Two major retail companies, MFI and Woolworths have been placed into administration – which is a technical measure that potentially allows a company to trade its way out of a crisis, but the administrators are legally bound to put the interests of creditors first. And there is a lot of debt, Woolworths owes £385 million. They have been squeezed by a downturn in consumer spending, and the concern by the banks that they were a poor risk, which meant that their suppliers have recently insisted on pre-payment of invoices, which is the immediate cause of their crisis.
This represents a significant development with the storm centre of the recession moving from the banking sector to the real economy. There are several dangers, every high street has a Woolworths, and they employ a lot of staff. If they actually shut then this will be a visible manifestation of economic crisis destabilising confidence even further, as would a big increase in unemployment – in addition to the obvious problems for the workers concerned and their families. There is also a danger that Woolworths’s administrators may seek to improve the cash flow with a pre-Xmas fire sale, that would start a deflationary price war and push other weak retail firms out of business.
So what should the left and the trade unions be demanding of the government?
Firstly, we need to recognise what a sea change there has been, with the New Labour project substantially on the rocks.
The New Labour project was built on two foundations: one was a commitment to neo-liberalism; the other was the belief that electoral success could come through winning over swing voters in marginal seats by triangulating around the Daily Mail driven socially conservative agenda.
The Crewe and Nantwitch and Glasgow East by-elections destroyed the authority of New Labourism as an electoral strategy; and the banking collapse has forced the government to change direction over neo-liberalism. What is more, it has opened a clear ideological divide with David Cameron’s Tories revealing themselves as hard core Thatcherites in the economic field.
The remarkable thing is that despite most of the press backing the Tories, the Labour Party has recovered its fortunes. What was previously a 20% Tory lead has been slashed to 4% – one which basis Labour would narrowly win the next general election.
The contrast with Crewe and Nantwitch and Glasgow East is striking, elections fought by Labour on their right wing, authoritarian agenda were decisively lost. Now Labour is concentrating on the economy, and has made a tentative shift back towards redistributive policies, its popularity has risen. The pre-budget was progressive in both seeking to keep up consumer demand, and also in being a more socially just budget than we have seen for many a year.
Of course the architects of New Labour are still at the helm of the party and of the government; but their project has been derailed. This opens a very important space for the left – particularly in the affiliated trade unions. But to take that opportunity we have to be more strategically and tactically nuanced than just denouncing the Labour party for not being left wing enough.
Neo-liberalism was completely corrosive because it de-legitimised the whole idea of state intervention in the economy, and promoted a form of fatalism towards the market. In contrast, the advantage of the government’s current interventionist stance is that it opens the door to discussing what type of intervention we need. It is unambigoulsy Keynsian, and as such represents a clear ideological break with a fundamental tenet of New Labour
In particular, the intervention in the financial sector has raised a serious question about state ownership of the banks. The public row between the banks and the government was reported last week in the Financial Times and the Independent. Having invested so much in the banks, the government are now confronted by the failure of those same banks to respond with loans, mortgage rates or credit lines to their customers; as we see with the current crisis for Woolworths.
As the Financial Times says: ‘If bankers do not start lending of their own accord, governments will force them to…. Faced with this prospect [of lack of adequate lending], governments will have no choice but to step in.
‘Politicians may attempt to lend directly, taking on credit risk to stimulate certain categories of lending and insurance. But banks, which have always been dependent on the largesse of taxpayers, could be forced to adopt central targets for new lending. This would overcome the problem of no institution wishing to be the first-mover. And banks would have little choice but to obey; if they are uncooperative, they could end up in public ownership.’
The government was very effective in pushing the banks to pass on to their customers the 1.5% cut in bank of England base rate through a combination of astute political pressure (spinning to the press – but this time against the banks), and also using its ownership of Northern Rock to set the pace.
This weeks pre-budget statement was an important turning point in both seeking to boost the economy with a progressive and redistributive cut in VAT, and also by establishing the principle that there should be a higher rate of tax for top earners. Generally the overall thrust of the pre-budget favoured those on lower incomes at the expense of those earning more. This legitimises the argument from the left that more redistribution and higher rates of tax would be even more effective.
But without state ownership, the powers of government are limited to fiscal manipulation of consumer spending power, and direct government spending. In a recession the key issue is how to stimulate investment. To a certain degree old fashioned Keynesian public works can prime the pumps, but the real problem is the strike by private sector investors. Therefore to really get out of the recession raises the demand for public ownership – because the state can invest without being deterred by concerns of risk or low profitability.
With ownership comes control, and public ownership can not only be more efficient, it also allows the economic and social priorities to be decided by democratic debate. There is a crying need for the trade unions to popularise the cause of public ownership, and to campaign for a growth of the real economy of manufacturing, distribution and retail, instead of concentrating on the financial sector.
Recently I moved a resolution calling for nationalisation of the banks with labour movement representation on the boards at the Southern regional council of the GMB, and it was passed unanimously. That wouldn’t have happened just six months ago.
The left also needs to modernise the language it uses. The tired mantras of nationalisation “without compensation and under workers’ control” belong to the Jurassic era. What do they even mean?
“Nationalisation without compensation” implies confiscation, which is politically very difficult to sell – particularly when large numbers of shares are owned by pension funds. But there are alternative, cost effective ways for firms to be collectivised: under the model proposed by the Swedish wage earner funds in 1976: firms over a certain size (employing 100 people or more) would be required each year to issue new stocks corresponding to 20% of annual profits, that would then be owned as an accumulating share of the company by wage earners as a collective group. The idea was that the most profitable firms would be the quickest to be collectivised, and the worker cooperatives owning controlling stakes could align the company with an economic plan by government, or pass ownership to the state, so that the economic power of the capitalist class based upon ownership was neutralised.
In the immediate circumstances, the left should be calling on the government to force the rescue of the retail sector by pressurising the banks not to restrict credit, and if necessary by direct nationalisation. The trade unions must be involved in the negotiations, and defence of jobs must be seen as the top priority.
The biggest mistake the left could make would be to simply assume that the current economic crisis is going to lead to a revival of the left through class struggle. There may well be strikes and disputes, but they will be sectional and defensive unless they feed into a wider ideological and political climate that the economic and social system should and must be changed. We should not underestimate the impact of the Labour Party being derailed out of the channel of neo-liberalism, and the opportunities this creates for the left – particularly through the trade unions – to put talk of alternative left policies back into mainstream political discource.