1 The Austerity State: An Introduction
BRYAN M. EVANS AND STEPHEN MCBRIDE
Neoliberalism remains an apparently intractable part of the political economy of most “mature” capitalist industrial countries, and policies of austerity reflect neoliberal conventional wisdom of how to deal with the economic and financial crisis that began in 2007–8. There was a brief moment, roughly from 2008 to 2010, when governments and central banks appeared to be retrieving the lessons of Keynes to save the global economy from collapse. The contributions to this book, however, take the view that although some economic stimulus was a feature of the early reaction to the crisis, to see those as “Keynesian” was a misinterpretation of events.
In the aftermath of the crisis, some policies were applied that did involve economic stimulus. Whether this adds up to any deviation from neoliberalism in the direction of Keynesianism is much more problematic. The position taken here is that stimulus is not coterminous with Keynesianism (nor, for that matter, is austerity necessarily coterminous with neoliberalism, though in the current context we would argue that it is). So we need to be clear about how we are using these terms.
Elaborating upon the various elements that make up a policy paradigm like Keynesianism or neoliberalism may be helpful, in particular the distinctions made by Hall (1993) between goals, instruments, and settings. The goal of the Keynesian paradigm was for the state to engage in counter-cyclical state action to maintain the economy at full-employment levels. It was a response to events, not an autonomous political decision made by states independent of the times or corporate (and labour) demands.
It could achieve its goal (full employment) by using a variety or a combination of policy instruments. These could include fiscal policy (spending levels, tax levels); monetary policy (interest rates, affecting the price of money; quantitative easing, affecting the quantity of money); and other measures like labour market policy. Depending on the business cycle, the settings of the policies could be expansionary or stimulative to create growth and employment; or restrictive, to rein in growth, inflation, and employment as the economy “overheated.” In the latter conditions, austerity measures might be applied. So austerity itself is not outside the Keynesian repertoire.
Neoliberalism’s economic policy goal is control of inflation, control of government spending and debt, and reduction in the role of the state, especially its social dimensions. The paradigm might similarly employ a range of instruments. Like Keynesianism, it needs to be located in the particularities of the crisis it responded to and to the configuration of social forces, in which labour’s influence progressively weakened. Full employment is not a goal. Rather, unemployment should be allowed to gravitate to its natural level, or to the “non-accelerating rate of unemployment” (NAIRU), i.e., the level of unemployment consistent with stable rates of inflation. Settings on fiscal and monetary policy may often be restrictive to ensure that inflation does not develop beyond the target range. However, if there is a deflationary threat, the settings may be adjusted to provide stimulus. So stimulus does not equal Keynesianism and can, in fact, be part of the neoliberal repertoire, as it was in the immediate post-crisis period.
Notwithstanding some ongoing debates about the appropriate degree of stimulus or contraction to be delivered to the economy, as well as some elite attachment to the view that there is no need to choose, since austerity itself could be expansionary (Giavazzi and Pagano 1990), the neoliberal project and its preference for austerity was recast and reinforced. The role of the state in designing and implementing neoliberalism is obvious, given the foregoing. Andrew Gamble was among the first to note the paradox at the heart of what, in the 1970s and into the 1980s, was then called monetarism, and later Thatcherism, was the political construction of the “free economy and the strong state” (Gamble 1979). In other words, it took the authority and power of the state to create the conditions – political, policy, and regulatory – to enable the rollout of free market fundamentalism. In this volume, we refer throughout to the austerity state and neoliberalism in varying contexts, whether together in some manner or as stand-alone terms, which always imply the political and ideological relationship of neoliberalism to the state. And in particular and with concern for some greater specificity, we characterize the state in the wake of the Great Financial Crisis as an austerity state, given that austerity was, and continues in some greater or lesser degree to be, the overarching policy theme focus of governments of the centre-right and centre-left. Austerity policies have simply deepened the objectives of neoliberalism, as defined as a political economic paradigm that favours the market as the most effective means to regulate production and distribution. While it may appear “counter-intuitive” (Konings 2012) to suggest that neoliberalism has resulted in significant concentration of political control within the state to drive regime-change forward, this is precisely the case of neoliberalism currently. Paradoxically it entails simultaneously hollowing out the state (as far as its redistributive and corporatist functions are concerned) and concentration of political power (Bakker 1996; Jessop 2004; Albo 2002). As Albo succinctly puts it, neoliberalism has become “a far broader project of regulating social life through market imperatives, and incorporated within it the Third Way strategies of ‘progressive competitiveness’ that accepted the parameters imposed by the current distribution of income and assets, and by world markets” (Albo 2008, 356). At its core, neoliberalism is based on principles of competition, laissez-faire, efficiency, productivity, profitability, and individual autonomy (Larner 2000), and most often manifests itself in policy forms such as liberalization, deregulation, and privatization. The state’s sole role is concerned primarily with facilitating “conditions for profitable capital accumulation on the part of both domestic and foreign capital” (Harvey 2005, 7). In this sense, the austerity state continues with the policy prescriptions that have characterized government action since the 1980s but importantly, post-2007, have been more aggressively pursued. Neoliberalism and austerity are integrated both theoretically and in political terms.
In this volume, Marjorie Cohen (chapter 4) explores claims of expansionary austerity, with specific reference to expenditures on social reproduction, and Simon Lee (chapter 6) provides a detailed critique of the expansionary fiscal consolidation hypothesis in the UK case. He concludes that far from being expansionary, fiscal consolidation was contractionary. These accounts tend to support Colin Crouch’s answer to a question he posed: “What remains of neoliberalism after the financial crisis?” In response to his own question he wrote, “Virtually everything” (Crouch 2011, 179).
However, it will be useful to briefly outline the case that a Keynesian moment existed in 2008–10 and continues to the present in the form of monetary policies known as “quantitative easing,” which have a stimulus effect on the economy. Those committed to the idea that economic stimulus represents a Keynesian moment can certainly point to some orthodox examples involving spending, or the electorates’ desire for it.
On the latter point, Canadian political parties offering greater spending and less concern with budget deficits won provincial elections in Alberta (2015) and Ontario (2014), and in the federal election of 2015. Anti-austerity parties have experienced unprecedented support electorally, allowing several anti-austerity parties to hold the balance of power in some European parliaments. However, it may be doubted whether electoral preferences have significantly shifted elites’ preference for austerity.
Gerard Boychuk (2015) pointed to considerable fiscal stimulus in the United States at the federal level and argued that this continued by stealth after the initial program terminated. Whether this type of stimulus was sufficient to offset the drive to fiscal orthodoxy at the state government level is unclear (Kregel 2011). In the view of Federal Reserve Chair Janet Yellen, “At the federal level, the fiscal stimulus of 2008 and 2009 supported economic output, but the effects of that stimulus faded … By 2011, federal fiscal policy actions became a drag on output growth when the recovery was still weak” (quoted in Davis 2016). On balance, therefore, there seems little to suggest that the United States was an exception to the prevailing pattern of fiscal austerity in the Western world.
Another argument in favour of the view that Keynesianism has revived might be that monetary policy in the guise of quantitative easing (QE) has been the policy of choice in some countries (the United Kingdom and United States being prime examples) and that this has had major stimulative effects. QE is a form of money creation that consists of the central bank acquiring liabilities (debts) from private banks that then receive equivalent amounts of new money, which, it is assumed, they will lend to investors and thus stimulate the economy. It has attracted support from some Keynesian analysts on the basis that anything that adds to aggregate demand would be beneficial in the current context. Other Keynesians (e.g., Palley 2011) point to QE being based on bidding up asset prices, to the immediate benefit of financial institutions, in the hope that this will “trickle down” to the real economy and stimulate demand. The fact that some countries have relied on monetary stimulus by means of QE, and others have not, does point to a certain variety in crisis responses, just as there were varieties of Keynesianism (see Esping-Andersen 1990), varieties of capitalism (Hall and Soskice 2003), and varieties of neoliberalism (Macartney 2011).
In the context of QE, Benford et al. (2009, 90) note, with respect to QE in the United Kingdom, that the Bank of England’s Monetary Policy Committee “is injecting money into the economy to provide an additional stimulus to nominal spending in order to meet the inflation target. The conventional way for the MPC to conduct monetary policy is by setting Bank Rate. The introduction of asset purchases has shifted the focus of monetary policy, but the objectives have not changed. The MPC’s remit is still to maintain price stability – defined as an inflation rate of 2% on the CPI measure – and, subject to that, to support the Government’s economic policy, including its objectives for growth and employment” (emphases added). The article continues: “The inflation target is symmetric. If inflation looks set to rise above target, then the MPC tightens monetary policy to slow spending and reduce inflation. Similarly, if inflation looks set to fall below 2%, the Bank loosens monetary policy to boost spending and inflation.” In this case, stimulus is entirely consistent with neoliberal goals. It is not applied to achieve full employment, as would be the case with Keynesian stimulus, but rather to obtain a level of inflation at which unemployment will stabilize at its natural (and non-inflationary) level.
In any case, the stimulative effects may have been exaggerated. In this volume Gary Teeple (chapter 2) contends that QE has functioned to redistribute value to the corporate sector and the rich without producing much stimulus, because there is little incentive for investment in the real economy when demand is sluggish. That situation is exacerbated by austerity policies designed to ensure that state debts are paid for by transfers from working-class people, pensioners, and recipients of social programs who must make do with less. Similarly, John Peters’s discussion (chapter 3) makes it clear that monetary measures supporting the financial sector far outweighed stimulative spending on social programs in many countries. But, acting on the supply side, these are hardly Keynesian measures designed to bring about full employment, especially when delivered in a context where any “trickle down” effects are moderated by fiscal restraint and labour market flexibilization.
Arguably, however, the launch of Neoliberalism 2.0 after 2010 ushered in a distinct variant from the neoliberalism of the mid-1970s to 2008, which had begun to demonstrate signs of its unsustainability. The 2008 Great Financial Crisis re-energized the project in providing an unprecedented economic and ideological platform from which to renew the assault on the remaining pillars of the welfare state and further pursue the freedom of capital.
The contemporary expression of austerity is broadly defined as (1) comprising fiscal consolidation, (2) structural reforms of the public sector, and (3) flexibilization of labour markets. This is the default policy response for most states and international organizations. Fiscal consolidation means giving priority to achieving state budget balance within a reasonable period and reducing public debt as a percentage of GDP. The favoured instrument for this is reduced spending by the state, a vehicle that in practice targets social assistance and is consistent with austerity’s underlying goal of reducing or eliminating the socially progressive redistributive role the state had assumed in the post-war period. Structural reforms include further flexibilization of the labour force and public sector restructuring to achieve “efficiency” as defined in New Public Management doctrines, through such instruments as privatizing public services, reducing public subsidies, reforming disability and illness insurance, extending the period of working life before pensions can be accessed, reducing employment benefits, and ending short-work-time programs.
The contributions presented in this volume take the political and policy response to the 2008 Great Financial Crisis as their point of departure. What has been observed since 2008 is the launch of a new austerity phase in the history of the neoliberal project. The new austerity builds upon deep roots within neoliberalism and earlier phases of liberalism, and a number of contributions emphasize that the current turn to austerity can be understood only in historical perspective.
Most contributions address the ideational rationale for austerity measures but, finding it unconvincing as an overarching explanation, also attempt to identify the particular alignment of class and other political forces enabling austerity, and the role that these measures play in the evolution of the neoliberal global economy. Despite the still common framing of neoliberalism as anti-state fundamentalism, what is made evident through this collection is the central role of the state in constructing austerity. This represents a critical paradox within the neoliberal project, both ideologically and in policy terms. While neoliberalism often is cast as a project concerned with shrinking the role of the state, this requires greater nuance. Indeed the authority and capacity of the state in particular spheres is central to the design, implementation, and reproduction of neoliberalism with (as several contributions note) profoundly undemocratic implications. However, the state retains its liberal democratic shell, and this requires the ability to construct viable electoral coalitions to win elections, and may constrain how far and fast the project proceeds. It is reminiscent of Gramsci’s oft-quoted characterization of the rise of fascism, where “the crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.” In this context, the state is a critical site of contestation for political and economic power; this is true of state power at the national level and in its emerging supranational forms as, for example, with the European Union. Contributions here are concerned specifically with the role of the state as a site not only of struggle in the liberal democratic context, but also of challenges of a more radical nature.
Within this context, three related themes weave through the contributions presented in this volume.
First, the structural roots of austerity – in the political demands of capital and business for a strong but limited state – centred upon dismantling the post-war labour-capital compromises. Strategies and tactics are rolled out to achieve this goal, including fiscal rules giving priority to constraining public expenditures through balanced budget orthodoxy, by lowering the acceptable level of public debt, and – in a strategy to “starve the beast” and eviscerate the state’s fiscal capacity to improve or establish new public services – by reducing state revenues by cutting taxes and eliminating progressivity. Beyond fiscal conservatism, other interventions seek to lower the cost of labour both in the private and public sectors through policies that flexibilize the labour force by disempowering unions (unions being cast as “labour market rigidities”) and deregulating the labour market. This, in essence, translates into reducing labour standards, health and safety protections, and business liability for environmental damage and consumer protection. The dominant defence is that the level of public debt, excessive expenditures, and uncompetitive domestic economies (in other words, labour is too expensive) have forced austerity upon us. TINA (“There Is No Alternative,” as Mrs Thatcher famously put it) has been reanimated for the twenty-first century. But the reality is that expanding inequality is a consequence of deliberate state policies that accelerate polarization.
All of this ran, and continues to run, against the necessity to give priority to full employment and redistribution. The unrelenting expansion of market income inequality witnessed over the past three decades has become so uncomfortably problematic that Thomas Piketty’s Capital in the Twenty-First Century (2014) became the subject of front-page mainstream media discussion and commentary. Oddly, examining inequality has become fashionable after decades of neglect by opinion leaders. There is no “invisible hand” at work here, but rather business enterprises have rapidly expanded their use of low-waged work and non-standard employment arrangements as a matter of business strategy. And in the aftermath of the financial crisis, the policy response of the state was not to address the social crisis but rather to stabilize the financial sector. In the EU, state-led support for the financial sector was estimated at 37 per cent of EU GDP. As policy is about choice, the policy decision to substantially lessen support for employment during this crisis sharply expresses the balance of forces, class, and otherwise in play (see Peters, Wilks, chapters 3 and 13).
As such, the ahistoric framing of “the public debt made me do it” does not stand up to scrutiny. In the United Kingdom, the current austerity regime is the legacy of the public (and private) debt accumulated through four decades of constructing the “neoliberal developmental market.” The previous Coalition Government drew on the narrative of an “unavoidable deficit reduction plan” as the only strategy to restore fiscal balance and market-led growth. This obfuscates the fact that there would never have been a British Empire had such orthodoxy ruled the Treasury in centuries past (see Lee, chapter 6). And the pre-crisis celebrity of Ireland as a model of neoliberal development, despite recurring policy failure, can be attributed to a deeply embedded and institutionalized commitment to “sound money” and austerity through the Irish state, which runs through the history of the republic (see O’Rourke and Hogan, chapter 7). But the political strategy throughout is to employ the state and its array of institutions to deliberately navigate the shifting terrain of class and other social forces to the advantage of capital. In the period of the 2008 crisis, the goal was to transform private liabilities into state debt (see Teeple, chapter 2), a manoeuvre that established the political foundation from which to launch the next phase of neoliberal state building.
A second theme is concerned with the reconfiguration of the state. There is a certain iterative relationship to the foregoing theme, in that structural roots of austerity inform the reconfiguration of the state just as the reconfiguration of the state informs the structuration of austerity. Taken as a whole, the focus is on the internal processes of neoliberalization within the state itself, which are first transforming the redistributional post-war Keynesian welfare state by eroding redistributional policies and allied capacity, but second strengthening its capacities and roles concerned with capital accumulation, competitiveness, and coercion. The state may be crucial in managing the turn to austerity but is itself being transformed by the processes it is initiating and supervising. In essence, this commodification of the state, expressed though privatization, marketization, and corporatization, solidifies the ongoing neoliberal paradigm of governance and state transformation. This type of state presides over a particular type of society – one characterized by inequality and the assertion of the interests of private business, finance, and capital generally at the expense of other social actors. In this situation, the interests of capital lie in acquiring state assets, colonizing the public sector in pursuit of profit-making opportunities, and ensuring the state can service or pay the public debt. A number of chapters deal with the reconfiguration of the state and its relations with capital. Its fiscal capacity is undermined by (1) its tolerance of tax evasion; (2) its ability to manage or monitor outsourced provision of public services compromised by its own cutbacks to the public service; (3) its ideological disempowerment through acceptance of notions that public is always less efficient than private; (4) its future capacity limited and a need for future austerity embedded through long-range contracts associated with P3s; and (5) innovations in the financing of program delivery provide new space for profit.
Meanwhile, the state plays an active role in ideologically legitimizing the contentious politics of austerity. The adage “Never let a crisis go to waste” seems applicable here. The crisis has created opportunities for capital to profit as states restructure and reduce public expenditure through privatization, outsourcing, and infrastructure “partnerships.” The crucial point of these strategies, however, is more than simply cost reduction; rather it involves deep structural and institutional transformation in the role of the state and its relationship to capital. Despite an appearance of sometimes being imposed from outside, it is clear that austerity has deep domestic roots in elite attitudes and interests. Within the state, key sites of policy framing, occupied by market fundamentalists, work as the ideational agents constructing the policy parameters of what is acceptable in policy terms and what is filtered out. Indeed, the very structure of the policy advisory system within the state has become exceptionally closed to contestation in any form, leading some to point not just to policy failures but even to the prospect of failing or failed states (see Evans, Wilks, chapters 10 and 13).
The reconfiguration of the state has significant implications for democracy. One of the most effective strategies employed is that of constitutionalization. This does not refer to the sovereign legal codification of fundamental principles of governance in a document, though the effect may not be that different; it instead refers to a process where critical powers are situated in agreements and/or institutions far removed from popular and government influence, and perhaps not even under observation. And the rules flowing from these processes are the vehicles for neoliberal policy preferences and serve to block any future change as a result of a change in a government. This set of policy outcomes – irrespective of changes in governing party, electoral coalition or public opinion – become “locked in” and become what amounts to an ideological gene sequence (see McBride, chapter 8). The embedding of neoliberalism within the structures of the state is reinforced by the critical role of economists in the policy process and the policy process architecture of the neoliberal state, which differs significantly from the one that prevailed through the Keynesian era. These features serve to insulate the state from alternative, non-neoliberal policy ideas that are effectively crowded out by the architecture of the neoliberal state (see Evans, chapter 10). For example, Canada’s commitment to expansionary austerity as state policy can be traced back to the mid-1990s when cuts to social spending were the deepest in the nation’s history. Since the 1990s, Canada’s social expenditure as a percentage of GDP has stagnated, and even regressed slightly. In the face of modest social expenditure growth in other OECD countries, Canada has fallen from close to the average, to well behind it in the last twenty-five years. The result is that the pace of growing income inequality has quickened. This fact alone disputes the argument that expansionary austerity leads to growth or, if it does, the benefits are not particularly well distributed. In the Canadian case, the general conclusion is that expansionary austerity does not work (see Cohen, chapter 4).
The ideational contest is further constrained and homogenized through the role of influential neoliberal think tanks whose purpose is to manufacture the evidence and arguments advocating for one policy prescription over another. The case of the European Monetary Union in the 2008 crisis offers a case study in both the homogenization of options and big arguments over technical, as opposed to ideological, differences. Those differences are amplified by differing political objectives of distinct ruling-class fractions (see Plehwe, chapter 9). Moreover, the applied policy and program delivery outcomes emerging from the neoliberalized state reflect the hegemonic status that “zombie” ideas have achieved within the state apparatus. The ascent of finance capital and the resulting financialization of all that exists further demand a reconsideration of approaches to policy design and implementation across a spectrum of policy sectors as well as for public administration itself. As a case in point, a public services industry has emerged, constructed through an alliance of party-political and corporate elites who see the public sector as a new site from which to extract profits by outsourcing what were previously public sector functions carried out “in-house” by public servants (see Wilks, chapter 13). This entrepreneurship is further expressed in a variety of policy innovations that reflect the primacy of markets and business values and practices. The advent of Social Impact Bonds dramatically illustrate the marketization of social policy where private investment is pooled to finance social service projects with the objective of returning a profit to those investors where identified project objectives are met (see Joy and Shields, chapter 14). The private financing of public infrastructure through public-private partnerships (referred to as Public-Private Partnerships or P3s in Canada; Public Finance Initiative [PFI] in the United Kingdom) is one strategy that conforms to austerity and is consistent with the logic of financialization. Through this financing mechanism, necessary infrastructure – whether roads, bridges, public transit, hospital buildings, maritime ports, or airports, etc. – are constructed without recourse to public funds. P3 financing converts public infrastructure into a monetized asset, one where private investors can expect a return on investment over time.
This presents an additional instrument to the austerity toolkit. To the usual methods of public expenditure cuts, marketization, and privatization of state assets and programs can now be added a for-profit revenue-generating instrument linked to global capital markets (see Whiteside, chapter 12). Thus public infrastructure assets are sold, revenue streams are monetized, and profits accumulate to private investors. Given the strategic and long-term importance of such assets, the risk to private investors is minimal, as governments will ensure completion of projects regardless of the challenges and crises that inevitably emerge. While not a component of the state directly, tax havens are both creatures of the state policy that allows them to exist and, perhaps more counterintuitively, a means to advance neoliberal economic policy. Following the 2008 crisis, a tax justice movement emerged to regulate tax havens and ensure that the wealthy could not evade taxation while mere mortal citizens were loaded with additional taxes combined with social program cuts. Campaigns for tax justice represent if not an alternative to austerity then at the very least a perspective that its cost should and can be shared more equitably. However, the efforts of G20 and OECD states to act on tax havens have yielded few tangible results. Ultimately, tax havens manage austerity in several valuable ways. First, tax havens provide pools of investment capital that can be injected into P3/PFI projects. Second, as a source of loan capital, given the shrinking availability of credit. And third, by providing a shield for foreign investors in the host country (see Woodward, chapter 11).
The reconfiguration of the state is derivative from the structural roots of neoliberalism and hence austerity in the current context but, further, the reconfigured state leads in establishing the structural reality that further deepens the ideational, political, and institutional logic of austerity.
The third theme, concerned with the limited availability of alternative policy options to austerity, is addressed in several contributions. It is not that there are no alternatives to austerity but rather a variety of structural, ideational, and institutional arrangements that block these alternatives from reaching the policy agenda or from being taken seriously. Consequently, existing austerity policies are unchallenged in any meaningful way and thus enjoy hegemonic status.
Paradoxically, because of their failure to address deep structural problems, austerity policies, in conjunction with their apparent unassailability, are likely to lead to more crises or increased economic volatility. The instrumental and authoritarian aspects of neoliberalism expressed here inform an increasingly anti-democratic tendency within the state and the broader society (see Peters, McBride, and Wilks, chapters 3, 8, and 13). The automatic stabilizers of the Keynesian era, even though subject to erosion during the neoliberal period, were able, even in 2008, to mitigate the effects of recession. Under austerity they are being further diminished (see Cohen, chapter 4). In Europe, mildly reformist proposals, representing a pragmatic austerity alternative to the harder-line version, are dismissed by the European Commission and central bank (see Plehwe, chapter 9). Instead, efforts are underway to constitutionalize not just fiscal consolidation, but the other components of austerity as well – structural reform of the public sector and flexibilization of labour markets (see Peters, Cohen, and McBride, chapters 3, 4, and 8). The effect is to further restrict the democratic space for contestation. This can be seen in the variety of coercive policy instruments, including balanced budget and expenditure control legislation, the central bank policy of privileging of inflation control, and, in the case of the EU, monetary and fiscal policy instruments that are increasingly triggered automatically rather than at the discretion of a national government (see McBride, chapter 8). Whether these automatic mechanisms are capable of stabilizing the system in the manner of their Keynesian predecessors is open to question.
The immense weight of this regime in ideological, theoretical, and institutional terms feeds a general internalization of the values, insights, and understandings at a popular and cultural level. It is not simply institutions that have been reconstructed but also political culture. Through these processes, austerity becomes “common sense,” as even contemplating a different reality becomes inconceivable (see McBride and Mitrea, chapter 5).
The book is organized into two distinct sections. Section 1 addresses how states have responded to the 2008 crisis and contribute to our understanding of austerity policy construction; section 2 deals with how the state has been reconfigured through the interaction between states and mechanisms of global governance. Opening section 1, Gary Teeple (chapter 2) points out the temporary and contingent nature of the Keynesian post-war compromise that brought to the working classes of the industrial nations an unprecedented high standard of living, largely disguising the underlying class conflict. In the 1970s, the contradictions in Keynesianism and liberal democracy between the demands of workers and capital accumulation surfaced in the form of economic stagnation. This was addressed by a shift away from Keynesianism to the adoption of neoliberal policies, reflecting new conditions underlying capital accumulation. Decades of retrenchment and economic crises followed, culminating in near financial collapse in 2007–8. To confront the changing conditions that had brought global capital to this point, the industrial states introduced austerity policies, accelerating neoliberalism and the use of the national debt to shift wealth from the working class to the corporate sector. Teeple argues that the world’s working classes now confront global corporate monopolies, cartels, and state-like institutions, and yet are defined by national labour laws and institutions, near-powerless states, global labour markets, declining union density, and stagnant or falling wages.
Chapter 3 by John Peters explores the politics of inequality in five North American and Western European countries after the Financial Crisis of 2008–9. Comparing financial policies to job and income-related programs in Canada, the United States, and a number of leading Western European economies, the argument is made that governments affected the distribution of market income in immediate and substantial ways. The central argument advanced is that global and domestic power imbalances between corporate interests and those of other organized groups explain these outcomes.
Chapter 4, from Marjorie Griffin Cohen, contends that austerity is related to a profound shift in government policy, from a sense that economic crises should be prevented, to one where crisis containment after the fact is the focus. This shift is closely aligned with austerity measures in government institutions of social reproduction, particularly those that have had counter-cyclical effects in the past.
Stephen McBride and Sorin Mitrea’s chapter 5 examines how people have coped with state sponsored precarity as part of their daily lives. The post–Global Financial Crisis period witnessed a devolution of social support to the individual, lower labour costs, and entrenchment of austere policies. They argue that this strategy has been partially accepted or, as they put it, “internalized” by the strata targeted by the austerity measures. Starting with state policies to restructure the labour market, the chapter explores the argument that the material realities (“precarity”) that result from austerity (flexibilization, outsourcing, privatization, concentration of wealth, inequality) create necessary conditions for acceptance of those very policies. The result is a “common sense” enabling the legitimation of austerity. The result is the declining role of institutions of social reproduction as automatic stabilizers.
Simon Lee, in chapter 6, analyses how the Cameron-Clegg Coalition Government used the financial crisis of 2007–8 as justification for its austerity program. Lee’s analysis effectively explains how this is a flawed strategy that has been implemented by a failed and failing British state. The chapter demonstrates that the neoliberal developmental market has created Generation Debt by shifting public debt, accumulated over forty years of neoliberalism, onto individuals and households. The narrative that there is a crisis in state finance is found to be historically unsound. A key theme through modern British history is the use of public debt to finance state development projects, whether military adventures or the National Health Service.
Chapter 7 moves to the Republic of Ireland, where Brendan O’Rourke and John Hogan show that Irish “successes” with austerity are marginal and marginalizing. Taking a historical perspective, the chapter situates austerity in Irish elite thinking and traces this from the 1921 conservative revolution’s inheritance of the British pre-Keynesian Treasury model, through to the 2008 crisis and beyond. An examination of Ireland’s “expansionary fiscal contraction” of the 1980s demonstrates that the claim that austerity succeeds is fragile. The impacts of the current crisis on Ireland and the elite’s adoption of austerity measures are appraised.
Section 2 is composed of contributions that illuminate how the state has been reconfigured in the construction and implantation of austerity and neoliberalism more broadly, and how attempts at global governance are implicated in these processes. Chapter 8 by Stephen McBride sets the political context. This chapter posits that the persistence with which austerity policies have been pursued when they clearly fail to achieve their stated objectives presents a public policy puzzle. Rather than prompting a reconsideration of the policy, there is a clear trend to render austerity a permanent, constitutionalized response to economic challenges “for all seasons.” The chapter links the drive to austerity within the “new constitutionalism” literature, which depicts procedurally the removal of important decisions from the realm of liberal democratic politics and their relocation behind impenetrable and unaccountable barriers; and, in terms of content, which embed neoliberal practices and policies, and the power relations that underpin them, as “normal.”
The role of think tanks in shaping the debate is taken up in chapter 9, where Dieter Plehwe analyses the debate following the proposal that Eurobonds be employed to end speculation against national bonds issued by indebted European countries. By linking the ideas and arguments advanced for and against Eurobonds to relevant constituencies, different discourse coalitions become visible. Interestingly, these are not identical with European party alliances. At the same time, the major coalitions in favour of and against Eurobonds turn out to be not quite as different as presented.
Chapter 10 by Bryan Evans illustrates how neoliberal ideas and those associated with austerity go unchallenged within the policy advisory system of the state. What makes this more perplexing is that the 2008 crisis did nothing to expand the cracks in the edifice of neoliberalism. This neoliberal resiliency is explained here as a function of how ideas are linked to state structures through policy actors, the privileging of certain ideas as common sense, and specifically in this regard the role of economists and the power of scientization of economics as a body of “expert” knowledge. And ultimately, the architecture of the neoliberal state apparatus restricts who and what is “heard.”
Richard Woodward in chapter 11 situates tax havens as critical instruments in the age of austerity. The G20’s pledge to “end the era of banking secrecy” prompted excited talk of the “end of offshore” tax havens. Unfortunately this is at odds with the empirical evidence that offshore finance centres continue to thrive in the era of austerity. Instead, the flourishing of offshore tax havens was necessitated by demands for states, international financial institutions, and corporate actors to develop instruments to manage the instabilities and contradictions intrinsic to the neoliberal economic project. Although many leading actors have made a rhetorical commitment to a clampdown, the reality, it is argued here, is that offshore financial instruments are central to the delivery of the austerity policies. In this regard, it is worth pointing out that even if states (individually and collectively) became less tolerant of outright tax evasion, they are still willing to tolerate (and indeed encourage) tax avoidance, especially by corporate actors whom they systematically incorporate into their decision-making processes.
With chapter 12, Heather Whiteside links the fiscal austerity in the 1980s and 1990s with significant underfunding of infrastructure development and maintenance, leaving all manner of public works in need of substantial (re)development. The return of austerity post-2008, White-side explains, leads to the financialization of public infrastructure: budgetary crises in some jurisdictions are being addressed not only through cuts to expenditures but also through generating revenue by opening up public infrastructure to private investment. The chapter, in this context, examines how, why, and to what effect public sector budgetary pressures are being framed as opportunities to profit from austerity.
Stephen Wilks follows with chapter 13, in which he traces the emergence of a New Corporate State since the 1990s. He discerns a secular trend in anglophone countries where the transfer of public services to the private sector has taken place. This trend has been intensified by austerity, with the result that a qualitative change in the nature of the state is underway. The consequent shrinking of government and the implications of this are the focus here. Specifically, the chapter charts the reciprocal creation and growth of a private, for-profit “public services industry.” Implications include (1) a reinvention of the civil service where responsibility for policymaking is transferred to the private sector; and (2) the development of a distinct industrial sector, dependent on government but politically powerful and integrated into a corporate elite as a key component of the New Corporate State.
In chapter 14, Meghan Joy and John Shields examine how neoliberalism seeks to marketize the non-profit sector. The sector performs a key role in austerity rhetoric in the wake of the 2008 crisis, which blends neoliberalism and philanthropic localism. Innovations in social financing have created an opportunity for the private market to profit from those whom the market had previously left behind. One of these new tools, Social Impact Bonds (SIBs), was developed to pool private investment to support social service projects with the attendant promise of a profit. SIBs provide a case study here of the marketization of the non-profit sector in an austerity context and outline the challenges and contradictions that this new policy tool poses.
The volume concludes with a chapter by McBride and Evans summing up the main findings and reviewing interpretations of austerity’s apparent intractability.
The central preoccupation of this volume is the role of the state. Taken together, the contributions address the puzzle of continued reliance on policies that, at many levels, have failed miserably. The power structure supporting austerity has been sketched and presents a daunting, though perhaps not impregnable prospect to those who reject austerity’s assumptions and practices. But there is obviously more to the picture. The conclusion makes connections to our companion volume, Austerity: The Lived Experience, that develops greater consideration of the impact of state policies on populations by concentrating on the lived experience of austerity. There, we examine theories and illustrations of how austerity is articulated and becomes accepted/internalized in subject populations. This involves discussion of the ways austerity is framed to draw upon deeper moral economies and concepts, with the effect that consent (even if disaffected consent) is obtained. That book also addresses in some detail and with reference to particular groups the consequences of austerity, and explores the nature and prospects of resistance to it.
References
Albo, G. 2002. “Neoliberalism, the State, and the Left: A Canadian Perspective.” Monthly Review (New York) 54 (1): 46–55. http://dx.doi.org/10.14452/MR-054-01-2002-05_4.
– 2008. “Neoliberalism and the Discontented.”The Socialist Register: Global Flashpoints. Pontypool: Merlin.
Bakker, I. 1996. Rethinking Restructuring: Gender and Changes in Canada. Toronto: University of Toronto Press.
Benford, James, Stuart Berry, Kalin Nikolov, Chris Young, and Mark Robson. 2009. Quantitative Easing. Bank of England Quarterly Bulletin.
Boychuk, Gerard W. 2015. “‘US Incremental Social Policy: Expansionism’ Response to Crisis.” In After 08: Social Policy and the Global Financial Crisis, ed. Stephen McBride, Rianne Mahon, and Gerard W. Boychuk, 292–312. Vancouver: UBC Press.
Crouch, Colin. 2011. The Strange Non-Death of Neoliberalism. Cambridge: Policy.
Davis, Owen. 2016. “State of the Union 2016: A Closer Look at Obama’s Economy.” IBT, 12 January. http://www.ibtimes.com/state-union-2016-closer-look-obamas-economy-2262164.
Esping-Andersen, G. 1990. The Three Worlds of Welfare Capitalism. Princeton: Princeton University Press.
Gamble, Andrew. 1979. “The Free Economy and the Strong State: The Rise of the Social Market Economy.” Socialist Register 16:1–25.
Giavazzi, Francesco, and Marco Pagano. 1990. “Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries.” Working Paper 3372, National Bureau of Economic Research. http://www.nber.org/papers/w3372.
Hall, P. 1993. “Policy Paradigms, Social Learning and the State: The Case of Economic Policy-making in Britain.” Comparative Politics 25 (3): 275–96. http://dx.doi.org/10.2307/422246.
Hall, P., and D. Soskice. 2003. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press.
Harvey, D. 2005. A Brief History of Neoliberalism. New York: Oxford University Press.
Jessop, B. 2004. “Hollowing Out the ‘Nation-State’ and Multi-Level Governance.” In A Handbook of Comparative Social Policy, ed. P. Kennett, 11–25. Northampton, MA: Edward Elgar Publishing. http://dx.doi.org/10.4337/9781845421588.00010.
Konings, Martijn. 2012. “Neoliberalism and the State.” In Neoliberalism: Beyond the Free Market, ed. Damien Cahill, Lindy Edwards and Frank Stilwell, eds., 54–66. Cheltenham, UK: Edward Elgar.
Kregel, Jan. 2011. “Resolving the US Financial Crisis: Politics Dominates Economics in the New Political Economy.” PSL Quarterly Review 65:23–37.
Larner, W. 2000. “Neo-liberalism: Policy, Ideology, Governmentality.” Studies in Political Economy 63 (1): 5–25. http://dx.doi.org/10.1080/19187033.2000.11675231.
Macartney, H. 2011. Variegated Neoliberalism: EU Varieties of Capitalism and International Political Economy. London: Routledge.
Palley, Thomas. 2011. “Quantitative Easing: A Keynesian Critique.” Working Paper 252. University of Massachusetts Amherst Political Economy Research Institute. https://www.peri.umass.edu/media/k2/attachments/WP252.pdf.
Piketty, Thomas. 2014. Capital in the Twenty-First Century. Cambridge, MA: Belknap.