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The recession may be over but systemic flaws remain |
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Issues Explained
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Monday, 01 February 2010 |
 The UK economy grew by 0.1% in the fourth quarter of 2009 according to preliminary data released 26 January 2010. This marked the end of six quarters of declining output – the longest recession since published records began over 60 years ago.
These numbers remain the best guess using whatever actual data is available to the statisticians and so may be revised downwards or upwards. Despite the uncertainty, the marginal growth officially signals the end of a period which almost brought capitalist nations to the verge of financial meltdown.
The financial sector, which epitomised capitalism more than any other, was found out as nothing more than a glorified casino. Capital markets once seen as efficient managers of finance - allocating funds to the most profitable and proficient investments - in fact merely placed bets on where most money was to be made that day. Their some what overstated benefits were in the end eclipsed by the bailouts from society when the bets failed. At the same time, the western capitalist economic model was not this finely tuned efficient generator of productive investments but simply overstated growth through issuing ever greater amounts of debt to all and sundry - households, companies, governments - on the back of endless conspicuous consumption.
With a return to economic growth, capitalists will no doubt defend capitalism by highlighting the resilience of the system. In reality, growth has been achieved at a massive cost to society which will be paid back by future generations. In Britain the total debt to GDP ratio has risen to 465% - that’s a debt of over £110,000 for each man, women and child. Indeed, far from resilient, the west pulled out all the stops to prevent economic collapse. Even contradicting purported sound economic policy that it had lectured to the rest of the world for decades. Interest rates were slashed to near zero; fiscal deficits expanded to the extreme; huge cash bailouts were handed out; money printing presses let loose; industry nationalised – the indictments of capitalism are numerous.
Even so the economies of Iceland and Greece went bankrupt. Additionally, a return to some sort of growth does not mean the underlying problems in capitalist economies are resolved. Bank balance sheets remain under-capitalised. Financial so-called assets remain hugely inflated at many times the value of goods and services in the real economy. Governments hold hundreds of billions in corporate stocks, shares and debt worth only a fraction of their stated value leaving nation states vulnerable to collapse. The banking sector is more uncompetitive, with forced mergers and nationalisations, than even at the start of the crisis. Western consumer orientated economies continue to be heavily dependent on inherently vulnerable financial services for jobs, exports, taxes and economic growth. Regulations are confused and the regulators are in disarray.
Yet the biggest political discord is on the enormous bonuses for a few thousand bankers.
The political furore over bank bonuses, obscene as they are, obscures the debate about the inherent and fundamental flaws in capitalism and suggests no meaningful change will emerge from this crisis. Moreover, despite the growth, the misery will continue – for those who have lost jobs, businesses and property, suffered family breakdown or have been a victim of crime due to the recession. Millions more fortunate enough to hold on to their jobs will have to pay for the excesses personified by those living the capitalist dream.
The ruthless and brutal character of the free market mixed with the injustices of the democratic system, with its vested and entrenched interests, is indeed a lethal cocktail.
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