The Age of Austerity
In 1945, Britain was at war. Spitfires engaged with our wartime assailants in vicious dogfights, major cities were under a cover of darkness, children were being evacuated in their droves to the countryside and the UK deficit was at 245% of GDP. As we all prepare to suffer the after-effects of the crises of capitalism, as tuition fees are trebled for a generation yet to begin their career paths, as debt mounts on children yet to be born, as public sector workers are dismissed, and as welfare is cut in the poorest communities across the country, we know there is no alternative to austerity measures. After all, our UK deficit is just under 70% of GDP.
We’ve gone through this before? And it was much worse? How is that possible? Surely it is a well-documented fact that the age of austerity is an unparalleled unforeseen tsunami that no one could have possibly predicted? Not only is the age of austerity a myth in the face of the grand failure of neoliberal economics, but the reasons for these global recessions are even more heinous. Britain was pulled into a recession because of World War, it was the Allies fighting the Nazis, it was democracy against totalitarianism, it was a long, difficult, strenuous, and probably unavoidable, conflict. What did Britain do when peacetime began, the country’s infrastructure laying in ruins and the deficit at its highest in the state’s history?
Clement Atlee’s Labour Government introduced the National Health Service, brought in public housing to get local communities back with a roof over their heads, invested heavily in education so the young people who were innocent onlookers, or if old enough, voluntary soldiers in a war created by their fathers, didn’t have their futures dismantled; the public transport sector was implemented so that people had the opportunity to travel across the country like never before, and the deficit gradually plummeted until the 1950’s and 1960’s when the deficit was economically insignificant. David Cameron may say that you can’t spend your way out of a recession. However, Ann Pettifor explains in plain, simple terms; go to the Bank of England to get the credit required for investment at a low credit rating and invest it in the economy. This will result in people’s livelihoods stabilising, people creating or receiving jobs, people paying taxes instead of being on welfare. Unsurprisingly the deficit will shrink. Using investment as a means out of recession worked in the United States during the Great Depression with the New Deal and America bailed out Europe with the Marshall Plan in the 1940s. In fact, when David Cameron says you can’t spend your way out of a recession, he’s arguably got it backwards- you can’t afford not to spend your way out of recession, and the proof is evident in Britain’s pathetic economic performance since the Coalition Government took office in May 2010.
But if it’s so simple, why aren’t we doing it? Neoliberalism, an economic theory based on the work of libertarians such as Friedrich Hayek and Milton Friedman, argues that if state intervention is minimised, and market forces remain unregulated, the economy will grow at a faster rate than a state plan trying to push jigsaw puzzles that don’t fit together. So what’s the end result? Well, it turns out when you massively reduce trade union power, people in public sector jobs lose their political voice. It turns out that if you cut taxes for corporations, corporations get more powerful and small businesses becomes less viable, not that banks are willing to lend them most of them anyway. It turns out that by allowing the world of finance to pursue capital for its own sake, that those at the top of the tree and closest to the global economy ‘writ large’ hoard it for themselves and it is not reinvested in society for the growth of businesses and civil society. It turns out that by leaving the private sector to essentially run the economy leaves the direction of the country visionless, social projects are under funded, corporations can lobby and influence government policy-making and become ‘too big to fail’ and suddenly when finance capital causes its own crisis the taxpayer has to bail out millionaires when their private world of privilege collapses on itself. Can you imagine this happening in any other industry? What if a global car company had sold over £1trillion of defective automobiles across the world and then taxpayers bailed the car company out? What if a pharmaceutical company had sold fake medicine over the counter for decades and it was suddenly exposed as a placebo? Would we really be nodding our heads at the necessity of allowing private sector growth through tax cuts?
Amusingly, what’s the antidote to the toxicity of neoliberal economics? Apparently, more neoliberalism. At a time when social inequality is at its highest since 1979- it drastically increased during the Reagan/Thatcher years- we still base our economic opinions on hearsay and speculation. That austerity is a necessity and that we’ve been living beyond our means is something we hear a lot. But it is because wages have remained static for the vast majority of people while costs have gone up that banks offered families credit cards to retain their lifestyle.
It is also commonplace to hear that if you tax the rich they will leave the country, and with them, all national competence. To quote Left Front leader and a recent French presidential candidate Jean-Luc Melanchon, ‘we must dispel the myth that the rich are useful just because they are rich’. The myth of the ‘brain drain’ is based on the taxation model of the Laffer curve, which seeks to determine at what point high tax rates don’t improve the government coffers- not only did the Laffer curve argue that the upper tax band would have to be around 75% (ish) before people started getting restless and the economy didn’t benefit, but the Laffer curve has also been criticised time and time again because countries with high taxation tend to have a better GDP in proportion to their size than those with low taxation.
Institutional politics is going to become very difficult for world leaders in the age of austerity, as myths begin to fade and eyes start to open. Businessmen aren’t stupid. They might enjoy low taxation on their personal incomes, but if no-one is able to buy their products or services, or there is a dearth of people qualified to work for them, then they are going to expect a political vision to solve this crisis. If not, they will move to countries with visions of social democracy, the countries that didn’t get caught in the neoliberal spiral to the same extent as the UK or America and have a marginal deficit. Take your pick from Scandinavia. To paraphrase the Cambridge economist Ha-Joon Chang, could you imagine if a CEO of a major corporation announced that his business plan was to leave the company exposed to the whims of the market place? He’d be fired, for lacking ‘the vision thing’ as George Bush Sr. would say. The problem is that our politicians now require the backing of finance capital to remain in power – after all ‘money makes the world go round’ – and when the money dries up, or your policies aren’t deemed ‘business friendly’ in the strict neoliberal sense, then it can be very difficult to get the backing required for a realistic run at political office. We cannot rely on politicians to bite the hand that feeds them, and as a result, we face global questions about the future of our democratic process, the future of the role of the economy in relation to social goods, and the actual purpose of governance in relation to the needs and demands of civil society.
Article by Jamie Ranger. Edited by Ben Mackay.
Chang, H-J. (2010) 23 Things They Don’t Tell You About Capitalism New York: Penguin Economics
Harvey, D. (2005) A Brief History of Neoliberalism New York: Oxford University Press
Hertz, N. (2001) The Silent Takeover: Global Capitalism and the Death of Democracy UK: Arrow Books
Hutton, W. (1995) The State We’re In London: Vintage
Landes, D. (1998) The Wealth and Poverty of Nations London: Abacus