You know things are bad when the Financial Times starts running a series of articles on the crisis of capitalism. Every sane member of the ruling class agrees worse is yet to come and politicians all over the world are starting to talk about the same thing: the inequality of capitalism and how to make it fairer. Politicians suddenly find themselves sympathising with the plight of workers, full of outrage at under-taxed millionaires and aghast at out of control bonuses. It’s like an epidemic of fairness has spread from one G8 leader to another. President Obama has been gunning for the rich for some time, demanding they pay higher taxes and calling for tighter controls on Wall Street but he’s become far more passionate about it in this election year. Even Mervyn King, the Governor of the Bank of England, has launched an assault on bankers, telling business leaders there was a growing sense of injustice because;

those who have suffered the most have been those who bear no responsibility…and who accepted the disciplines of a market economy only to find that others were excused that discipline because they were ‘too important to fail’ ⁽¹⁾.

An Embarrassment of Riches

The gap between the highest and lowest paid was okay as long as the economy was okay. Since the crash it’s become something of an embarrassment. The gap between the highest and lowest paid may have started to widen in the 1980’s but it really got going under the Blair/Brown regime as part of the carrot to attract inward investment and make the city the heart of the British economy. Since then the difference has soared. The earnings of bosses at FTSE 100 companies have risen as a multiple of median pay from 14 times in 1980 to 75 times, and according to Deborah Hargreaves, Chair of the High Pay Commission, top bosses now earn 160 times average pay. At the World Economic Forum in Davos, 60% of global investors backed government intervention to control the earnings gap ⁽²⁾ and a similar number agreed, at least in part, with the statement that banker actions were ‘driven by greed and harm the economy’ ⁽³⁾. David Cameron naturally joined in, criticising the City bonus culture as ‘out of control’ and said he was determined to do something about it. More than that even, he said excessive pay would be a thing of the past. He was going to curb high levels of pay that ‘made people’s blood boil’ (but no sooner had the words left his lips when Royal Bank of Scotland’s boss Stephen Hester was awarded a bonus package of £963,000 causing outrage and further hand wringing). And head of the pack is Vince Cable. On January 22nd he outlined what the FT calls ‘the most ambitious attempt in a decade to rein in soaring executive pay’ telling MP’s that Britons could no longer stomach top pay rising at five times the rate of that of average workers. And so his initiatives, binding votes on companies’ pay deals and clawbacks on executives’ pay was launched with utter determination to right wrongs. This was followed by the phrase ‘No proposal on its own is a magic bullet’ just in case none of it worked.

Of course, there is a material incentive to reduce the pay gap. A working class with diminishing pay can’t spend, which means an economy desperate to shift consumer durables won’t recover. But the real reason income disparity caused so much concern at Davos is the fear of unrest by workers forced to pay for a crisis they didn’t cause following a boom they didn’t gain from. Until this year inequality wasn’t even on the Davos radar; now it is top of the risk list. Nervously watching for signs of unrest, the world’s leaders are eager to stop the gap between the ‘99’ percent and the ‘one’ percent from growing. Far from the usual congratulatory pats on the back, the leaders at Davos are desperately jostling with each other, trying to find a solution to the growing debt crisis which threatens to engulf them all. Many of them know the terrible truth; that there is no solution. The best they can do is try to limit the damage to their own states in the short term while finding new ways of making their workers pay.

Making Capitalism Nicer…

While David Cameron is joining his fellow leaders building a ‘fair and worthwhile’ economy, Labour leader Ed Miliband has chimed in with talk of ‘toxic’ blends of capitalism and short-termism, but overall he’s been left behind in the debate. Miliband is caught between the rock of trying to talk about fairness and sound genuine and the hard place of presiding over a party which knows it will have to agree with savage cuts to pay and services in order to save the unfair capitalism he’s criticising.

So when Labour announced it would carry on with public sector pay restraint if it came to power, Miliband came under fire from the unions who had supported him when he ran for leader in 2010. The leaders of the GMB, Unite and Unison are furious at this betrayal. In all the unions still supply around 90% of the party’s funds and last year Unite was Labour’s largest donor, giving £1,493,317. Unison was second with £731,229 and the GMB was fourth-largest, giving £331,859. Paul Kenny of the GMB immediately wrote to senior Labour officials saying the decision to support the cap on public sector pay was a ‘most serious mistake’ while Len McCluskey, leader of Unite, told the Guardian that the shift on pay policy would lead to the party’s ‘destruction’. Dave Prentis (annual salary £120,000 plus perks) commented:

Our members needed hope and a reason to vote Labour. They have been snatched away.

And this is the real nub of the argument. If Labour can’t pose as some kind of alternative at a time like this, the unions know they will find it hard to contain the anger of their members. If that anger can’t be channeled into supporting a ‘democratic’ alternative to the cuts, they may well lose control of any outburst of struggle from the working class. So far the spat between them seems serious; Miliband greeted the attacks the union leaders made on him by defending his decision, saying it was ‘tough’ if they disagreed. Despite his supposedly “Red Ed” image he continues the strategy that New Labour adopted nearly 20 years ago. There is no need to worry about the working class. They have no other electoral choice but to vote Labour and, in any case, many of them aren’t voting anyway. Instead try to sound “responsible” (mangers of capitalism) to win the votes of “Middle England”. A spat with union leaders does this policy no harm.

Union Solutions

In reality though the unions have no credible solution to the crisis. So far their most radical solution has been to support causes like the Robin Hood Tax, but then so does President Sarkozy, Chancellor Merkel, George Soros and Warren Buffet. Their mix of Keynesianism and damage limitation will only ensure they police the crisis and persuade their members there is no alternative to the attacks. They’re determined to keep public and private sector workers apart and have already managed to keep Unilever workers separate from public sector workers (see our last issue), even though both were fighting to save their pensions.

Where they do join in grass roots anti-cuts campaigns they try to control and contain them. When the ‘Sunderland Against the Cuts’ campaign recently criticized Unite for agreeing to compromises on pensions, Unite leaders took offence and asked the group to withdraw the leaflet, accusing those who disagreed with them of trying to divide the movement. The unions are an invaluable tool for capitalism; they give workers a safe place to let off steam, they have a long history of splitting and dividing struggles and they keep workers’ focused on saving only their industry or workplace rather than fighting for the class as a whole. As Unite proudly says on its website: ‘The work of union reps saves companies up to £1.1 billion every year’ ⁽⁴⁾ and as the crisis deepens the unions will increasingly try to contain any angry outbursts of class struggle wherever they operate.

All In It Together?

Much as the ruling class tell us this is a shared crisis, the reality is the working class are already bearing the brunt of it, and the poorest sections of the class bearing it most. An example is the recent changes to the housing benefit rules which are estimated to put 800,000 homes out of the reach of people on benefits or low wages. Payments are being capped to £250 a week maximum for a two-bedroom home and allowances will be scaled back by pegging them to the bottom third of rents in any borough. This means there won’t be enough affordable homes in many areas with London being especially badly hit. As we write the government is struggling to get bills through to cap child maintenance benefits and charge single parents for using the Child Support Agency. It also plans to abolish the social fund, all of which will see a massive rise in child poverty. The crisis is a long way from its worst point yet and as far as cuts are concerned more, and worse, are to come. Trying to make capitalism fair is like training a lion to become vegetarian; it just isn’t in the nature of the beast. It’s a system based on the exploitation of one class over another, where one class pays for the privilege of having another rule over it, where poverty and inequality are rife and set to deepen the worse the crisis gets. The only chance the working class have of a fair society is when they create their own, when they build a society of people producing for need and not profit. It’s the only way we’ll ‘all be in it together’.

(1) Speech made 24th January 2012 Brighton.

(2) Poll by Bloomberg January 2012.

(3) Quoted in Financial Times January 23rd.

(4) Unite website under ‘Campaigns’.