriet, 2015, If Britain Goes: City Divided on UK Relationship with EU, Financial Times (8 February), http://tinyurl.com/opvq9gj.
Alexander, Anne, 2015, ISIS and Counter-Revolution: Towards a Marxist Analysis, International Socialism 145 (winter), http://isj.org.uk/isis-and-counter-revolution-towards-a-marxist-analysis/.
Atkins, Ralph, 2015, Yellen Battles Draghi in Euro-Dollar Drama, Financial Times (19 March), http://tinyurl.com/ojbd973.
Atkins, Ralph, Sam Fleming, and Claire Jones, 2015, Exchange Rates: Transatlantic Divergences, Financial Times (22 March), http://tinyurl.com/oby6o4g.
Authers, John, 2015, Draghi’s Pledge Gives Credible Hope, Financial Times (23 January), http://tinyurl.com/o7ltjlt.
Callinicos, Alex, 2014, The Multiple Crises of Imperialism, International Socialism 144 (autumn), http://isj.org.uk/the-multiple-crises-of-imperialism/.
Callinicos, Alex, 2015, Britain and the Crisis of the Neoliberal State, International Socialism 145 (winter), http://isj.org.uk/britain-and-the-crisis-of-the-neoliberal-state/.
Eichengreen, Barry, 1995, Golden Fetters: The Gold Standard and the Great Depression, 1919–1939 (Oxford University Press).
Emerson, Michael (ed.), 2015, Britain’s Future in Europe: Reform, Renegotiation, Repatriation or Secession? (Rowman & Littlefield International).
Friedman, George, 2015, Netanyahu, Obama and the Geopolitics of Speeches (3 March), www.stratfor.com/weekly/netanyahu-obama-and-geopolitics-speeches.
Giugliano, Ferdinando, 2015. Budget 2015: Osborne’s Rosy Words Conceal Old Problems, Financial Times (18 March), http://tinyurl.com/m82sxj7.
Giugliano, Ferdinando, and Sarah O’Connor, 2015, Boasts Debunked as France Gets Last Laugh Over UK on Productivity, Financial Times (19 March), http://tinyurl.com/lyqkquq.
Gordon, Michael R, 2015, Kerry Suggests There is a Place for Assad in Syria Talks, New York Times (15 March), http://tinyurl.com/l92er49.
Inman, Philip, 2015, Osborne will Need Unprecedented Cuts in Welfare to Meet Targets, Says IFS, Guardian (18 March), http://tinyurl.com/knl7r8c.
Jones, Claire, 2015, Double-Digit Unemployment Predicted Even If Eurozone Recovers, Financial Times (23 March), http://tinyurl.com/pthrflg.
Kindleberger, Charles P., 1987 [1973], The World in Depression 1929–1939 (Pelican).
Luttwak, Edward, 2012, The Rise of China vs the Logic of Strategy (Harvard University Press).
Obama, Barack, 2015, National Security Strategy (February), www.whitehouse.gov/sites/default/files/docs/2015_national_security_strategy.pdf.
Ratnam, Gopal, and Kate Brannan, 2015, Against Other Threats, Obama’s Security Budget Sticks to Asia-Pacific Pivot (2 February), http://tinyurl.com/pg9p8y2.
Roberts, Michael, 2014, The Story of QE and the Recovery (2 November), https://thenextrecession.wordpress.com/2014/11/02/the-story-of-qe-and-the-recovery/.
Roberts, Michael, 2015, UK Budget: Osborne Blowing in the Wind (18 March), https://thenextrecession.wordpress.com/2015/03/18/uk-budget-osborne-blowing-in-the-wind/.
Sender, Henry, Stephen Foley, and Sam Fleming, 2015, Dalio Warns Fed of 1937-style Rate Risk, Financial Times (17 March), http://tinyurl.com/k8q8996.
Stacey, Kiran, 2015, Budget 2015: Miliband Attacks ‘Budget That Can’t be Believed’, Financial Times (18 March), http://tinyurl.com/l9b8bm4.
Wright, Thomas, 2015, Interpreting the National Security Strategy (6 February), http://tinyurl.com/kyzh5px.
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