Worship of a false god

The classic free-market solution would be to allow financial institutions that have overstretched themselves and lapsed effectively into a pre-bankruptcy situation to go to the wall, leaving stronger banks to mop up their share of the market.

And there are some on the left who would welcome the schadenfreude of seeing the bankers who have lectured the rest of us on the need for the economy to be guided by market forces hoist by their own petard. But allowing banks to collapse would be unacceptable for a number of reasons.

It would lead to a run on all banks, foreclosures on existing loans and mortgages, a total drying up of credit that would bring about further bankruptcies of small businesses, implosion of the manufacturing sector and the collapse of normal retail trade.

The net result would be mass unemployment and homelessness, which, contrary to the romantic view that this might make the masses more amenable to revolutionary change, would be calculated to open the way to a more reactionary, authoritarian society than we have today.

It is important to appreciate what is at stake and what is achievable in the current situation.

The international financial crisis, with its specific features in Britain, does not equate to a collapse of capitalism. Nor is the working class or any of its myriad putative political representatives in a position to pose revolutionary change.

But that does not mean that the labour movement can give no meaningful response to the current crisis. It is clear that, despite the vanities of the past two decades, the free-market model is incapable of avoiding the periodic crises that are its hallmark.

Deregulation, privatisation, private finance initiatives and trickle-down theories have been disproved in practice. They have shown themselves less efficient, more expensive, more divisive and less socially just than previous social democratic models.

No matter how confident the Prime Minister and his Chancellor may appear, they know that they have staggered through this crisis, dithering and delaying over necessary action.

The self-created image of economic competence is in tatters, which opens an opportunity for pressure from the labour movement.

Even if and when the banking system stabilises, economic recession still faces us and the movement must demand policies to help workers and their families through it rather than more of the same.

Nationalisation of the banks must be accompanied by financial policy being returned to democratic accountability, with interest rates being set by the Chancellor rather than through the Bank of England monetary policy committee.

Interest rates are too high and must be cut, while the obsession of transnational corporations to profiteer must be countered by price caps on gas, electricity and essential foods.

There must be an expansion of the public sector, especially in transport, water and energy utilities and council housing, together with a housing insulation programme, to deliver jobs, energy conservation and environmental improvements.

Ending worship of the false god of the markets has to be accompanied by taking on a new left-wing economic and political agenda.