The debate on how best to respond to the financial crisis and the worsening recession has now become completely polarised between the New Labour government on the one side and the Tory Opposition on the other. The Tories, 1980s style, want to cut off public spending and allow businesses and the most bankrupt banks to go to the wall. Let it rip they say and we can profitably rebuild from there. This is monetarism. Arch Thatcherite John Redwood is waiting in the wings for a chance to enact such a policy. Unfortunately there can be no way back for Britain from such a devastating contraction of the economy. Not this time. Everything that can be privatised has been privatised. Huge swathes of the economy are owned abroad and the financial and service sectors that led us out of the Tories’ last mess, but which have made this mess so much worse, will be irredeemably destroyed and the remnants relocated to the continent. It will be us heading to Poland in our millions and not the other way round if the Tories get their way. On your inter-continental bicycle, as they say.
New Labour takes the opposite tack. Fiscal stimulation has become their new mantra having so quickly and rudely replaced Gordon Brown’s once legendary prudence. Public borrowing, public spending, tax cuts and so on to inject money into the economy so that people will spend, spend, spend to save jobs and prevent bankruptcies. What about the pound, say the monetarists, and inflation? In the not so long run, they warn, it is 1930s Germany here we come. In the long run, replies New Labour, echoing the recently rediscovered economist John Maynard Keynes (although he was never forgotten by the reckless lenders), we are all dead. Very cynical but the Government’s must act or at least be seen to be acting.
In the excluded middle is a possible solution that incorporates both monetarism and fiscal stimulation but also reaches beyond the capitalist system itself to the possibility of a better future. It is a debt amnesty. A debt amnesty would wipe out the mortgages, credit card, student and personal loans of individuals and the debts of small and medium enterprises to the banks. That represents both a monetarist policy wiping out billions in accumulated, unprofitable capital (the dead capital which weighs on the living) and a huge fiscal stimulation as the newly debt-free can go on to spend on the things they need instead of paying off crippling debts. Yes, the banks would be wiped out by such a move but better they are wiped out than the entire economy. You will notice that both the Tory and New Labour plans are geared to saving the private banking system – the last of our net earners (cough!). They should be replaced by a single state bank which, by cutting out the private middle man, could lend at just above the Bank of England base rate to the businesses and individuals that need it. The state should also of course repudiate the accumulated toxic debts of the City geniuses who brought them in shiny packages from their seemingly more sophisticated rivals in Wall Street. The US had no qualms leaving Britain holding the pawned baby when they let Lehman Brothers go bankrupt effectively ending London’s once central role in world finance for ever.
The recently nationalised Northern Rock, in an effort to be more capitalist than thou after its nationalisation, started viciously repossessing homes. It has now reversed that policy. The more it repossessed, the more homes it was putting on the market, the more it was driving down prices and undermining its own (or our own) asset base. Now it is bending over backwards to help people to stay in their homes offering, in some cases, to virtually wipe off all mortgage arrears. This, essentially, is a nascent debt amnesty. It needs to be extended to the population as a whole.
Of course, like GM and Ford in the US many of our biggest companies are effectively bankrupt. They are being eyed-up by rivals for purchase and asset stripping. The massive unemployment that results will undermine any fiscal stimulation one cares to make and render it pointless. These big companies need to be nationalised to prevent this happening. Giving them money wont work as they will simply use it to buy out others and close them down or take it offshore where it will sit and wait for better times in other places and they’ll shed jobs anyway.
Keynes said it would be a good idea to get half the population burying five pound notes in bottles and the other half digging them up. The modern equivalent is to build airports and golf courses across the whole country to keep people working and stimulating the economy. Japan tried it and it didn’t work and now it is covered in unused airports and golf courses. Better that people are doing socially productive work. The unemployed from the luxury goods manufacturing and selling sectors must be incorporated into the wider economy by sharing the work. The forty-hour week must become the twenty-hour week. For instance, when the ten or so private banks that litter the high streets are organised into one state bank, instead of the economic benefits of such a rationalisation going to the few in the form of job cuts let them accrue to the workers in the form of cuts in working hours. Apart from the economic benefits of keeping everybody working in proper jobs, the social benefits to the family and community of everybody working a twenty hour week are incalculable.
A debt amnesty will of course require mobilising the population in support of such a thing as it will not happen if the bankers and politicians get their way. It is people who must act when governments will not or will only give the appearance of acting. On the back of such an achievement it would be possible for the first time to discuss what kind of bank we want and what kind of things we want it to finance. We could have a bank that is socially and environmentally responsible because that is its job and that is what it wants to be not because it is `regulated’.