The world economy is heading towards a severe crisis, mainly due to debt held by governments and individuals (particularly those with “subprime” mortgages), and rich people and companies exploiting tax loopholes and tax havens to pay little or no tax. Many Western countries have very little manufacturing industry or raw materials and are borrowing heavily to postpone the crisis. In the UK, this borrowing has largely been used to finance increases in public spending which has kept the economy ticking over; for example, spending on the National Health Service has been regularly increased by 7% above the rate of inflation and many analysts are predicting economic problems as a result of “only” increasing it by a planned 4% above inflation in the next financial year (and education spending by 2% above inflation).

 

In my view, socialists should concentrate on demanding the closure of tax loopholes and havens, threatening the confiscation of the assets of those who continue to use the tax havens that remain or relocate abroad to avoid paying tax. Socialists raising such issues and encouraging (mainstream as well as left-wing) political parties to adopt them can bring forward the date of the inevitable financial crisis and ensure that the outcome of the crisis is positive when it happens – resulting in more ethical capitalist societies and perhaps even democratic socialist societies in some countries of the world. The alternative, which is perhaps what many of the strategists of big business are hoping for (apart from those solely motivated by maximising profits in the short term), is an authoritarian society – of a capitalist nature like George Orwell predicted in “Nineteen Eighty-Four”, or maybe fascist (based on Nazi Germany) or Stalinist (based on “Communist” Russia).

 

In the UK, the three main political parties have recently taken up the issue of closing tax loopholes, but in a token way. At the Liberal Democrat conference this autumn, then leader Ming Campbell pledged to “close the tax loopholes that favour the super-rich”, but didn’t say how they planned to do it. At the following week’s Labour conference, Prime Minister Gordon Brown was asked whether he would do anything about the private equity firms that only pay 10% tax, and he said he would. At the Tory conference the week after that, leader David Cameron announced plans for a poll tax of £25,000 per year on foreigners living in the UK and registering as “non-domiciles” to avoid paying tax on overseas income. He claimed that this would enable them to increase the inheritance tax threshold from £300,000 to £1,000,000 and increase the threshold for stamp duty for first-time buyers from £125,000 to £250,000. [The latter was subsequently ignored by Labour because they had no plans to change stamp duty themselves, unlike the inheritance tax threshold which they doubled for married and widowed couples (including gay couples in “civil partnerships”), and by the Tories because they realised that Cameron’s claim was unrealistic enough without the stamp duty pledge.]

 

In his 9th of October pre-budget report/comprehensive spending review, Labour Chancellor Alistair Darling nicked the Tories’ non-domicile poll tax plan (but limited it to those who had been in this country for seven or more years and made it £5,000 higher) and announced that the capital gains tax will have a flat rate of 18%. While the capital gains tax change would hit private equity firms a bit, they would still pay 10% less than the (reduced) rate of corporation tax of 28%, so it does not close the loophole. The change would benefit many rich people, including speculators on the stock market and those selling second homes, because the full rate of capital gains tax is currently 40% (with “taper relief” rates of 10% for assets held for two years and 20% for those held for one year, or a minimum of 24% for second homes). According to the Treasury, the change in capital gains tax would only raise £350 million next financial year – and it has now been reported that Labour will make concessions to help entrepreneurs selling their businesses (who currently benefit from the taper relief as well as private equity firms), so it could actually cost the government money overall.

 

There is massive dishonesty and hypocrisy at the heart of UK politics. New Labour claimed that the Tories’ poll tax on non-domiciles couldn’t raise anywhere near the amount required for their inheritance tax giveaway, leaving a “black hole” of around £3 billion in their spending plans. While Labour’s leaders were undoubtedly correct, if not underestimating the size of that black hole (it would require 28 foreigners to pay the poll tax to compensate for a single millionaire dying), there is actually a black hole over ten times higher in their finances (£38 billion borrowing this financial year and £36 billion in the next one assuming Darling’s highly optimistic economic predictions are correct)!

 

The Tories and Lib Dems have ignored New Labour’s black hole because they would do much the same if they came to power – they know it would be electoral suicide for them to propose massive public spending cuts or massive tax increases. Most of the mass media has conspired in hiding it, with the BBC News at 6pm on the night of Darling’s statement claiming the borrowing was £8 billion rather than £4 billion has previously forecast, subtracting £30 billion from both figures. Most (if not all) socialist parties have ignored the black hole too, since their strategies have largely been based on opposition to cuts and the proposal of reforms to the capitalist system, which would entail even more borrowing!

 

The UK’s national debt is around 40% of gross domestic product (GDP). The New Labour government’s “sustainable investment rule” is that it will be kept below that figure, although its allies in the CIA claim that it was over 42% of GDP in 2006 (see https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html). Darling put forward extremely unrealistic projections of it peaking at 38.9% of GDP in 2010-11.

 

Whatever the precise figures, they massively underestimate the real debt. They do not include debts owed by local authorities, commitments to contracts under the Private Finance Initiative (PFI) or Private Public Partnerships (PPP) or the £20 billion so far lent out by the Bank of England to the Northern Rock bank to prevent its collapse.

 

A huge number of PFI/PPP building projects have been carried out under Tory and New Labour governments over the years, with private companies providing much of the money in return for massive guaranteed profits over 25 or so years. This is much more expensive than the government borrowing the money directly, since it pays a lower interest rate than private companies (due to the fact that they could go bust) and since all companies involved in PFI/PPP schemes take a cut. For example, the PFI scheme for Edinburgh Royal Infirmary, which cost £184 million to build, will cost a massive £1.25 billion in total (£40 million a year). As well as hiding the real debt (the government won’t provide figures for PFI/PPP debt), this gets round the Maastricht criterion of the European Union limiting budget deficits to 3% of GDP. In my opinion, the main reason for centralising health services (knocking down local hospitals and building new central ones often resulting in fewer overall beds), apart from helping the Tories’ and New Labour’s friends in big business to make profits, has been to keep the economy ticking over avoiding a recession in the short term – which of course will make the economic crisis more severe when it does come.

 

150 mortgage lenders in the USA have gone bust as a result of the crisis over subprime mortgages, which are lent to people with poor credit records and/or low incomes and start at low rates of interest that massively increase later. This has caused a “credit crunch”, with banks reluctant to lend to each other due to not knowing which debts are good and which are subprime. This led to the Northern Rock’s problems – with the first run on a bank since the 19th century due to it needing to be bailed out by the Bank of England, with savers understandably withdrawing their money not trusting government claims that it is safe. New Labour have now promised that the first £35,000 of savings are safe (and hint at increasing this figure to £100,000), but few people trust politicians these days. Whereas they are bailing out a small credit union that has gone bust, but they will find it difficult to pay up if another large bank has similar problems (and big falls in the share prices of the Alliance & Leicester or Bradford & Bingley suggest one of them may be next).

 

Panorama on the 8th of October revealed that 8% of UK mortgages are subprime and that lenders who give subprime mortgages are responsible for 70% of repossessions, so the crisis is not solely due to such mortgages in the USA. One of the subprime lenders was a division of Britannia Building Society, indicating that building societies as well as banks could be prone to collapse. I saw an advert for the Britannia recently pointing out that members receive a share of the profits – this sounds good but may mean that it keeps lower reserves than other building societies, making savers’ money less safe. [If you want my advice on a safe place to put your money, I recommend the Nationwide Building Society (being by far the biggest building society and having the best ratio of savings to investments according to Channel 4 News) or National Savings & Investments (being run by the state).] Perhaps the subprime problem will not be as severe in the UK for institutions (although of course individual borrowers whose homes are repossessed will suffer) due to many of the mortgages being lent to those with council houses at a big discount (dependent on how long mortgage holders had been tenants, under the Tories’ “right to buy” legislation); the lenders may therefore get all their money back for many repossessed homes.

 

Many economists are predicting some sort of recession soon, with high inflation, rising unemployment and possibly a big fall in house prices. New Labour is trying to limit pay increases in the public sector to 2% and pensions are being attacked. Many workers will be forced to go on strike to defend their livelihoods. The limited success of the postal workers’ strike (which may not be over since Royal Mail’s offer is still very bad for the workers) will encourage other workers to consider strike action.

 

But how severe will the economic crisis be? An article entitled “Prepare for financial meltdown” appeared in the 16th of March issue of Money Week. It quoted an article in Time magazine by Niall Ferguson, Scottish Professor of history at Harvard, pointing out similarities between today’s markets and those prior to the outbreak of World War I.

 

Ferguson argued that investors were ignoring “geopolitical risk” in 1914 and are doing so today. He pointed out that selling of shares in 1914 happened so suddenly and on such a scale that stock exchanges had to be closed to avoid a complete meltdown. The London exchange was closed from July 1914 until January 1915. Ferguson predicted that a “geopolitical shock” such as more conflict in the Middle East could cause a “liquidity crunch” forcing stock markets to close.

 

I don’t know what effect events in the Middle East will have on the world economy; I actually suspect that what left-wing activists do in the West will have more impact. Perhaps it was a coincidence but two of the three biggest crashes this year on the US and UK stock markets occurred on days when significant things happened in my life, including a letter of mine entitled “Radicalisation” being published in the Weekly Worker newspaper (it appeared on their website, which at that time had around 40,000 unique visitors a week, on the 26^th of July when a US stock market crash occurred on the same scale as on 9/11). In these days of global communications via the internet, our activities can cause key investors in the stock market to panic and sell their shares, influencing others to do likewise. For further information about this, read an earlier document I wrote about the economy at http://groups.yahoo.com/group/PRsocialism/message/54.

 

Sending out this document may cause some fluctuations in the world’s stock markets – I am sending it to mailing lists/discussion groups with hundreds of thousands of members on (only a fraction of whom will read it of course) after all, as well as putting it on other forums on the web including Google Groups. The sudden realisation by investors that they could be forced to pay tax on their assets or even lose them altogether, as a result of ethical capitalist or even socialist revolutions in some countries of the world, would only be expected to cause a panic! Whether they think they would stand more chance of preserving their assets by selling shares or hanging on to them is an individual choice, and I can’t say I know what the overall effect will be. [I am sending this document out too late to affect the UK stock market until Monday (5 November), but it may affect today’s Dow Jones index in the USA (2 November).]

 

The communication of one person’s views is relatively minor, of course, compared to the effect of masses who may be influenced, directly or indirectly, by that person. Left-wing parties would have to seriously threaten action against big corporations and rich individuals, along similar lines to those I suggest, and possibly come to power, to cause the level of panic to start a financial meltdown.

 

Some socialists think that the UK is the most likely Western country to adopt socialism first which would then trigger socialist revolutions elsewhere in the world. Indeed, that was the predominant viewpoint within the Militant Tendency (now the Socialist Party of England and Wales) when I was a member between 1990 and 1998. However, the UK economy relies heavily on services based in the City of London, one of the world’s major financial centres (regarded by many as the number one such centre in the world). In my view, it is much more realistic to support moves for Scottish independence as a step towards Scotland being the first Western country to have a socialist revolution; ordinary people tend to be more left-wing in Scotland than the UK as a whole and the economy will depend less on capitalist services and more on natural resources – with North Sea oil, mainly off the Scottish coast, very lucrative after recently increases in costs of barrels of oil.

 

As I pointed out above, a massive financial crisis is on the cards, which will provide great opportunities for some kind of revolution. So what sort of political parties do we need to prepare for these opportunities?

 

I would advocate some sort of “ethical capitalist party” to propose a more ethical form of capitalism, including a fair electoral system (I favour proportional representation based on single transferable vote) and measures to force the rich to pay tax. Such a party could arise as a result of splits in mainstream political parties, and the financial crisis is likely to trigger such splits, but socialists and other left-wing activists should prepare for the crisis by setting it up beforehand.

 

Because I want the struggle for an ethical capitalist revolution to lead to socialism, there is also a need in some countries (particularly those like Scotland in which a socialist revolution is fairly realistic in the not too distant future) for parties that put forward a vision of a socialist society and openly talk about how it can be achieved including the need for a revolution. I advocate fairly broad but openly revolutionary socialist parties for this task; some may welcome members who are not (initially at least) revolutionaries, but the parties should not pretend to be merely in favour of reforms – the need for a revolution should be put forward publicly (at meetings and in the party’s publications) even if it is made clear that these are the views of individual members rather than those of the party as a whole.

 

The Scottish Socialist Party (SSP), which had united most socialists in Scotland outside the Labour Party, split last year in the wake of former convenor Tommy Sheridan’s defamation trial, and the split-off party Solidarity adopted very similar policies to the SSP – proposing reforms under capitalism. The SSP had six Members of the Scottish Parliament (MSPs) after the 2003 elections but no socialists were elected at all in May 2007. The strategy of trying to build a party from a low electoral base, when it primarily uses reformist politics, into one capable of challenging for power has proved unsuccessful. In my opinion, only half of those six MSPs were playing a positive role overall, resulting in many people regarding the SSP as just as bad as other political parties. [I suspect that there were usually three such MSPs, and that the composition of those playing a positive role varied over time; I don’t want to make any allegations here about specific MSPs.]

 

In my opinion, it was actually better for the future of the world that the SSP and Solidarity got wiped out completely, rather than just getting the odd MSP (or even a united SSP getting two or three MSPs which would probably have happened if the defamation trial had not taken place). This is partly because the Scottish National Party (SNP) won the elections by a single seat over Labour – with a 5.4% higher share of the vote, as I discovered by entering the figures in a spreadsheet since the mass media avoided giving overall figures, presumably because that would prove that the Scottish electoral system is not particularly proportional and lead to demands for a more democratic system (which in my view should be single transferable vote). [The SNP victory is to be welcomed as a boost for independence and because the SNP stood on a much more left-wing programme than Labour – although they are delaying the implementation of many of their manifesto pledges (arguably abandoning some altogether) when in power.] Also, the decimation of socialists forces the parties to re-evaluate strategy rather than just limping on with the same doomed approach.

 

In my opinion, the best outcome out of the SSP/Solidarity split would be for one party to become an ethical capitalist party and the other to become an openly revolutionary socialist party. Which way either party goes of course depends on their members…

 

There is a current crisis in Respect, with a split developing between the Socialist Workers Party (SWP) and a faction around George Galloway MP. The SWP want Respect to become more socialist and the other faction want it to concentrate on winning support from Muslims, including (small) businessmen. The SWP (whose members and supporters almost certainly comprise a majority of the membership) went along with the strategy of attracting Muslim support until recently, paying lip-service to Respect being a socialist party.

 

As I pointed out above, socialism will not be on the agenda in England in the remotely near future, due to the dependence of the economy on the City of London. Therefore, the most positive outcome from a Respect split would be a party taking up the issue of forcing the rich to pay tax – whether or not it calls itself “socialist”.

 

The strategy of the Socialist Party of England and Wales (the second largest Trotskyist organisation behind the SWP) is also highly flawed. They lost the council seat they were defending in Coventry in the May local elections, and soon afterwards their sister organisation in Ireland (also called the Socialist Party, linked to it via the CWI) lost their only MP (TD) Joe Higgins. Like the SSP and Solidarity, they largely put forward reformist demands. They are also calling for “a new mass workers’ party” in which they want to be the dominant faction. In my opinion, the idea of a party just representing the working class is flawed because it would aim for (as the Socialist Party does aim for) a socialist society in which just the working class is in control, via a hierarchy of committees based on workplaces. As well as alienating middle class people, such hierarchical structures would be highly susceptible to infiltration by non-genuine forces (acting alone or as members of conspiratorial organisations like the MI5 and CIA).

 

Note that this document concentrates on the situation in the UK, but it is clear that there are similar problems in many other Western countries. According to the CIA World Factbook (https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html) and a Wikipedia page that looks to be based on an earlier version (http://en.wikipedia.org/wiki/List_of_countries_by_public_debt), the following countries have larger national debts than the UK as proportions of GDP - Japan, Italy, Belgium, Greece, Germany, Canada, Portugal, Hungary, Cyprus, the USA, France, Austria, Switzerland and the Netherlands. Sweden and Poland have similar levels. Obviously take these figures, like those of the UK, with a pinch of salt although presumably leaders of countries listed (including Japan with a debt of over 175% of GDP) would complain to the CIA if its figures slandered them…

 

To find out more about my views, visit my socialist website (www.socialiststeve.me.uk) or others that I have set up for the Foundation for PR-based Socialism (www.PRsocialism.org) or Ethical Capitalism Network (www.ethicalcapitalism.org). Note that detailed statistics are gathered about visitors to my websites, including the IP addresses of computers connected to the internet, except on the last day of every month (apart from very early in the day). Therefore, if you are worried about being spied on by MI5, the CIA, etc., I recommend you using an internet café/library or waiting until the last day of the month to browse my websites.

 

I have used in the past and still use various email addresses, some of which (including the one I used to send this message out) receive a large number of messages. If you have an important or urgent message to send me, please send it to warcrysteve@.... I apologise if I seem to have ignored a previous message I sent out; please resend it to that address if it is important.