In the face of a deep economic crisis, the government has helped to prop-up small businesses with billions in state-backed loans. Now a wave of defaults threatens to engulf the system. Capitalism is chaos. We need a socialist plan.

In the face of a deep economic crisis, the government has helped to prop-up small businesses with billions in state-backed loans. Now a wave of defaults threatens to engulf the system. Capitalism is chaos. We need a socialist plan.

The Office for Budget Responsibility has issued a warning that up to 40% of the loans given out under the government’s ‘Bounce Back Loan Scheme’ could default.

Around £33bn has already been lent out on this scheme, which sees small businesses given state-backed loans of up to £50,000, with minimal checks on their ability to repay. A further £20bn is expected to be lent over the next few months.

These businesses are crushed between two millstones: the big monopolies on side, whose vast economies of scale allow them to dominate the market; and collapsing consumer demand on the other. With 650,000 jobs already lost since the coronavirus crisis began, and millions more furloughed workers bracing for redundancy, the market is rapidly vanishing.

Even before the recent slump, the reality is that many of these companies have been kept afloat thanks to credit. Small-business owners have borrowed more and more just to stay above the waterline.

These are the so-called ‘zombie’ companies of capitalism: neither dead nor alive, but maintained in a state of limbo by a constant injection of cheap credit.

Heads we win, tails you lose

Canary WharfWhilst the banks make a killing on the interest charged in the short term, many of these businesses are unable to pay back their debts in the long run. Ultimately, many go bust – at which point the big finance-houses simply swoop in to strip and liquidate their assets.

In most cases, this is a win-win for the banks. They can rake in the interest whilst the businesses stagger on, and then sell-off assets to recoup their investment when they don’t. This is the parasitical modus operandi of modern finance capital. 

With a global economy choked by overproduction, investment in real production is a mug’s game. Usury, on the other hand, still gives the big capitalists some bang for their buck. Investing in failing, zombie companies is like squeezing the last drips out of a used rag.

Nationalising the losses

high street crisisThis latest round of lending is the most parasitical of all. Given the depth of the crisis, the money-lenders are feeling less secure than usual in recouping their investments. 

In order to ‘kickstart’ the economy, the government is backing their loans by promising to cover any debt that turns bad, out of the public purse. As usual, it is a case of nationalising the losses, whilst keeping the profits in private hands.

The government is hoping that, by propping up these businesses, the bosses will continue to pay wages, thereby protecting demand and preventing a vicious downward spiral of depression. 

But it is quite obvious what will really happen: the banks will go on an orgy of high-risk lending, and leave the government to pick up the bill. And this bill will then be passed on to the working class by means of austerity. 

Any jobs saved in the meantime, just like the companies themselves, will be zombies – kept alive artificially by a drip-feed of credit; and destroyed as soon as that credit runs out.

Socialist plan

Power to the workersCapitalism is an old and sick system. In its youth, such measures might have helped relieve its crises. But just as a dying patient cannot be immortalised with drips and adrenaline, neither can the decrepit capitalist system be saved by credit and stimulus packages. 

Instead, the system must be wrested from the hands of the speculating parasites, and planned rationally, under the democratic control of the working class.

This means nationalising the banks and major monopolies, as part of a socialist economic plan. Only then can we ensure that the parasitic bankers and bosses do not continue to enrich themselves at our expense.