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Current crisis highlights the nature of the neoliberal economic system itself

THE Bank of England’s report on debt and lending issued today indicates the levels of financial stress felt both by individuals and firms.

In some cases, particularly in terms of borrowing by large firms, the amounts doubled over the previous quarter.   

This stress was largely the result of price inflation that started to be felt last autumn as firms controlling rare earths, petrochemicals, fertilisers and microchips exploited their monopoly power as the global economy began to recover from Covid.

The invasion of Ukraine and the resulting sanctions then intensified these supply problems.  

But it is not just an inflationary crisis. Another report issued last week, from the Bank of International Settlements in Basle, makes this clear. The crisis has a second potentially lethal side, the pumping of banking credit into the financial sector for the best part of a decade.

“For the first time in the post-World War II era the global economy is facing the threat of higher inflation against the backdrop of elevated financial vulnerabilities.”

That means bad debt. Lots of it.

The report continues: “The worst-case scenario would be stubborn inflation pressures that prompt a stronger tightening. This could trigger a larger slowdown, including a recession, alongside financial stress — a stagflationary hard landing.”

In fact, for large parts of the developing world this is already under way.

Three months ago, responding to yet another report, that of the United Nations’ conference on trade and development, its director-general Antonio Guterez warned of a “perfect storm.”

The crisis “threatens to devastate developing economies” with “wildly escalating prices for basic food stuffs, energy and materials, sharply rising interest rates and the shutdown of international lending.” Sri Lanka and Lebanon are only the first of many casualties.

What does all this mean for those in Britain struggling to defend their wages and conditions? Should they heed calls from employers and the government to exercise restraint ?  

That’s what the very rich would like. The recent Common Wealth report exposed what such restraint means.   

Over the five years before the pandemic shareholder returns in Britain increased by 56 per cent.

Nominal wages went up just 8 per cent. And this profit was not reinvested. Indeed, in over a quarter of cases the money taken out exceeded profits. Companies were looted.

Where did it go? The great majority of it went into the pockets of investment companies and hedge funds that dominate the London stock exchange on behalf of the very wealthy. Only 5 per cent went to workers’ pension funds.  

And this is the same across the capitalist world. The most recent Credit Suisse Wealth Report estimates that the proportion of global wealth held by “high net-worth individuals, millionaires” has increased from 35 per cent to 46 per cent over the last two decades. A massive, probably unprecedented, increase.

The RMT workers, the CWU members in BT, BMA doctors and the police in Scotland should remember these figures. 

Their wages will feed the productive economy. Hedge fund profits will not.

But those current fighting for wages should also keep in mind something still more important.

This is the nature of the neoliberal economic system itself. This is geared to protect the interests of large-scale capital, of patent rights and control over productive knowledge — shamefully exploited during Covid — and above all of the dollar and its ability to manufacture money on behalf of the banks that control it.  

It is this system that has produced the current crisis, the maldistribution of wealth, the failure of investment and inflation.

RMT has dramatically led the way on wages and largely transformed public opinion. However, its constitution also advances a political demand. It is socialism. Others should heed.

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