One year on from the biggest financial crisis for 80 years most people are hoping that the worst is over. It is true that the stimulus packages introduced by the Rudd government have cushioned the effects of the crisis and postponed a significant increase in unemployment. This has meant that while many workers are concerned about the future most are not yet feeling the full effects of the downturn.
While many workers have had their hours cut, the effects have been offset by low interest rates. Many have been convinced by employers that if they make some sacrifices now they will ride out the recession largely unscathed and return to good times soon. Unfortunately in the coming months things will get worse for ordinary people not better. Interest rates will go up and unemployment will continue to rise.
The Rudd government will support bosses who want to further slash hours and they have already said they will be looking to recover money spent on the stimulus measures by making cuts to welfare and services. In essence Rudd’s plan is to protect profits at the expense of jobs, wages and living conditions.
The trigger to the crisis was a rise in US ‘sub-prime’ mortgage defaults. In order to provide housing, some people were forced to take out loans that had very little chance of paying back. This led to the failure of several lenders including Fannie Mae and Freddie Mac. They were soon followed by the collapse of Lehman Brothers and since then more than 100 US banks have folded.
Because of the interconnection of the global finance industry the toxic debts spread rapidly to every corner of the globe. Lenders became reluctant to make loans and economic activity slowed. This sent many economies around the world into recession and has now led to the worst economic crisis since the 1930s depression.
Over the following months, governments and central banks tried to restore lending and activity by slashing interest rates, making emergency loans to banks and injecting billions of dollars of ‘stimulus’ into the world economy. The US alone pumped $787 billion (USD) into the economy while Australia spent $42 billion (AUD)!
This was the main economic difference between the 1930s crash and the crisis today. Terrified of the possibility of a deep depression and all the possible social and political consequences, ruling classes around the world reacted quickly, especially after Lehman Brothers collapsed. Governments around the world have since pledged about $2 trillion in stimulus measures.
Despite all the spin about ‘green shoots’ coming from the capitalist press, the economic crisis is far from over. Even if the economy does return to growth the outlook is for low growth that will persist for some time. There is also a big risk of a double-dip recession. No matter what the growth levels, the main thing is that jobs will be harder to find, interest rates will go up and the boom/bust cycle will go on if capitalism is allowed to continue.
Unfortunately the trade unions do not have a plan to protect their members from the effects of the crisis. Some are actually assisting employers to make cuts. This, coupled with the absence of a mass party that could give political representation to workers, has meant that the debate about the economy has been dominated by big business.
The lack of leadership on the industrial and political fronts has impacted on consciousness and has meant that in these early stages of the crisis the working class has not played a decisive role.
The Socialist Party believes that this situation can not be maintained. Worsening economic conditions will force more and more people to question the validity of the capitalist system. Sooner rather than later this change in consciousness will lead to a change in people’s attitudes to the government, to the trade union leaders and to struggle.
The role of socialists in the coming months will be to support those who are struggling against the effects of the crisis while campaigning for proper representation in the form of fighting unions and a new workers party. While more bad economic news can be expected, with proper leadership much more could be done to ensure that workers are not forced to pay for a crisis that they didn’t create.