The collapse of the subprime mortgage market last year which spread to the global banking system is now biting into the real economy and employment, writes Kevin Devine.
Heaven knows it's hard to be upset about merchant bankers losing their jobs, but the so-called "credit crunch" has now turned into a much more serious crisis of the banking system as a whole. Given the banks' centrality to capitalism's market economy, a serious recession is now very much on the cards. Massive exposure to the tottering pyramid of debt associated with the "subprime" mortgage market and other scams means that the banks have pretty much stopped lending to each other and other businesses. This makes collapses and closures much more likely, with the appalling knock-on effects that these can have, as one set of workers losing their jobs and their pay packets affects demand for other firms' goods and services, all the way down the line. It's extremely difficult to predict what will happen next, but the impacts on working class people's lives are likely to be significant.
We can already catch a glimpse of the possible trajectory of events with the latest figures for employment and unemployment. These show employment falling significantly for the first time in many years (albeit from record highs) and unemployment rising sharply. Employment fell by 122,000 between June and August, while the claimant count (the numbers in receipt of unemployment benefits) rose by nearly 32,000 in September alone. It's worth pointing out that the previous month's claimant count figures were revised upwards from 32,500 to 35,700, and September's figures could yet be revised up as well.
There are now some 939,000 people receiving the pittance that is the government's Jobseeker's Allowance. And these are just the official figures, which since Margaret Thatcher's "reforms" don't fully capture the true numbers of people who are also looking for work, but don't claim benefits. This broader definition, which is based on the official Labour Force Survey (LFS), puts unemployment at an estimated 1.8 million, or 5.75 percent of the workforce. This is up from 5.2 percent under the previous set of figures. At this rate of increase, unemployment could be over 2 million by Christmas.
While no part of the country has been spared, it looks like London has been hardest hit, as posts in the financial services sector - and all the other jobs that depend on these - are cut. Nearly half of all the recent job losses have been in London and the surrounding areas of the east and south east, with the bulk of these in the capital. This is an important point. The finance sector makes a significant contribution to Britain's current account. Nevertheless this has been showing a deficit since the early 1980s, when the Tories laid waste to manufacturing. The deficit is due to the fact that this country imports more than it exports, particularly tangible items like manufactured goods.
And the deficit would be much worse were it not for the performance of what economists like to call "invisibles", ie traded services like finance and marketing. If this sector of the economy fails to perform, which is precisely the situation at the moment, then the prospects for "Britain Plc" are very gloomy indeed. Much hinges on the government's attempted bailout of the banks. But even if it works, this shouldn't distract attention from the bankrupt policies, begun by the Tories, but continued under Brown, that decimated industry while City suits were allowed to soak themselves in wealth. Their overreaching is now having dire consequences for the economy as a whole.
So what are the possibilities of all this affecting the "real economy"? One worrying sign is the current spread of short-time working in Britain's motor industry. The reason it's a real concern is that this was in place before the banking crisis worsened in October. Car and van sales fell sharply in September, itself a real sign that things were not right with the economy, and from that point most of the major British manufacturers moved to introduce some form of "down-time" in their vehicle plants. The fact that the two remaining van manufacturing plants in Britain - GM's plant in Luton, which makes the Vivaro, and Ford's Transit plant in Southampton - are on short-time working is highly significant. Van and truck sales are directly linked to the health of the economy. If fewer goods and services are being bought or sold, sales of these vehicles are likely to fall as a result. Interestingly, the only producer not to have been affected by the slump in sales was Jaguar. Clearly their customers don't appear to be too affected by the economic downturn.
But these local developments are also linked to the outlook for the global motor industry. The major firms like GM are in trouble and are seeking mergers - which will mean further rationalisations and job cuts - as a solution. The problems were already there, but the financial crisis has made matters worse, not simply because credit lines dried up, but also because financial speculation is central to the way many global firms operate. The financial problems of the industry - exacerbated by the banking crisis - and a slump in demand may combine to turn the current short-time working in the British arm of the industry into proper lay-offs and redundancies. If this happens, the knock-on effects on demand for goods and services will be massive, as not just the employees of the vehicle manufacturers lose their jobs, but suppliers are affected too.
One of the more galling aspects of the current crisis is the way its roots lie in what looks like almost the entire finance sector's touting of credit to pretty much anyone with a job (and, it seems, to many without work as well). The terms pretty much always favoured the bankers. And now that this credit has dried up, working class people are facing the prospect of being turfed out of (often over-valued) homes which, in order to buy, they had to borrow large sums.
What makes this even worse is that, while the bankers are being bailed out by the government, the same bankers are starting to repossess homes at increasing rates. Repossessions were running at 18,900 in the six months to June 2008, up by 48 percent on the figure of 12,800 for the same period a year ago. And government-rescued Northern Rock is one of the biggest culprits. The organisation is repossessing homes at twice the industry average, and is reported to have seized 4,200 homes by the end of September, nearly double its rate for the whole of 2007. The Financial Services Authority has a central role in Northern Rock's operations, and if this is a matter of policy it's nothing short of scandalous, with the weakest victims being made to pay for the actions of those at the top who took Northern Rock to the brink of collapse.
But it doesn't look like those responsible for the crisis will be penalised in any real way. Most of the media back the bailout, which is mainly a sign of the overwhelming influence of the financial sector. And why wouldn't they be in favour of state support at the present? Much of the media commentary on the government's intervention has focused on its apparent significance as a form of "nationalisation". But this misses the fact that the government intends to hand the reins back to the fat cats once order is restored. In other words, the banks' losses have been socialised, while their profits will remain private.
The fact is that the bailout will most likely end up costing taxpayers significant amounts of money, via the government underwriting attempts to sell off the banks' debts.
Following the massive transfer of resources from the exchequer to the banks that the bailout represents, the public finances will be squeezed further.
New figures last month show that bailing out Northern Rock alone added £82 billion to the government's net public sector debt. This means that for one thing the government's policy of holding down wage rises for public sector workers is likely to continue. But again, this won't help matters. Instead it is liable to add to the adverse effects on the economy by further limiting the money these workers - a fifth of the workforce - have to spend on goods and services.
Resistance and struggle will be vital, but are they on the cards? It's not easy to be certain about this. The union leaders' links to Labour mean they will try and head off a fightback, but their ability and willingness to do this in a decisive way depend on the scale of the crisis, and the government's reaction to it. A lot will depend on how socialists respond to further calls for wage restraint and other measures that attempt to make working class people bear the brunt of the crisis.
Relatively easy availability of credit was to some extent a substitute for weak wage growth over the recent period. With this avenue closed off for most, workers will be forced to look more closely at their wages, and increases in them, to compensate for rises in the cost of living. To the extent that inflation remains high (and there is some debate over whether it will or not, given the deflationary effects of the crisis), these two factors may combine to sharpen conflicts over pay and conditions. But inflation statistics, in some ways, are just part of the picture, especially since they are an average measure and include prices for luxury goods as well as necessities. It is prices for the latter, particularly food and fuel, that have driven inflation recently. And these have served to make people feel poorer, which is perhaps the key thing.
Of course, the extent of unemployment will also be a key factor. In many areas of the country, though not all, there is a whole generation who have never experienced unemployment. If the jobless figures rise significantly, it will be a tremendous shock, undermining the faith of millions in the economic system. Workers' potential to resist is rooted in the workplace, so increased unemployment makes the possibility of a fightback more problematic. But it's not a straightforward equation, and here it's necessary to put the latest figures in context. At this stage the figures for unemployment are still much lower than in the recession of the early 1990s, when unemployment on the claimant count reached 3 million. And while vacancies have fallen, there are still over 600,000 across the economy as a whole. These figures mean that the downturn is still uneven, and it may well be possible to harness the bitterness at job losses, real wage cuts and repossessions into a more generalised fightback. We still have time, but we need to get a move on, because the stakes are higher than they have been for years.