It's deeper than tax avoidance

Supporters of UK Uncut, a relative newcomer to the world of protest, in common with millions of others, are justifiably angry about the savagery of the Coalition’s cuts programme. They say the cuts aren’t necessary and that the government is implementing them out of ideological spite.

Like the official pronouncements from the TUC, UK Uncut , on the one hand, insists that the size of the budget deficit isn’t a problem because the UK’s credit rating remains high. And on the other hand, they say that there are alternatives which could be used to reduce the total of government debt.

UK Uncut activists specialise in activities designed to highlight tax avoidance by corporations including Vodafone, Boots, and Tesco, as well as the banks who they blame for the economic crisis. Their hope must be that if enough people get angry, they’ll force the government to change tack.

UK Uncut activists were greatly encouraged by Johann Hari’s recent article in The Independent which i) denies that the scale of debt in the UK is a problem, and ii) asserts that debt is “part of the cure”. The facts suggest, claims Hari, “the need to spend more, not less, to get the economy back to life – and pay back the debt in the good times, when we will be able to afford it.”

Leaving aside the nature of Hari’s “good times”, the problem with accumulating more debt following the logic of the inter-war years economist John Maynard Keynes, is, as the article itself points out, contained in a key lesson of history:

“The Great Crash of 1929 was followed by a US President, Herbert Hoover, who did everything Cameron demands. He cut spending and paid off the debt. The recession grew and grew. Then Franklin Roosevelt was elected and listened to Keynes. He ramped up spending – and unemployment fell, and the economy swelled. Then in 1936 he started listening to the Cameron debt-shriekers of his day. The result? The economy collapsed again. It was only the gigantic spending of the Second World War that finally ended it.”

Yes, but no.

It wasn’t the gigantic spending of the Second World War that ended the global recession of the day, but the destruction of surplus productive capacity that had been accumulated during the previous period funded by speculative investment – and debt.

While tax avoidance by private equity companies like Boots, who are registered in a tax haven in Switzerland, is a scandal, it’s a symptom rather than a cause. It’s corporate-driven globalisation that has enabled corporations to dominate national governments and force down tax rates, as well as register offshore. Any threat and they’re off overseas like a flash.

Ironically, during the credit boom, New Labour funded its spending via tax revenues from the City. That came to a sticky end with the credit crunch and the recession that followed. Now, despite the crisis-deniers, the global recession is deepening, inflation is accelerating, debt is growing – all at rates which outpace anything any government or group of governments can do. Increasing tax revenues wouldn’t make much of a dent in the national deficit and would leave the fundamentals of capitalism unchallenged and unchanged.

These are symptoms of a long-developing spiralling problem that has bedevilled capitalism during its entire three and a half centuries: Competition for profit amongst capitalist enterprises forces them to invest in productivity-enhancing technologies that drive the rate of profit down. This in turn requires an increased volume of sales which surpasses the available market. Credit allows a few more turns on the spiral of growth, until it too becomes unsustainable.

Though the crisis didn’t erupt into view until 2007/8, the endpoint had already been breached in 2004/5 when consumers reached the limits of their ability to juggle their credit card debt, and mortgage payments came under pressure. So once again, the only road the capitalist class can follow now is to eliminate the surplus capacity in every country. Halting that process requires the elimination of the profit system itself and a move towards a sustainable, not-for-profit economy.

Gerry Gold

Economics editor