THE RECENT beheading of Thatcher’s statue was more than symbolic. At the heart of the Thatcher/Reagan agenda was "popular capitalism", a "share-owning democracy". Their aim was to replace the welfare state, and even "society", by offering the promise of individual enrichment. Popular capitalism has now collapsed and in time millions of pauperised investors will be seeking Thatcher’s real head (or those of her successors).

A recurrent theme in the articles I have written for this journal has been the remarkable ideological vulnerability of the capitalist class to this recession. Not only do they find it impossible to blame workers and unions for their malaise, but their entrepreneurial champions have embarrassingly turned out to be crooks. During the last ten years, local heroes built huge empires on the shifting sands of debt, only to see them collapse, burying with them the hopes and savings of their workers and investors. Capitalism stands naked, but the working class has not yet pointed its collective finger.

Though Thatcherism is dead, her ghost still barks orders to the Labour Party. Gordon Brown continues his refrain that it is possible to smooth the boom-bust cycle at a time when the markets have fallen for three years – the longest sustained fall since 1941 – and the end is not in sight. He pushes the privatisation of pensions when he is forced to admit that the pension industry is bust, with over £45 billion debts. He projects economic growth figures that are simply fanciful.

The Labour Party may have defied history by being elected twice in a row, but it will not escape the other more important historical lesson, that Labour is incapable of surviving a serious recession – and that is what lies ahead, not behind. In many ways we have passed through 1928; what faces us is a variation of 1929.

History repeats itself, but always in a modified form. In 1929 the car drove over the cliff. Now it is more like one wheel falling off, then another, while all the time the big guy inside throws himself to the opposite side of the car to rebalance it. So it is today with the state seeking to support the economy with low interest rates and consumer debt.

It is worth repeating yet again that this recession has unfolded in ways distinctly different from the other post-war recessions. Then the state helped speed up recessions by tightening up on credit. Now the opposite is the case.

The consumer has been targeted with a wave of credit. The banks, having lost other investment opportunities and attracted by the value locked into private housing, have engaged in an orgy of lending to consumers. The middle class and the more skilled sections of the working class have paid for the consumer boom by draining the equity of their properties.

In addition, as the sharp rise in US productivity figures shows, the balance of class forces has enabled the capitalists to impose harsher working conditions with little resistance from workers.

As a result of these factors, the recession has unfolded more gradually than expected.

The key question has always been, and remains, what happens if consumer debt combines with corporate debt and with government debt to amplify the recession into a decade-long period of grinding stagflation, that is, deflation combined with faltering production. This scenario looks increasingly likely.

Firstly, the Enrons of this world teach us that high levels of corporate debt and misstatement of profits are more pervasive and fundamental that has been admitted. We are not talking here of the odd bad apple, but of the systemic revision of profits by corporations in the hothouse environment of the bubble economy, a practice made possible by the foolish view of governments that companies do best when they are unregulated.

It may be asked why we have not had a financial crisis yet. After all, a three-year bear market should have precipitated one already. Here we have to look at the final concrete element of this recession that makes it unique and unparalleled. Alongside the willingness of the state to ease credit, and the home ownership that underpinned consumer credit, we have the farming out of debt.

Over the last decade, the banks and the finance markets have become adept at bundling out debt, and therefore sharing it out over the investment community. In a way, they have increasingly socialised debt, but on the basis of private property.

Traditionally, a financial crisis was sparked by a number of large bankruptcies. The sharing out of risk has prevented this from happening up to now. For example, the default of Enron has not hit one bank hard, but many institutions less hard. This is on the positive side. On the negative side, capitalism is now bleeding from a thousand small cuts. This bloodletting is much more difficult to stem than, say, losing a hand where the arm can have a tourniquet applied. It means that in the long run it will take longer, not shorter, for the credit machine to repair itself.

In the past, a minority of financial collapses has allowed more liquid capitalists to buy the assets at rock bottom prices, thus enabling credit expansion to commence once profitability had been restored. Now, with losses so widespread, there is developing a real liquidity crisis covering entire industries, pensions, stock markets and insurance. Only the large banks remain exempt for the time being.

Given the shallowness of the recession so far, questions continue to be asked as to whether we have experienced a correction or a real recession. In an earlier article, written late last year ("The World Economy After 11 September", What Next? No.21), I indicated that if by June the markets and the world economy had stabilised themselves, the recession of 2000 could be seen as a correction, rather than as the first episode of a slump. In fact June heralded a period of growing instability and a reversal of growth trends in the USA and Europe. What we are experiencing therefore is something qualitatively more significant than a mere correction.

Above all, consumer spending is beginning to falter, particularly in the USA. Consumer credit is more or less exhausted and consumers have woken up to the fact that not only is the roof over their head important, but so too is the floor under their feet, in the form of savings and pensions.

The spectre of consumer debt intersecting with corporate debt is growing. Time has run out. Profits are still sliding, making it more difficult for companies to rebuild their investments, and as demand cools this will become impractical. Within the space of two years governments have seen surpluses turn into deficits. Bush Laden’s foolish tax policies will in the end do more damage to the United States than the Arab militant ever could.

In many ways, what we have passed through will set the tone for the future. What lies before us is not a double-dip recession but a triple and even a quadruple recession, a series of shallow recessions followed by only partial recoveries – until workers start to fight back. In the meantime, society’s productive capacity erodes. All around, stagnation and growing poverty.

In the 1990s Japan appeared to be the exception. In fact it was the forerunner, an anticipation of what will happen to a world economy built on debt, illusory profits and inflated assets. Before Enron, observers said it could not happen in the USA, as corporate governance and transparency was so much better. Now these voices are muted.

As has been said before, it is going to take years to get over all the debt piled up. Debt is never an absolute question, but is always relative to profits. Debt can only be eradicated by the increase in the rate of profit, for it alone pays interest and repays debt. Productivity growth, though overstated, may raise profitability to the point where it can rise above debt. However, it is more likely that this will be sufficient only to prevent the world economy falling into a huge 1929 hole, instead of grinding forward over a number of recessionary rocks.

Bush spoke of an axis of evil. We know of only one axis – capitalism. It has blighted three continents, and now it is about to blight the only remaining economic bright spot on the planet, the industrialised continents of Europe and North America. Bush has declared war on an invisible external enemy. Our enemy is clearly visible, and it is at home – our respective capitalist classes.

Brian Green’s pamphlet PLANNING The Future is now online in the Marxist Theory section of this site.