Edited and expanded version of a speech by David Yaffe to the RCG conference 29 October 2022.
I am going to start with a quote from Marx written in 1852.
In The 18th Brumaire of Louis Bonaparte Karl Marx writes:
‘Hegel remarks somewhere that all facts and personages of great importance in world history appear, as it were, twice. He forgot to add: the first time as tragedy, the second time as farce’ (CW Vol 11, p103).
Today the ‘tragedy’ for us is that Johnson could be Prime Minister for almost three years and the ‘farce’ was his replacement as Prime Minister, Liz Truss.
Johnson had little choice but to resign on 7 July 2022. It came after the wave of resignations from his government and party approached 60, with one Conservative Party member after another publicly voicing their lack of confidence in the Prime Minister. The stream of resignations was given impetus by Rishi Sunak and Sajid Javid. They quit their posts as finance minister and health secretary, respectively, within minutes of each other on the evening of 5 July.
Johnson’s resignation was triggered by an accumulation of deceptions, including denying breaking pandemic lockdown rules (‘Partygate’), and the appointment of Chris Pincher, one of his cronies, as Conservative Party deputy chief whip. Pincher was under investigation following accusations of sexual misconduct at the time. It has since emerged that Johnson appointed him to the role despite knowing of the allegations.
Truss was voted in as leader of the Tory Party and therefore Prime Minister, to replace Johnson after a summer-long ‘hustings’ of profound boredom to woo the Tory Party members available to vote – around 160,000. This was the constituency that chose the country’s Prime Minister – as we said in FRFI 289 – a ‘democracy’ of reactionary, elderly racists who make up the overwhelming majority of the Conservative Party.
Truss won against Sunak by a small margin, 57.4% to 42.6%, on a policy platform of ‘growth, growth, growth’. She became Prime Minister on 6 September and appointed Kwasi Kwarteng as Chancellor. He had long advocated a small state, low-tax approach to running the economy, as expressed in a 2012 free-market publication, Britannia Unchained. Liz Truss was one of the co-authors. Kwarteng said they worked closely together on a package of tax cuts and deregulation designed to jolt Britain out of its complete torpor. (Financial Times 24/25 September 2022)
Kwarteng and Truss launched their disastrous ‘mini-budget’ on 23 September. Their mantra of ‘growth’ was essentially unfunded £45bn tax cuts for the wealthiest, and deregulation – stripping down workers’ rights and targeting cuts in social welfare. While cutting taxes for the wealthy and top earners Truss made it clear that there would be ‘no hand-outs’ for the vast majority, reflecting her overall contempt for the working class. Prime Minister Truss and the Chancellor’s ‘mini-budget’ triggered a fall in the value of the pound – at one stage it even hit an early morning low of $1.035. Sterling fell 3% to $1.09 after the ‘mini-budget’ – its lowest level since 1985. The pound dropped by as much as 17% against the dollar. The Bank of England (BoE) had to rescue sterling and avoid a meltdown in the UK pension system with a £65bn buyout of government bonds, ‘gilts’. The BoE sought to buy time to prevent a vicious cycle in which pension funds have to sell gilts to meet demands from creditors. That process had put pension funds at the risk of insolvency because the mass sell-offs pushed down further the price of gilts held by funds as assets, requiring them to come up with more cash. (Total size of UK pension funds is between £2.6 trillion and £3.0 trillion). One senior London-based banker said ‘I was warned that this was the beginning of the end’, adding that at one point there were no buyers of long-dated UK gilts. ‘It was not quite a Lehman moment. But it got close.’ (A ‘Lehman Moment’ describes a point at which Lehman Brothers’ banking problems became everyone’s problems during the 2008 global financial crisis). This BoE buyout will be inflationary at a time of already high inflation.
Following this ‘market’ turmoil, Truss sacked Kwarteng on 14 October but could not save herself and had little option but to resign as Prime Minister. She did so on 20 October and was replaced on 25 October by the ‘free market’ multi-millionaire Rishi Sunak.
British capitalism in crisis
Britain is an imperialist power. Over the last 170 years, the very structure of British capital and, therefore, the nature of the working class movement have been determined by this obvious, but seldom acknowledged reality. The imperialist character of Britain has been decisive in determining all the major economic and political developments in this country. In a period of growing rivalry between the dominant capitalist/imperialist powers this could be of critical importance in terms of the future path for British capitalism. In the second week of October the US President spelt out what was at stake. Biden warned that the US faces a ‘decisive decade’ in its rivalry with China, as he unveiled a national security strategy that singled out Beijing as having the intent and capacity to reshape the international order. China, he said ‘harbours the intention and, increasingly, the capacity to reshape the international order in favour of one that tilts the global playing field to its benefit’.
It is necessary for us to understand the underlying dynamic of British capitalism in crisis. At its root lies the relative decline of British imperialism. For more than 40 years the RCG has been monitoring the nature and size of the UK’s external assets and their impact on the character of British capitalism. In particular we pointed to the increasingly dominant role of banking and commercial capital in sustaining and advancing British imperialism’s interests throughout the world. Britain’s relative industrial decline has been accompanied by an aggressive expansion of British banking and commercial capital to every corner of the globe. In 1962, UK external assets were around half Britain’s GDP, with UK banking and commercial assets 18% of the total. In 1997 UK external assets were 244% of GDP, in 2005 they reached 395% of GDP, and as the financial crisis of 2008/09 broke out, they had grown to five times Britain’s GDP. A few years later, the financial derivatives of UK banks were added to UK external assets by the Office of National Statistics. The external assets were reconfigured to take the financial derivatives into account. At the end of 2008, at the height of the global financial crisis, total external assets were £10.98 trillion, nearly 7.5 times Britain’s GDP.
The financial crisis significantly reduced these assets, but seven years later they started rising again – reaching £10.17 trillion at the end of 2014. Of these assets, loans and deposits abroad by UK banks (called ‘other investments’) were £3.54 trillion, that is 1.95 times GDP, and financial derivatives were £2.83 trillion, that is 1.6 times GDP – together they made up 62.6% of total overseas assets – a gigantic usury capital.
The latest statistics from 2021, affected by the pandemic, show UK external assets reaching nearly £12.7 trillion, almost 5.6 times GDP. Of these assets ‘other investments’ are more than £4.9 trillion, and financial derivatives more than £2.36 trillion – an even greater ‘usury capital’.
UK External assets 2021: £s trillion
Direct investment 1.897
Portfolio investment 3.349
Financial derivatives 2.384
Other investments 4.907
Reserve assets 0.143
Total 12.662
However, these foreign assets were matched by even greater foreign liabilities (investments in the UK) of £13.086 trillion, leaving net external liabilities of £424.2bn, or 18.6% of GDP. Britain has an accumulated foreign debt of £7.18 trillion. UK interest payments on government debt have reached £19.4bn a year, the highest since records began.
In 2021 Britain’s net earnings on its investment account were negative, at -£32.0bn, following negative net earnings every year since 2013, and barely positive net earnings of £0.9bn in 2012. This should be compared with net earnings of £20.0bn on the investment account in 2011 and significant net earnings in previous years. This is a serious development for the balance of payments current account. It puts significant pressure on the value of the pound, and becomes a serious threat to the standard of living of people in Britain.
Britain has fallen into a recession that will last more than a year and will see half-a-million people losing their jobs, while households face the biggest fall in living standards since records began. Living standards are projected to fall by 7% over the two years 2023-2024 – a decline which would wipe out the previous eight-years’ growth. Inflation hit 11.1% in October – a 41-year high, largely due to rising energy and food prices. Food price inflation rose sharply to 16.5% in October, the highest for 45 years. This will disproportionately affect the incomes of the lower-waged and those on benefits.
Britain is the only G7 country economically smaller than it was before the pandemic. Its economy entered the cost of living crisis before it recovered from the pandemic. The number of firms going bust is at a 13-year high. The number of people on Universal Credit is 5.5 million, almost four in 10 workers.
The official unemployment rate is, however, at its lowest since 1974. This is due to a larger number of people counted as ‘inactive’ rather than unemployed. It is the result of increasing long-term sickness among older people and of students choosing not to work. In addition the increase in those not seeking work is the result of shrinking state services. Mothers cannot afford to work due to the high cost of childcare, often higher than potential earnings. Additionally many of the previously employed are forced to become carers because social services have been cut. Meanwhile real terms earnings fell at a record rate as living costs ate into household incomes with total weekly pay 2.4% lower after inflation from a year earlier. In contrast dividends rose three times faster than wages. Furthermore Prime Minister Sunak’s Chancellor Jeremy Hunt has said that the promised energy price cap at £2,500 will only be guaranteed until April 2023, rather than the two years proposed by the Truss government. (It has since been raised to £3,000 from April 2023 and will be in place for 12 months).
These are the dominant features of a parasitic and decaying capitalism. They demonstrate how the banking corporations and the financial services industry concentrated in the City of London have become the financial arm of a British imperialism in relative decline.
Finally we should recognise that this cannot change under capitalism. The essence of capitalism is capital’s self-expansion without limit. All barriers to this expansion have to be brushed aside. That is why we must fight to build the only alternative, socialism – the only social system that can organise and plan production for people’s needs.
Fight Racism! Fight Imperialism! No 291, December 2022/January 2023