Download The Politics of Austerity

The Politics of Austerity
Michael Hill
Introduction
• Invited to review ‘comparatively’ the politics
of austerity.
• Opted for a very limited historical comparison
within UK.
• After wider contextual remarks will focus on
three episodes: 1929-31, 1945-51, 1976-90
What do we mean by austerity?
• In terms of the ‘politics of austerity’ there are two different
issues.
• (1) about austerity as applied to government
• (2) government requiring austerity of citizens
• In that second sense that Mark Blythe defines austerity as ‘
a form of voluntary deflation in which the economy adjusts
though reduction of wages, prices and public spending to
restore competitiveness, which is (supposedly) best
achieved by cutting the state’s budgets, debts and deficits’
(Blythe, 2013, p. 2).
• However, even then there is a need to pause to ask: on
whom is government imposing austerity? On us all, on the
poor, on bankers etc?
Government debt
• All complicated by dramatic impact of wars .
• ‘public assets and liabilities have generally
represented very limited amounts compared
with... private wealth’ (Piketty, 2014, p. 126,
from whom the next table is imperfectly
copied.
• Can we see some sort of correlation between
‘austerity’ and public debt. Answer: No
UK Public Assets and Debt (two come
together at 90% of national income in
2010)
Austerity politics in three periods in
modern British history
• The period of Ramsay Macdonald’s Labour
Government from 1929-1931) in which political
concern about unemployment as a management
of the economy issue emerged.
• The post-1945 clash between welfare goals and
the post conflict impoverishment of government
and society.
• The debate about limits to government
expenditure associated with the rise of the neoliberalism in the 1970s.
•
Three periods compared
• In the first of those periods the dominant idea was still that
the government could do little to manage the economy in
ways that advanced welfare.
• In the second one austerity (in both senses) posed massive
political problems about re-balancing public accounts and
achieving post-war prosperity for a clearly welfare oriented
government.
• The third period then is notable for the emergence of views
about economic management which, whilst not involving
simple reversions to austerity in the first sense,
nevertheless challenged the idea that governments could
engineer welfare through the management of the
economy.
1929-31
• Massive economic problems following on return to Gold Standard.
• The leaders of the Labour government elected in 1929 had
supported the return to the Gold Standard and the Chancellor,
Philip Snowden was deeply wedded to ‘nineteenth century
economics’.
• Tentative arguments for public investments came from the Liberal
Party influenced by Keynes.
• Skidelsky ends his account of Macdonald’s 1929-31 government
with:
Socialism was impossible and capitalism was doomed: there was
nothing to do but govern without conviction a system it did not
believe in but saw no prospect of changing. It struggled to defend
the working class as long as it knew how, and when it could defend
them no longer it resigned (1967, p. 434).
Austerity 1945-51
• The period from 1945-51 has been described as the ‘age of
austerity’. But what is being identified is the social effect of a long
and devastating war.
• The Chancellor of the Exchequer between 1947 and 1950, Stafford
Cripps, seemed to have become personally identified with austerity
as a consequence of his own life style and attitudes. But behind this
was a politics of austerity very different to that in the period before
the war or in more recent times.
• The war generated a debt burden even greater than the First World
War (well above 200% of GDP) and that the United States
immediately revoked the generous terms for its loans to the UK at
the end of the war. Nevertheless the Labour government was
committed to its pledges on social policy, and to the ideal of
building a fairer social order
Policies 1945-51
• Strenuous effort to minimise public austerity in a context of a new
(post-Keynesian) ideological atmosphere that saw government
austerity as less essential.
• Cripps success in keeping the inflation rate down rested upon
success in persuading the trade unions not to try to exploit labour
scarcities. ‘In the 1948 Budget the TUC was sweetened by Cripps’s
once-for-all capital levy’ (Dell).
• No return to the gold standard, but rates of exchange were fixed in
terms of a hard to maintain relationship to the dollar. Devaluation
resisted for a long while but occurred in September 1949.
• Cripps argued then:
We have decided upon these steps because we are determined not to
try and solve our problem at the cost of heavy unemployment, or
by attacking the social services that have expanded over the last
few years (quoted in Kynaston 2007, p. 350).
1976 onwards – A new ‘age of
austerity’?
Keynote quotes
1. We used to think that you could spend your way out of a
recession and increase employment by cutting taxes and boosting
government spending. I tell you in all candour that that option no
longer exists... (James Callaghan, quoted in Cassidy, 2009, p. 79).
2. Economic policy is ‘precisely the opposite of that assigned to it by
the conventional post-war wisdom. It is the conquest of inflation,
and not the pursuit of growth and employment, which is or should
be the objective of macroeconomic policy. And it is the creation of
conditions conducive to growth and employment, and not the
suppression of price rises, which is or should be the objective of
microeconomic policy. (Nigel Lawson, 1984, quoted in Dell pp.
499-500).
Government as the problem not the
solution?: 1976-89
1.
2.
3.
4.
The development of new approaches to economic management,
involving trying to minimise government interference with market
forces, which bore some resemblance to the use of the gold
standard in earlier times.
The development of ‘public choice’ theories which dismissed
government concerns with public welfare as self-interested
behaviour productive of inflation.
A related theme, not necessarily expressed in public choice terms,
about government activity crowding out more ‘productive’
activity.
Denial of the importance of the fall outs from new ways of
managing the economy, including particularly a stance on
unemployment which explicitly or implicitly blamed the victims
for their predicament.
Conclusions
• A contrast was made between the inter-war period when there was an
orthodox view that governments should balance the books, and that
taxation levels should be contained, and the post Second World War
period when the quest to achieve social progress and preserve relative
equality was seen to override that view. Then from the mid-1970s onward
there was a distinct shift (better described as ideological than simply a
paradigm shift) to one that accepted a role for government in enforcing
austerity with comparative indifference the victims of that action.
• The trends in public debt, public expenditure and taxation owe much
more to the impact of war than anything else, and there was no dramatic
reversal in this respect in the 1970s. What is however striking about the
1970s relative to the other periods is the difficulties about the rate of
inflation. It is true to say that post Keynesian policies dealt with that
problem but they did so at the expense of worsening unemployment.
• My brief not to bring the story up to date, question is whether we can
learn from contrasting approaches to austerity.