There is no more pressing time to develop a coherent alternative to austerity
It's coming up to four years since Lehman Brothers came crashing down. For a few terrifying weeks, it seemed as though the whole global financial system was teetering on the brink of collapse. Only massive state intervention across the Western world prevented the ultimate catastrophe. George W Bush, then the figurehead of the most aggressively right-wing US administration of modern times, presided over the biggest nationalisations in history. For a moment, it seemed as though neo-liberal dogma – of deregulation and the absolute supremacy of the market – was on the ropes.
But those optimistic for a break from the past ended up being cruelly disappointed. A crisis of neo-liberalism perversely became the biggest opportunity yet for neo-liberalism. ‘You never let a serious crisis go to waste’, said Rahm Emanuel, Barack Obama’s former Chief of Staff in 2008. ‘And what I mean by that is an opportunity to do things you think you could not do before.’ It was a statement that succinctly summed up the strategy of governments in Britain and across Europe.
Policies that were not otherwise politically possible were imposed across the European Union: the privatisation of public services; the hiking of taxes that disproportionately fall on the poor, such as VAT: the slashing of taxes on big business and the wealthy; and a bonfire of workers’ rights. It has been complemented with an austerity agenda without precedent for generations. In the Eurozone, the EU Treaty enshrined near-zero structural deficits, effectively banning a public stimulus. As BBC Newsnight Economics Editor Paul Mason wrote at the time, ‘the eurozone has outlawed expansionary fiscal policy.’
The consequences have been nothing short of disastrous. Growth has been sucked out of economies, while debt-to-GDP ratios have soared in countries such as Portugal. As the Standard & Poor credit agency – not noted as a bastion of left-wing propaganda – pointed out when it downgraded the credit ratings of nine EU countries: ‘fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.’
Here in Britain, George Osborne faces having to borrow up to £158 billion more than originally projected. A promised ‘private sector-led jobs recovery’ has not materialised, as public sector job losses eclipsed new positions in the private sector. The economy is now smaller than it was before Osborne's 2010 spending review and – earlier this year – it was revealed that austerity had driven the country into the first double-dip recession since the 1970s. As Nobel Prize-winning economist Paul Krugman put it, Britain faces a 'death spiral of self-defeating austerity'. All the predictions of those dismissed as ‘deficit-deniers’ were vindicated, although satisfaction can hardly be derived from this economic catastrophe. The UK economy is not predicted to return to its pre-recession position until 2014 – making this the most protracted economic crisis since the Long Depression, which began 140 years ago.
With austerity discredited, the tide has begun to change. In France, Socialist François Hollande won the presidential elections after pledging to reject austerity in favour of growth, and to hike taxes on the rich. In elections in Greece, parties rejecting a cuts agenda that has devastated Greek society triumphed. In other countries such as the Netherlands, anti-austerity parties are surging in the opinion polls. Even in Germany, Chancellor Angela Merkel's party faced one of its biggest defeats since World War II in local elections over its policies on spending.
There is no more pressing time to develop a coherent alternative to austerity than now. Class is an absolutely crucial initiative for this reason. It will bring together economists, academics and other experts to flesh out a different course for Britain and Europe. Policies promoting growth; democratic control of the banks; progressive taxation; an industrial strategy; dealing with the housing crisis – all of these are among the issues that have to be tackled.
Where opponents of austerity have failed is by often falling back on sloganizing; failing to flesh out alternatives in detail; and failing to link together their ideas. That will now change. We have been denied a genuine debate about how to respond to the crisis. For the first time since the collapse of Lehman Brothers, the winds are shifting. There is a growing appetite for a different way forward. It is time that it was satisfied.
- Policy areas: Economy and Industry
- Projects: Growth not Austerity
- Tags: austerity, economic alternative, growth