Recently there has been much said and written speculating that changes in economic policy will signal the end of austerity. Opposition to neo-liberal austerity was a central underlying issue in the recent referendum and the tone of various developments since the result is an acknowledgement of that. What is going to facilitate charting the path to ending austerity is human-centred economic thinking based on the recognition of the role of the working class in creating social wealth, and opposing capital-centred thinking in which the working class has no role but to be a cost of production or a drain on the Treasury.
During the Conservative leadership campaign, Theresa May’s rival Andrea Leadsom promised “prosperity not austerity” while May herself, before becoming Prime Minister, had said that the government would no longer try to reach a budget surplus by 2020, which meant abandoning one of previous chancellor George Osborne’s central aims and was driving the austerity programme. Osborne himself made the same admission shortly before being replaced by Philip Hammond, who has been talking about “resetting fiscal policy”, signalling a seeming shift in the economic approach that government will take.
Since the onset of the economic crisis in 2007-8, austerity – the severe cutting of social and cultural programmes, wages, pensions, and other claims of the working class and general population under the pretext of reducing the budget deficit and national debt – has become the favoured policy within the neo-liberal consensus, particularly within Europe. In Britain, then leader of the opposition David Cameron in 2009 infamously declared an “age of austerity”. George Osborne officially made austerity a permanent feature of life at the end of 2013 when he set the aim of surplus by 2020.
In the recent period, austerity has been the all-sided intensification of the anti-social offensive in the conditions of permanent economic crisis. The argument for austerity is fully in line with neo-liberal assumptions, that investment in social programmes is a cost while the claims of the owners of capital, the creditors, is sacrosanct and ultimately good for the economy to meet. Austerity is an attempt to shift the entire burden of the crisis onto the majority population. Furthermore, it is a kind of shock method to force through and accelerate the dismantling of any remnants of the old social arrangements, to completely usurp public authority by private monopoly interests.
The economic and political consequences – increasing poverty and concentration of wealth, damage to social programmes, widespread disaffection with representative democracy, and party systems in disarray – have been such that the policy of austerity has itself gone into crisis. Even on its own terms, European countries have seen unemployment rise and debt increase relative to GDP. In Greece, which has been at the front line of the economic crisis, austerity has been so intense that it has led to social unrest and more than one collapse of government, and the country has experienced overt imposition by the institutions of the European Union.
Divisions have been opening up within the ruling elite in this context. By as far back as 2012 two lines had appeared over whether to “continue austerity” or “go for growth”, personified by Merkel on the one hand and Hollande on the other, while the International Monetary Fund (IMF) admitted in its World Economic Outlook that year that austerity had been far more damaging than expected. 2015, which began with the newly-emergent party Syriza being elected to government in Greece on an anti-austerity platform, was a turning-point. Greek attempts to negotiate immediately proved impossible, exposing the nature of the dictate and leading to the Greek referendum on austerity last July, the overwhelming “No” result of which was suppressed. Contradictions sharpened between the IMF and the EU, while Osborne’s 2015 Autumn Statement backtracked on certain targets and was reported on by some commentators at that time as if it meant the end of austerity.
The G20 Leaders’ Summit held in Turkey in November last year on “Global Recovery, Resilience and Sustainability” was preoccupied with these issues. Recognising that growth in the international economy was slow, the summit promoted public-private partnership in particular as how to increase investment in areas such as infrastructure along with opposition to “trade protectionism” as a way to contribute to growth. Further, what growth there had been was “jobless growth” in that employment had not kept pace. Bolstering the “legitimacy and effectiveness” of the IMF was also discussed.
The faltering recovery was also apparent in more recent predictions. In April this year, the IMF cut its 2016 global growth forecast from 3.4% to 3.2%, and in June, the World Bank cut its corresponding forecast from 2.9% to 2.4%.
Regardless, the constant refrain in this post-referendum period will be to blame all problems on Brexit. Indeed the referendum result has deepened and sharpened these problems and contradictions, to the extent that a shift in policy is now being spoken of. A wave of pessimistic news has provided a pretext. The rating agencies have downgraded Britain, Standard and Poors from AAA to AA and Fitch from AA+ to AA, the later citing “weaker medium-term growth and investment prospects and uncertainty about future trade arrangements”, while various big banks such as Barclays and Credit Suisse have forecast recession. Such statements are political interventions. Osborne had in February 2010 promised to “maintain Britain’s AAA credit rating” as a key justification for austerity.
So it was on July 1 that George Osborne dropped the commitment to budget surplus by 2020. Following that, new Chancellor Philip Hammond, who replaced Osborne on July 13, praised Osborne’s “fantastic job” but told Sky News that “now we are moving into a different phase for the British economy with new challenges as we exit the European Union and new opportunities as well”.
Referring to the deficit on the BBC’s Today programme, Hammond stated: “Our economy will change as we go forward and it will require different parameters to measure its success. Of course we’ve got to reduce the deficit further, but looking at how and when and how we measure our progress in doing that is something that we now need to consider in the light of the new circumstances that the economy is facing.”
Using the stronger language of a “reset” in policy, he said on July 22, “Over the medium term we will have the opportunity with our Autumn Statement, our regular late year fiscal event, to reset fiscal policy if we deem it necessary to do so in the light of the data that will emerge over the coming months.”
What all of this actually represents has evoked a mixed reaction. The Telegraph characterised Osborne’s announcement as “austerity measures to continue until the 2020s”, while Jonty Bloom of the BBC claimed more recently that “Britain’s economic policy has changed radically almost overnight” and in an article for Business Insider, Oscar Williams-Grut speculated that “Britain’s age of austerity could be over”.
The latter article quotes Berenberg’s Senior UK Economist, Kallum Pickering: “Hammond has a reputation as a fiscal hawk, which potentially conflicts with May’s pledge to ease up on the pace of austerity. As a best guess, we will likely see a compromise between these two positions at November’s Autumn Statement. Looser fiscal policy in the near-term while demand is weak with the major cuts pushed to the back of the forecast when economic growth is likely to improve.”
This is being commentated on as a move away from a focus on debt and deficit towards infrastructure investment funded both privately and by the state through increased borrowing.
Gerard Lyons, economist for the official Leave campaign, was reported by the BBC’s Kamal Ahmed as saying “austerity should end” and that “the UK economy will actually benefit from increased infrastructure investment because the real lesson of the referendum is we’re distancing ourselves from the weak growth region of the world economy”, and that the government should be taking on more debt with low borrowing rates. “Higher infrastructure spending justified against the backdrop of very low interest rates will produce stronger economic growth and the stronger growth in itself will help the future public finances,” he claimed.
Former Business Secretary Sajid Javid also called for the government to fund an extra £100bn of infrastructure spending over the next five years.
Williams-Grut points out: “While deficit reduction may take a back seat at the Treasury under Hammond, it does not necessarily mean the end of austerity in terms of welfare spending. Hammond may simply decide to emphasise spending on infrastructure and other large projects to boost economic growth.”
What is clear is that, while touted by some as the end of austerity, the essence – continued underinvestment in welfare and social programmes, further privatisation and rule through imposition – is to remain.
It could be said to be a change in the form of austerity from one that ostensibly targets debt and deficit to a form of austerity that does not, so that more funding is put into projects, particularly infrastructure, demanded by the monopolies. In other words, an end of austerity for big business.
By attempting to label this change as the end of austerity in general, it could also be seen as an attempt to nullify austerity as an issue, which has become the key issue of the time and a focus for the growing movement for the alternative expressed, for example, in the support for Jeremy Corbyn. However, it by no means signals a change in the direction of the economy but a consolidation of that direction in the current conditions.
Such a situation of flux riddled with contradictions is an opportunity for the working class to break with the prevailing conceptions, neo-liberal ideology and capital-centred outlook and develop its own views, politics and agenda to open a path to progress and solve the problems of the economy in its own interests, from a human-centred perspective, and truly end austerity once and for all.