When the financial system imploded 10 years ago the banks came out of the worst crisis since 1929 relatively unscathed. They were propped up by public money, paid for by slashing the welfare state. Tomorrow, they could inflict the same damage on our society again.
The price for the rest of us has been extortionate. Eye-watering levels of austerity unparalleled in modern British history, have devastated public services, and removed any hint of decency from our society. Homelessness is at epic proportions; the jobless, the disabled, the sick are subject to interrogations by corporations in order to receive the pittance they are entitled to; the NHS creaks at the seams.
Multiply the pain by all the societies which voluntarily or forcibly took this quack medicine, and you begin to understand Brexit, Trump, the rise of the far right in Europe, the collapse of politics as we used to know it.
How did it to happen? In Britain, David Cameron won the 2010 general election based on the claim that Labour’s profligate public spending had caused the financial crash and it was time to tighten our belts. The claim was an outright lie, as everyone in Westminster fully understood, but it was repeated so endlessly by the British press – and eventually on doorsteps up and down the land – that it became common sense.
So successful was this campaign of disinformation, that senior Labour politicians actually started apologising for the crash. But public spending has nothing to do with the crisis. In fact, it was private debt, rather than public debt, which was a major problem in Britain – the result of years of deregulation and liberalisation.
Statistics from Jubilee Debt Campaign highlight the extent of this private debt crisis. By 2004, the foreign owed debt of the private sector was over 250 per cent of GDP, increasing to 440 per cent by the start of 2008. In contrast, the foreign owed debt of the government was just 7 per cent of GDP in 2004, increasing to 15 per cent by 2008. Little has changed. By 2016, the UK’s private sector debt was around four times public sector debt, and in particular household debt was increasing soaring.
But the answer to a private debt crisis is not austerity – which only serves to make the public pay for the crimes of the private sector. The answer is to control finance. Needless to say, that never happened. That’s because Labour did indeed contribute to the crash, but not through public spending. Under Blair and Brown, Labour fully embraced “light touch” regulation of the City of London. They drank the Kool-Aid and believed there were few problems which the market could not solve on its own.
Blair and Brown allowed London to become the world’s premier casino, trading an array of the most complicated and opaque derivatives imaginable, even though the financiers were in fact gambling with the future of everyone in Britain. They allowed the “real” economy to behave in the same way. Supermarkets, mobile phone companies, or car manufacturers increasingly profited from financial trading, from extending credit, from “renting” airspace, rather than from producing.
Even households became “financialised” living on credit, and paying interest and rent directly into the already bloated financial sector, papering over the cracks of an economy in which the poor were actually getting poorer and the superrich were winning big. The economy, in a nutshell, was short-term, crisis-prone and deeply unequal.
But if Blair and Brown made their peace with financial power, the deregulation of financial markets which led to the crash began with Margaret Thatcher’s “Big Bang”, allowing greater lending and risk taking, fuelling asset inflation, which primarily benefited those at the top, while her government clamped down on wage inflation under which saw workers wages were suppressed. Inequality ballooned.
And her legacy continued under Cameron, who in between squeezing the poor under austerity, tried to stop the EU taking any action at all to constrain the financial markets – most incredibly even taking legal action to prevent Eurozone countries implementing a financial transactions tax on the banks.
Cameron’s logic was part of an old script: the poor pay for the crimes of the richest. The results have always been disastrous. It was a financial crisis in the 1970s and ‘80s which triggered one of the most significant global “events” of the post war world. The “third world” debt crisis was sparked by massive, deeply irresponsible lending to Latin American and African countries which were not able to meet their repayments. The banks were bailed out by the public sector (in this case, the International Monetary Fund and World Bank), profits intact, while the poorest found their economies destroyed, their education and healthcare devastated. And so on, through the 1990s as liberalisation took hold in Thailand, Indonesia, Brazil and Russia, “hot money” poured into economies, inflated asset bubbles, and then withdrew.
So 10 years on, 20 years on, 40 years on, finance is still king. The speculative market is bigger than ever. The 1 per cent gained most from the crisis, their wealth has grown exponentially, while the rest of society is weighed down by ever more debt. But this cannot last. Trust in political institutions has collapsed. It is laughable to think that another charismatic centrist leader could return us to a pre-crisis age where this dissatisfaction can be put back into its box.
In the 1930s, US President Roosevelt, pushed by mass movements, faced a similar crisis and rather than protecting the financiers and suppressing the “99 per cent“, he dethroned finance, while the “new deal“ rebuilt society for the many. Today, we need something at least as radical to deal with the problems we face. European politicians failed us. Unless we can bring about radical, progressive change, Brexit and Trump will be only the beginning.
Nick Dearden is director of Global Justice Now.
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