Austerity Alternatives: An Optimist’s Guide
One of the features of the No camp’s discourse has been an almost gleeful attitude that austerity is inevitable. Scotland will have austerity, independent or not, and there’s nothing we can do about it except learn to love our suffering. It’s a surprising refrain in a lot of ways, but perfectly natural when you get down to it.
Neoliberalism’s an oft-used term in economics now, mostly as a slur. Put in the broadest (and so, for economists, probably most objectionable) terms it’s the school of thought around having economies which aren’t centrally planned, with government playing a smaller role. It’s been around since the 1930s, and gained a lot of foothold with people like Friedrich Hayek. When people talk about ‘small government’ or ‘the Big Society’ (but not the Great Society-that was FDR’s) they’re usually going to be talking about neoliberal economics.
With neoliberalism’s focus on markets as the driving force behind social, political and economic rationales it’s easy to forget the role of government. Partly because you’re supposed to-neoliberal arguments prop up the kind of economic approach seen from Reagan and Thatcher onwards into today. Governments should exist at the margins of markets, ensuring that participation remains open to all (but without any examination as to why this is the one area in which markets cannot be trusted to police themselves. Banking regulation and public-sector spending are two notable casualties of neoliberalism, the first because it inhibits the market and particularly the banking market’s participants’ wish to determine their own affairs, and the second because in an economy so strongly centred on financial services it’s hard to see what value there is in social programmes, even those which could theoretically maintain or enhance a person’s value as a consumer.
The brand of neoliberalism we see today in the UK is peculiar to this country though. Like so many features of our social and political life it walks an uncomfortable tightrope between European and American values. Germany’s economy out-performs the UK’s, and yet it has protections and recognitions of workers’ rights written into its companies’ governance. The US economy really does drive the rest of the world, but its philanthropic structures, for example, point to a central belief that personal choice (or liberty, in some people’s words) really is the most important thing-if you donate money to charities you can take that off your tax bill. Everyone has to pay their share, although they get to choose how they do that.
Of course this isn’t to say that Germany is a pillar of labour relations, or that the US is a meritocratic beacon in an otherwise lazy world. But it’s worth thinking about the way the UK works-the way we do our capitalism is distinct in so much as it’s bastardised. Much of Tory economic thinking owes an intellectual debt to Friedrich Hayek, a 20th century economist who believed that, for a number of social and economic reasons, freer markets make freer people, and that the role of government should be reduced to legally ensuring equality of opportunity for economic participation, and other process issues.
The traditional Tory model of worker relations seems to relish the denial of workers’ rights in just about any form, with an almost hysterical belief that in the act of their destruction capitalism itself is enhanced. Reading most of the current sitting of Tory MP’s thoughts on economics doesn’t take too long-workers are lazy, workers are spiteful, managers fail to realise the bulldog spirit of Churchill. This is as much from its background as an aristocratic emissary rather than a collective for the bourgeoisie.
But we already knew that. The UK’s industrial and economic decline since the second world war, in contrast with countries around the world whose industry was managed better and with a longer view than just a haphazard quashing of worker-management relations. The US has recently taken steps to encourage a form of socialised medicine which in Europe is regarded as a pitiful, if well-intentioned, attempt by a country with a fundamental deficit of a social conscience to care for its citizens. Europe’s integration, a direct result in many cases of the desire to avoid the two total wars which were fought in the past 100 years, is seen in the UK as being a threat to its sovereignty. Sovereignty viewed in most other parts of the world as the fading embers of an empire, now a collection of ‘home countries’ who can’t accept that their place in the world is long gone.
The Tories’ economic policies, and their malicious destruction of sections of the workplace commonly understood in other countries to be the basis of effective companies, aren’t news to anybody. But what might surprise people is the extent to which other developed, western economies managed to beat the Global Financial Crisis, namely Australia and Canada. How did they manage this? By essentially ignoring the neoliberal idea that government should get out of the way and let markets sort things out. Sometimes, the governments and central banks in Australia and Canada understood, it’s imperative that governments not only do what they can to respond to market crises but that they act to avert them happening in the first place-even if it means imposing regulation.
It’s worth looking at the response three countries had to the global financial crisis; the UK, Australia and Canada. The UK’s response is pretty well documented to us-the government bailed out or part-nationalised banks which threatened to go under, aware that their failure would cause untold damage to the system as it had gone before. Since then the UK government has continued its proud tradition of not managing the public-private divide well at all, including the belief-beggaring sale of Royal Mail, giving little confidence to anyone holding out for a publicly-advantageous sale of the nationalised parts of those banks. Regulation has slipped off the agenda until at least the next parliament, if at all. Basically it’s status quo except public money has now taken significant ownership of assets which will most likely be sold off in a way which does the public’s interest nowhere near as much good as it might do.
Australia, by contrast, saw the financial crisis as something governments have a duty to be involved in, proactively, from the first time they recognise there’s a problem. Hence their government’s 2008 decision to put together a stimulus package. Not for banks, not in the form of bail-outs or bilging for corporations gone bad, just AUS $40Bn of money between 3 pots; infrastructure, education and health. The next year another AUS $42Bn of cash was handed out with the intent of stimulating personal spending; $26Bn went on infrastructure projects, with the rest going to small business tax breaks, and among other things a $950 payment to every Australian of who made less than $80,000 in the previous financial year. You read that right. The equivalent of £500 for everyone in the country. Where did the money come from? Several years’ worth of surplus, and a government which figured its role was to shelter its people from the worst of financial crisis brought on largely by companies and countries with nothing to do with their citizenry.
Canada took a different route as well. The Bank of Canada, headed by Mark Carney who is now the Governor of the Bank of England (whose speech to the SCDI can be found in this footnote, and makes a good read, here*), saw a need for greater regulation. Deregulation in the US allowed for mortgages to be sold knowingly to people who could not afford them, and when this source of revenue dried up, for packages of mortgages to be resold to other financial firms in what amounted to a hot-potato bet on what critical component would go broke first. Canada didn’t want to go the same way, deciding to keep its 1991 Bank Act, with its division of banks into 3 categories; domestic banks which can accept deposits, domestic banks which are subsidiaries of foreign banks which can still accept deposits, and foreign-owned banks which cannot accept deposits. While there’s a lot more goes into regulating Canada’s financial system than just this it’s a legal definition which makes a lot of sense in a world where finance is a global industry. To be a deposit-accepting bank in Canada is to be regulated as if you’re Canadian: pretty much the exact opposite of the philosophy we hear from politicians who suggest that we should do whatever we can to attract whatever foreign investment we can scrape up.
Of course it isn’t as simple as just that. Canada also has fantastic mineral and energy wealth which it exports. Scotland’s oil is somehow different, and far risker. It’s probably better that we let it prop up economic mismanagement by Westminster, or finance the wars we fight to remind ourselves we’re still capable of doing whatever the US tell us to, or even just paying Goldman Sachs et al the management fees they needed in return for selling the Royal Mail at a price vastly inferior to its value.
More seriously, it’s worth keeping in mind that this is Australia and Canada. Australia’s political climate isn’t exactly a leftist paradise, and Canada’s neoliberal credentials aren’t in short supply, despite the above. We’re not talking about Iceland, whose size and democratic tradition allowed it to nimbly avoid future crises. We’re not talking about Germany, whose manufacturing base has consistently out-performed everything a British government has put in place since the second world war. As a leftist I wouldn’t defend most of Australian or Canadian financial policy, just as I’m at odds with most of what has created, and most of what maintains, the developed world. But the No camp’s revelling in austerity shows just how British they really are – not, as it turns out, a good thing.
It’d be interesting to see the No campaign, or any of its constituent parties, suggest alternatives to austerity, and specifically how Scotland can rectify the disproportionate harm it suffers from being in the Union, while staying a part of the Union. As it is, they seem utterly disinterested in the very real plight of people at food banks, or on benefits, or whose welfare programmes have been scrapped. It’s probably easier to bury your head in the sand rather than try and think of alternatives, but it’s also gutless and conceited.
*Carney’s framing of the decision as being between a currency union and “independent monetary policy” (p4) is particularly noteworthy – as Scotland doesn’t currently have “independent monetary policy,” regardless of what the No campaign seem to think being in a political union with an associated central bank means. His entire speech lays out, in the starkest terms, that the Bank of England’s job is to do whatever it’s told-not to dictate policy (so, again, if your central bank does what the government tells it to, and your government isn’t representative of the area you live in, you can reasonably conclude that your investment in “your” central bank isn’t as strong as people might want you to believe).