Opportunity Knocks (1992)

From the July 1992 issue of the Socialist Standard

Crowds don't often come much bigger than those they expect to get in St Peters Square in the Vatican but even at that it was an impressively large gathering, a couple of months ago. which witnessed the beatification of Josemaria Escriva de Balaguer. The occasion was not without controversy because de Balaguer was a bit of a fascist in his time, a keen supporter of Franco and not averse to the Nazis either. None of this seemed to affect the Pope, who has the job of announcing these things to the crowd from the balcony. “A joyful celebration”, he called it, “an auspicious occasion”. Meanwhile in the dense, weeping, hysterical crowd others were interpreting the words “joyful" and "auspicious" in their own way; pickpockets trawled through the delirious worshippers, stealing hundreds of wallets and purses.

This was a prime example of how vulnerable people make themselves, while they give their attention to a mythical heaven above, to being robbed on the real material world on Earth. The pickpockets, consciously or not, were working on the assumption that this is a social system in which success goes to those who take their chances—and, until someone else got the beatification treatment, there were unlikely to be many better chances on offer than that.

This has its relevance to John Major—who is not in the same class as a crowd puller as the Pope—and his classless society. It is not entirely clear where Major got his idea from nor what he means, but it is safe to assume that by “classless” he doesn’t actually mean a society without classes but one in which anyone can rise from a lower class to the higher. So "classless society” means that anyone with ability can succeed—they can make a lot of money, live in bigger and bigger houses and travel in bigger and bigger cars and be more and more powerful. Like Robert Maxwell. But of course for anyone to get on in that way they must not only have ability. They must also seize their chances when they see them and be willing to take risks to do so. Like those thieves in St Peters Square.

Romantic delusion
In essential Majors dream society sounds very simple. You work hard and save some money. Then you invest it, starting your own business. Of course there is the problem that you may find your business in competition with some gigantic concern which has the resources to crush you overnight, but with a lot of hard work you can make your business grow. As the profits roll in you begin to expand. Then again and again until you are a multi-millionaire, with the power to crush up-and-coming businesses like yours used to be. You are rich and famous, with a country estate or two, your own private jet and your yacht in the Mediterranean. You are a living example of taking your chance in the classless society.

This romantic delusion seduces millions of people into supporting this supposed society of opportunity where the social and intellectual cream rises to the top—which proves that anyone who does not get to the top must thereby be of inferior quality. However reality is a lot less romantic; there are failures as well as successes, poverty as well as riches, despair as well as fulfillment.

As anyone who reads anything other than the Sun and the Daily Mail will know, we live now in a time of recession. One effect of the recession is to cause a lot of misery to a lot of people whose big mistake was to take what they thought was their big chance when they thought the time was right. In fact it was not a mistake because by capitalism’s standards the chance was there and the time was right. Impressed by the Thatcher government’s assurances that the economy was under tight control and had been steered into perpetual boom by the disdainful brilliance of Nigel Lawson, they committed themselves to a massive debt in order to buy somewhere to live. They were confident that the market would continue to rise so their home would increase in price. They simply couldn't lose, they told each other over their gin and tonics.

We all know what happened next. The economic situation which Lawson claimed to have designed and constructed to work to the eternal benefit of everyone ready to take their chance, and which would last for ever, abruptly changed. Lawson at first called the change a “blip” but blips are momentary diversions; this one went on for years. Interest rates rose to the point at which many mortgage repayments which had once been manageable became cruelly impossible. In many cases things were made worse by redundancies among the mortgagees or their family, whose wages were needed to pay the mortgage. The banks and building societies took action to “repossess” properties which had never been out of their ownership anyway; “repossess" is a polite way of talking about evicting people from homes they had been persuaded to call their own.

Among the evicted John Major’s classless society was celebrated in bitterness. Some dropped the keys of their home through the building society’s letterbox and ran away. One man stripped his home of everything possible—doors, shelves, light fittings, radiators, the bath, sinks—leaving just a shell. Another set fire to the place, killing his baby daughter.

The financial tomorrow
Desperate at this situation is, it is not the whole story for it is not only individual workers, struggling to get themselves somewhere to live, who have seen what looked like a golden opportunity turn to disaster. This recession has reaped a rich harvest of big combines whose collapse has discredited some of capitalism’s current heroes. After the crash of Polly Peck, the fate of Asil Nadir is awaited with interest, in expectation that it holds something extremely unpleasant for him. In Australia Alan Bond is not only bankrupt but with time to reflect on it in his prison cell. Robert Maxwell has been exposed as one of the most unpleasant scoundrels ever to have harried and abused his employees on his way to riches; not content with the legal theft on which capitalism is based he was greedy enough to try the illegal sort as well. The latest in the line of Titanic-like commercial disasters has been Olympia and York, whose Canary Wharf stands as an embarrassing memorial to the anarchy of capitalism.

Illustration by George Meddemmen.

There is now no shortage of experts to tell us what went wrong for the likes of Maxwell and Nadir. They borrowed too much money. They ran their affairs like there was no financial tomorrow. Maxwell borrowed money to expand into American publishing. Nadir to buy up concerns like Del Monte. This presented few problems as long as the boom lasted, as long as sales went up taking profits with them. But when the slump began to bite, the big borrowers had difficulty in just paying the interest on their massive debts. They borrowed to seize what looked like a great opportunity; in the event it turned out to be a trap.

So what of the lenders, the banks who stood for such huge sums at risk? Polly Peck were said to owe something like £1.3 billion; Maxwells empire had debts of over £1.5 billion. With hindsight—and that has recently become one of the well-used phrases in the world of finance—they agree that what they did was unwise, in the sense that it cost them a lot of money when they should have been concerned with making profit. Last February the deputy governor of the Bank of England, Eddie George (how did a man with so demotic a name ever get past the doorman at the Bank, let alone become a governor?) slated the banks about this but in the process he revealed how they had little choice:

  [Borrowers and lenders] now tend to blame the authorities for allowing, or even encouraging, the party to get out of hand—though I seem to remember they rather enjoyed it at the time . . . Had we been more successful in keeping “animal spirits” on a shorter leash at the time, the subsequent damage to bank capital and the subsequent economic and social trauma would, of course, have been less.

Another way of saying that is that when the banks were lending so freely it was boom time; had it continued like that, as it was from 1986 to 1988, there would have been a different story. Pressure of competition pushed the banks into lending; if one backed off there were plenty of others only too willing to exploit what they saw as an unending source of profit.

The banks have now been brought face to face with the realities of capitalism— that it is a system of unpredictable swings, falls and rises, not to be controlled by financial experts or economists or politicians. At times it seems to offer the opportunity to some individuals or some firms to get rich fast. If they missed the opportunity they would not be working the system as they should. With luck it comes out right for them; in other circumstances there is disaster. And none of them, from Robin Leigh-Pemberton to the manager of your local branch shows that they understand how the system works and that it cannot be controlled.

Ivan

Canary Wharf: monument to capitalism’s priorities (1992)

From the July 1992 issue of the Socialist Standard

It used to be said that at the first sign of trouble or danger, canaries were the first to turn up their toes. The aptly-named Canary Wharf in east London’s docklands is at present proving this old aphorism true. The future of this prestige office development site in the Isle of Dogs is currently in jeopardy. Its owners, the Olympia & York international property company controlled by Canadian brothers Paul and Albert Reichman, are in serious financial difficulties and have called in the receivers. Olympia & York itself owes about £7 billion, with Canary Wharf accounting for about £1.1 billion of this debt. It is extremely doubtful to say the least whether all the planned phases of the project will now be completed.

Work on the Canary Wharf site was started in 1987 and was expected to take up to 10 years to complete. Its centrepiece, the fifty-storey Canary Wharf Tower, has now been finished and is Britain’s tallest building at 800 feet. A monument to free- market capitalism, it was meant to encapsulate the brash enterprise culture of the 1980s. breathing life into a degenerated and depressed area of the capital. Now over half-empty with 500,000 square feet of vacant office space, it has become Britain’s biggest white elephant. Indeed, the Canary Wharf development as a whole has over 2.3 million square feet of vacant office spare out of a total capacity of 4 million.

Though Canary Wharf is the biggest folly of them all, it is far from being the only one. There is currently 40 million square feet of unused office space in London alone, much of it developed by now insolvent companies like Speyhawk which in its last trading year amassed losses of more than £300 million. It has been estimated that 20 percent of London’s office space is now vacant, almost twice as much as in the last major commercial property slump in 1973-4.

The source of this predicament is not hard to find. The Daily Telegraph (16 May) explained Olympia & York's particular problems well enough:

  Canary Wharf was planned in the mid-1980s boom when the Big Bang meant that expanding City firms were competing for the limited space in the Square Mile. Office rents soared and firms were forced to take space outside the City core. By the time Canary Wharf was almost complete sufficient new space had been built in the Square Mile to satisfy demand. The surplus caused rents to collapse.

It has been much the same story for the dozen or so other property companies who have lost out spectacularly in the present slump. A massive extension in the supply of property has not been matched by a commensurate expansion of effective demand for it:

  The prospect of the stock markets Big Bang in 1986 and the booming service economy in the south-east created a feeling that demand for London office space was almost insatiable. Developers went on a building spree the like of which the country has never seen. At the start of the 1980s £1 billion-worth of offices, in todays prices, was built each year. By 1990 that figure has risen to £5.6 billion . . . Entrepreneurial developers did not bother to secure tenants before ploughing hundreds of millions into their schemes. They assumed that in the four years or so it took them to put up a building, the demand would materialize . . . In retrospect. Black Monday, in October 1987, was the first sign that the dream was about to go sour. But the holes in the ground had been dug and there was little alternative but to keep pouring money into them. Only now, when the buildings are being finished, is the full horror of the oversupply becoming apparent. (Sunday Times, 5 April).

Without a doubt, the over-expansion of the commercial property industry has been a key factor in the present slump, with the downturn in its fortunes being transmitted to other sectors of the company.

As companies like Olympia & York and Mountleigh become insolvent there could be even more difficulties ahead. The four major British clearing banks have in excess of £12 billion loaned out to British property companies, with Barclays alone having lent £5.4 billion. With banks often lending up to 70 percent of the development costs of commercial property, once property prices start falling by more than 30 percent the security of the banks starts disappearing. The potential loss to the major UK banks—already having to cut back sharply—could be colossal. Capital values in London have already fallen 40 percent in this slump, without, as yet, having reached the bottom.

All sides will try to minimize their losses, but the real losers probably won't even rate a mention. While millions of square feet of prime office space lies empty and while thousands of building workers are thrown on to the dole because of the slump, thousands of Londoners go homeless with tens of thousands more on ever-expanding council house waiting lists. There is certainly no shortage of demand for accommodation in London—only a shortage of effective demand, that is, demand backed up by ability to pay, the only kind of demand capitalism recognizes. And while the homeless roam the streets the capitalist class build ridiculous monuments to their system in the endless pursuit of the next swift buck. It is enough to remind somebody of an old socialist aphorism—if capitalism is the answer, then it must have been a bloody stupid question.

Dave Perrin