In 2008, the Labour government responded to the financial crisis by bailing out the banking system, in a thoroughly capitalist and undemocratic form of nationalisation designed to ensure everything could continue as before – at the working class’ expense.
In this October 2008 interview with Sky News, John McDonnell MP attacked what the government was doing, predicted workers would pay the price, and advocated the alternative of meaningful nationalisation with democratic control. McDonnell makes rather different arguments from those The Clarion has made for public ownership of the financial sector, and poses things in somewhat moderate and technocratic terms, but the radical thrust of what he was calling for is clear.
In 2013 McDonnell would take part in the Fire Brigade Union’s campaign for public ownership of finance.
This remains an essential demand. For more on the issue see here. For details of our 29 May online public meeting on this, with a short explanation of why the demand is so important in the current crises, see here.
Dermot Murnaghan: While the Chancellor’s plans for the banking system have been welcomed by many, there are those in the Labour Party itself who possibly feel that Alistair Darling, the Chancellor, hasn’t gone quite far enough. One of those is the MP John McDonnell, who joins us now from our Westminster studio. Very good to talk to you, Mr McDonnell. You feel the government should have gone the whole hog here and bought all the banks out?
John McDonnell: Well, I think this is a really poor deal. We’re putting up £50bn of tax-payers’ money. We’re getting preference shares with no votes so no controlling interest. We can’t even put people on their boards. The shares will be bought in those banks that really need it, and they’re the ones with the dodgiest debts. We’re nationalising the loss-making banks, by the looks of it, in partial form. But in addition to that, what it will mean is for this deal we’ll have to increase our borrowing, which means putting up taxes, which means reducing public expenditure, reducing demand in the economy, which will deepen and lengthen the recession. My constituents will pay for this deal with their taxes, and in a recession with the loss of jobs and for some of them the loss of their homes. So I think this is a very poor deal.
DM: What are the alternatives to it? Would letting one of the big banks go bust, with the possibility for a domino effect – would that have been a better away?
JM: No, we should have been more forthright. We should have been speeder and more directive. We should have nationalised to stabilise and then allow us to reform the banking system. What we’re doing now may allow us to reform the banking system; I’m not sure if it will. It may stabilise it, but it means we’ve got no controls over it again, and in two years they’ll be back into binge investments and bonuses and massive executive pay, because the conditions we’re attaching today are virtually unenforceable, because we have no controlling interests in these companies.
DM: Nationalising the banks – that’s back to Clause 4, thirteen and half years after it was ditched?
JM: Well, what’s interesting is that the Chancellor said to me on Monday on the floor of the House of Commons, he’s already nationalised two of them. That’s the way we stabilised them and brought them back into some form of effective operation. That needs to happen with the system overall. It is drastic, but it’s necessary to give some reassurance. Otherwise what’s going to happen? The tax-payers are going to pay for this deal and literally the bankers are laughing all the way to the bank.
DM: You mention there the cost of this partial nationalisation, but surely the full nationalisation you’re talking about, that would send borrowing through the roof – it would be a huge percentage of our GDP?
JM: We wouldn’t be nationalising with compensation. Remember this isn’t a partial nationalisation either – this is putting £50bn up, literally to cover the debts of some of these institutions aren’t even worth £50bn, and we’re not getting anything in return by way of control over the operation of those banks, or even over the remuneration. Because the Prime Minister has said we’ll have some conditions over the lending we give to these bodies, but it’s virtually unenforceable, if all you’ve taken is preference shares, which have no vote within the company itself, or you can’t put people on their boards.
DM: Just on that, Mr McDonnell, listening to the Prime Minister and the Chancellor talking about these shares, we had them on earlier, and we were talking to the British Bankers’ Association a moment – the full details of who’s getting what in each bank haven’t been thrashed out. But as I understand it the preference shares put the tax-payer front of the queue.
JM: it puts the tax-payer in the front of the queue if there’s benefits to be paid out, but remember, the only banks that will be coming forward for these shares and for this deal are the ones that are the most unstable with the dodgiest debt. Therefore we’ll take the liability but we’ll have no votes and no controlling interest in these companies. We haven’t even done as we have in the past taken a golden share in these companies so we can make sure they’re managed properly. I think this is a very weak deal at the expense of the tax-payer. As I say it will increase government borrowing, which means increases in taxes or cuts in public services, so we’ll pay for it doubly as a result of this deal.
DM: We are or hope to be once again a modern, growing international economy. Would it really be appropriate to have the government running the banks?
JM: Well, it’s interesting, because where this has been practiced before, in Sweden in the early ’90s, that’s exactly what happened, where they had to take a controlling interesting in a number of banks, so they could restabilise their banking system and plan for a long-term future. And it worked there. Where we went through a similar crisis to this in Japan, and they weren’t swift enough to act, they went into a deflationary cycle, which went into recession then depression, and it’s still hitting them. You have to be decisive in situations like this. Look, this is like your next door neighbour having a binge party, buying a new car, going on holiday and then sending you the bill and expecting you to pick up the tab. That’s what the government is expecting the tax-payer to do, without any control over what will happen in the future. I don’t think that’s an acceptable deal.
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