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feeling the crunch
The world has been engulfed by a major crisis that has shaken old economic certainties and changed politics. Stephen Beer investigates the crisis, and argues that this is an important moment for Christians on the left to engage with politics.
On Monday 15 September 2008, the investment bank Lehman Brothers filed for bankruptcy and the world changed. That event, and the various financial problems that led to it, have altered political debate for at least a decade.
Christians on the left have an essential role to play because old certainties have gone. The values underpinning the global economy are now being questioned and moral values in politics are also being sought.
Governments moved fast to save the financial system from collapse. To its credit, the UK government took swift action to support the banks and the Bank of England has also engaged in quantitative easing, in effect printing money to help banks and encourage economic growth. Financial stresses remain but the rest of the economy has been hit.
It is now clear that the severe drop in confidence at the end of 2008 and beginning of 2009 led to a significant fall in economic output worldwide. Banks restricted lending to businesses and consumers and house prices fell. With the future so uncertain, business orders dried up. In the first quarter of 2009, UK output (Gross Domestic Product, or GDP) fell by 2.4%. GDP was down 4.9% over the year; the largest fall since GDP was first calculated in the late 1940s. The problems began with the financial sector but over three months manufacturing output fell 5.5% and construction output fell 6.9%.
The slowdown has cost jobs, affecting the livelihoods of many and putting families under strain. The number of unemployed in April was estimated at 2.3 million, or 7.2% of the working population. It is expected to peak at around 3 million although some economists such David Blanchflower (a former Monetary Policy Committee member) believe it will rise much higher, with limited job prospects for younger people this year. The lower paid have been particularly affected (see box). The effects of the financial crisis, built ultimately on a combination of US sub-prime mortgages and financial debt, have been widespread indeed.
City Gateway is a Christian-based training and social enterprise charity operating around Canary Wharf that sees its role as bringing hope to Tower Hamlets. Its social enterprises create work placements and job opportunities for local people. As Chief Executive Eddie Stride told The Common Good: “They’ve done that for hundreds of local people in Tower Hamlets…however I would say that over the last year and a half, like all small businesses, we have been impacted. So we’ve had to make some difficult decisions.”
People in Tower Hamlets have been affected by the recession. “There has been a massive impact on the level of unemployment, and on people who can't find a job. There are definitely significant numbers. So that's been the effect for local people, because their jobs are more vulnerable, or they've lost their job, or they're finding it a real struggle to get a job. It also has an impact on our work, because a lot of what we're doing is engaging people, upskilling and training them and either progressing them into education, to higher training, or to employment.” Despite people being willing to work for lower pay, competition for jobs has increased. Getting people into work is more challenging when employers are making workers redundant. Nevertheless, despite the credit crunch, City Gateway and partners have seen the number of young people in the borough not in education, employment or training fall from 15% to 6.7% over the past two years. Stride believes demand for City Gateway services will increase. “We feel very confident we can really impact people’s lives.”
More people are facing debt problems, reports Christians Against Poverty (CAP). Based in Bradford and partnering with churches around the country, the debt advice charity reported in April that the number of calls to its helpline had risen 130% since Christmas. Sharon Thresher, Grants and Research Officer, told The Common Good: “Lots of clients are being made redundant and struggling with payments. If people are already struggling, events such as repossession or unemployment can compound the situation.” That a slowdown was coming had been evident for a while. This is the organisation’s first recession and “for the first time we are being seen as crucial rather than just helpful.” This has been evident in donations to CAP’s work but with demand for its services growing it plans to open more centres this year.
Any reconsideration of the sort of society we want has to recognise that public anger was stirred by the contrast between the risks taken with the economy by some banks and the disproportionate bonuses and salaries of their senior employees. It seemed that a small part of society – a part of the financial sector – was living according to a different value system than everyone else. This feeling was echoed with the MPs’ expenses controversy. A different value system appeared to operate. In both cases politicians have been looking for an ethical framework to guide their decisions.
The Prime Minister, Gordon Brown, and Kevin Rudd, Prime Minister of Australia, explored this issue at a seminar held in St Paul’s Cathedral ahead April’s G20 economic summit. Markets “presuppose a well of values and work at their best when these values are upheld,” said Brown. These values, which were cherished by families and businesses, were “hard work, taking responsibility, being honest, being fair.” Markets needed morals. This could be found in the major faiths, “…through each of our heritages, our traditions and faiths, there runs a single powerful moral sense demanding responsibility from all and fairness to all.”
CSM continued the debate with its annual Tawney Dialogue in May. Bishop Stephen Lowe (Bishop of Hulme) argued for better quality relationships between borrowers and lenders, while John McFall MP, chair of the House of Commons Treasury Committee, argued for a renewed focus on trust.
Running through these contributions is a search for a renewed sense of the common good. This will not be unfamiliar to progressive Christians. The Bible does not condemn wealth creation; what matters is our motivation and what we do with it. This is emphasised when the rich ruler questions Jesus in Luke 18. He had followed the rules but he lived for his wealth. John Wesley called on Christians to save and give to the full, after gaining all they could “without hurting our neighbour” in body or soul.
Identifying key values is only the first step to effective financial reform. Structural change is required while memories are fresh. In his account of financial crises, A Short History of Financial Euphoria, the American economist JK Galbraith drew attention to “the extreme brevity of the financial memory.” After a crisis, “when the same or closely similar circumstances occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generation as a brilliantly innovative discovery in the financial and larger economic world.”
In this light, it is worrying to hear concerns that some banks are acting as if it is ‘business as usual’, even while benefiting from government support. Banks must surely face limits on what they can do or the size of their presence in markets. The coming months will test political resolve.
Chancellor of the Exchequer Alistair Darling presented his budget in April with grim news on the public finances. The net government borrowing forecast for the year 2009/10 was £175bn, up from £118bn in November and £38bn in his previous budget. Net borrowing is predicted to peak at 12.4% of GDP. Darling expects some debt to be paid off by higher taxes (including the 50p rate) but the bulk of it will be paid via limits to government spending. Current government spending is forecast to grow just 0.7% in real terms in future and investment spending will fall after an initial boost as a percentage of national income. Spending growth over the past few years has been in part based on an assumption of cyclically higher future tax revenues, some of which the Treasury now believes will not be seen. Yet Labour has been right to increase spending in the short term. To cut it now, as the Conservatives have advocated, would make things worse. When business confidence slumps, so will the economy unless the government steps in.
This all adds up to some difficult political decisions in the months and years ahead. For years we have relied on increasing government spending. Disagreements about how to spend the money really focused on where to allocate the increases. Now there will be reductions in some areas to maintain spending in others.
Just how much our perceptions must change has yet to sink in across the political spectrum. It is easy to talk about 10% spending cuts but difficult to identify just where they should be made. The shift that must take place on the left is similar to the abandonment of nationalisation as an end in itself. Anthony Crosland reminded Labour in 1956 that socialism did not automatically mean nationalisation. He drew attention to other strands of progressive thinking, including Christian Socialism. Means and ends should not be confused. Today we must undertake a similar rethink and develop a progressive politics that does not rely on ever-rising public spending.
A Christian left response to the new situation (thinking ahead to the next Labour manifesto) would start with each person having equal worth. In the spirit of Tawney, it would consider people’s civic, social and economic freedoms. We would look at people’s everyday experience and seek to extend these freedoms in practical terms. Policies would encourage better relationships in the family, the workplace, and the wider community. Such measures would not always require more public money. They might point to different ways of running organisations or to new laws.
We must listen to those directly fighting poverty, often faith-based organisations or trade unions. CSM has a unique role because we can collate these perspectives to inform policy proposals or political campaigns. For example, when we asked City Gateway’s Eddie Stride what measures could help people in the recession, he pointed to the benefits trap people experience when moving from unemployment to apprenticeships or low-paid work. “We need more incentives for people to come out of that trap – but it is a tricky balance.” He also called for more incentives for employers to employ people. CAP’s Sharon Thresher called for more awareness by government and councils of the important role debt advice agencies can play in a recession.
There will be no getting away from some spending cuts, however, if we wish to maintain our ambitions for health and education. We might surprise people by campaigning for wise stewardship of public funds, which would mean a better focus on outcomes and value for money. But this should go together with a focus on the poor and more radical measures to tackle unemployment. For example, the case for growing development aid must continue to be made even though Labour is protecting this area of spending. We might campaign for more measures to reduce unemployment. If we do not campaign, the arguments will be won by the Conservatives who have different priorities.
Christian progressives should engage in the important debates. If the choice was between tax breaks to encourage business investment (and hence a more productive economy employing more people) or maintaining a measure helping the less well off, how would we decide? Which areas of government spending should we protect and which are less important? How can we promote a more moral politics without being moralistic? What would an ‘ethical’ constitution look like? Finally, can we better define the set of values that should underpin our financial system and how should it be applied? We might not agree on the answers but we should be present in the debates.
Both the economy and the political system lack a clear sense of direction. There is a role for political people who can articulate and seek to implement timeless values, and who with humility attempt to live by them. There is still a role for hope. Economic realities and the expenses scandal have changed the political landscape. Christian Socialists can play an important role in the weeks and months ahead.
Stephen Beer is CSM’s Political Communications Officer and Chair of Vauxhall CLP. He is a Senior Fund Manager at the Central Finance Board of the Methodist Church. This article represents his personal opinion.
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