15 Conclusion
STEPHEN MCBRIDE AND BRYAN M. EVANS
This book has dealt with the resilience of neoliberalism in the face of a deep and prolonged crisis for which it bears the primary responsibility. Austerity has played a crucial role in consolidating and even re-energizing neoliberalism. The staying power of an ideology and capital accumulation strategy that produced such a crisis that, in its early stages at least, threatened to bring down the entire capitalist system, is on the face of it surprising. Most of the contributors to the book make some reference to this puzzle and pay some attention to what might explain neoliberalism’s survival as a guide to action for policymakers and as a set of norms that, with some exceptions, has not been seriously challenged in the political process.
The depth of the ongoing financial and economic crisis that started in 2007/8 cannot be doubted. However, so far it has failed to trigger a crisis of the hegemonic ideology or of the institutions and policies that have inflicted austerity on populations that had no part in creating the crisis. In this concluding chapter we briefly review a number of interpretations or explanations for this phenomenon.
The crisis itself was endogenous to the neoliberal economic model and system of governance in place for several decades since the demise of the Keynesian era. It was not the result of outside pressures. Nor was it the result of social conflict in which well-organized adversaries of the system were able to undermine it and create a crisis. Forces with such capacity did not exist in the neoliberal period prior to the crisis. Labour had weakened as an organizational force. And the political arm of the labour movement had either disappeared or become marginalized, as with the communist parties of Western Europe, or had been thoroughly neoliberalized and integrated into the system of rule, as with most social democratic parties. Indeed, the ideological and policy makeover of the “old” Left, both communist and social democratic, in the pre-2007 crisis years, left it incapable of effectively responding to the depth of the crisis once it arrived. The largest Western European communist parties, those of France and Italy, were by the mid-1980s in serious decline. The Italian communist party, which at its height in the mid-1970s boasted two million members and could attract one-third of the vote, disappeared entirely into the fold of the ideologically ambiguous Democratic Party. Similarly, the French communist party, once capable of attracting a reliable one-fifth of the electorate, now struggled to win 4–6 per cent of the popular vote prior to joining the Left Front. And for social democrats, as governing parties in many countries, whether they held a clear single party majority, as in the United Kingdom, Spain, and Portugal, or were senior or junior members in coalition governments, their nearly universal embrace of neoliberalism in the guise of Third Way policy and the adoption of labour market flexibilization policies and privatization alienated large swathes of their working-class electorate. When the crisis emerged, social democrats simply did not know how to respond differently from governments of the centre-Right. The pre-crisis decline in social democrat vote shares turned into a complete implosion of their electoral fortunes, in several cases, notably Ireland, Greece, and the Netherlands. In many other instances, including Sweden, Finland, Germany, Spain, Austria, Denmark, and France, these parties have seen their electoral base fragment to the nationalist Right and radical Left, thus leaving them in electoral quagmires and being forced into “grand coalitions” with parties of the centre-Right.
One result was that in the aftermath of the crisis, although alternative ideas of what to do about it were in good supply, none of them was connected to a social or organizational base capable of challenging the status quo. Established elites enjoyed a significant advantage in defining the crisis and how to respond to it.
Even so, immediately after the financial crash it did seem possible that it would spread from the sphere of the economy into the realm of ideology and politics. This was reflected in early talk of the return to Keynesianism as governments engaged in stimulus spending, and takeovers and bailouts of industries and financial institutions in order to avert a complete economic collapse. To some degree fiscal measures, and monetary ones such as quantitative easing aimed at stimulating the economy, did represent a policy departure. But in most cases the fiscal measures, except for tax cuts in some cases, proved temporary and were replaced by fiscal consolidation in which spending cuts loomed large as a means to reduce government deficits and debt. These debts had been incurred largely by bailing out financial interests and as a result of the recession that the crisis caused. Monetary policies such as quantitative easing lasted longer in some jurisdictions. But the nature of that instrument, essentially placing public money into the hands of private banks in the hopes that through their lending to investors, benefits from investment would eventually trickle down and have a stimulative effect, seems a curious method if the aim were really Keynesian-style employment creation. Rather, as several contributors point out, it seems a measure designed to rescue finance from the consequences of its own actions, and austerity is then demanded to ensure that the public debt created by taking on bad debts from the private sector can be serviced. It carries the danger that instead of stimulating the real economy it will create asset price inflation and bubbles in the way that preceded the economic collapse in 2007.
Accompanying these measures are ones of structural reform of the public sector and further flexibilization of the labour market. Such measures not only target constituencies that had nothing to do with causing the crisis but also replicate long-standing neoliberal assaults on the state and on labour. And as noted above, social democrats in government became associated with these efforts in many cases. For all of these reasons the contributions to the book have taken the view that neoliberal restoration by way of austerity has been the ideological and political outcome of the crisis, at least to date.
In looking at the intractability of neoliberalism and austerity, a number of lines of interpretation or explanation are developed in different parts of the book. They are outlined here as subjects for further research, or at least research that is not fully developed here, but that is fruitful to explore.
Ideas and Institutions
It is well documented that austerity is an old and familiar idea towards which elites quickly gravitate in times of trouble. Blyth (2013, 98–9) gives the most coherent account in which elite concerns about the state are depicted as part of liberalism from its very beginning. The state was necessary for the development and protection of the capitalist system, but as it became more open to democratic pressures (Macpherson 1965) it potentially represented a threat to it. Austerity addresses concerns about the state by imposing limits on its actions, through fiscally constraining it in the name of balanced budgets, and especially on its capacity to raise debt to finance its activities. Moreover, according to Blyth (2013, 115) the general narrative of austerity speaks to “parsimony, frugality, morality, and a pathological fear of the consequences of government debt [that] lie deep within early liberalism’s fossil record from its very inception.” This may be an overstatement. Obviously elements of capital have been willing, over the years, to own public debt through lending to governments. The real issue is whether the state has the capacity and willingness to service its debt (Streek 2014, 76–8), and how prioritizing this might be guaranteed.
For several decades neoliberal political parties and associated interests have prevailed in the battle of ideas on these points. The efforts of well-funded private sector think tanks and an associated reduction in the state’s independent policy analysis and development capacity have been central to this process. However, especially in times of crisis, there is no guarantee that such predominance in ideas, and at the polls, will continue. The ideas of austerity therefore need to be bolstered by institutions that render them an automatic response to fiscal imbalances, and this has led to intensified efforts to institutionalize or constitutionalize core principles, even as the intellectual case for austerity has been weakened, and culpability of neoliberalism for the crisis became discernible.
Promoters of austerity emphasize that government debt and deficits undermine investor confidence and that, as a result, investment declines, leading to recession. Getting fiscal affairs back into balance and instigating a downward trend in the public debt to GDP ratio restores investor confidence. Investment follows, leading to economic growth and job creation. In this scenario, the crisis is caused by a bloated public sector financed by debt, and the solution – fiscal consolidation – lies in getting it under control, through austerity measures. Several of the contributions in the book demonstrate that the “austerian” analysis is entirely ahistorical, ignores the deeper roots of the crisis, and really rests upon a triumph of discourse that consists of shifting the blame for the crisis from the reckless behaviour of an under-regulated private sector to public or sovereign debt, for which the public authorities are responsible. In fact, as Ian Gough (2011, 53–8) has pointed out, all the drivers of increased post-crisis public debt – costs of saving the banking and financial system, costs of the fiscal stimulus necessary to avert mass unemployment, increased social spending to offset the results of the recession, and the impact of the recession on tax revenues – are the result of a crisis triggered by the private sector.
Given its inaccurate account of the crisis, it is unsurprising that states following austerity policies have generally not performed well. Blyth (2013) painstakingly reviews the evidence. Typically, austerity does not lead to better fiscal health, because public spending cuts increase unemployment, which places yet more fiscal pressure on government programs. Nor does austerity unleash economic growth. Polychroniou (2014) points out that all the European countries under supervision of the Troika (the IMF, European Commission, and European Central Bank) experienced deterioration in employment levels and debt ratios as a result of imposed austerity policies (see also Greer 2014).
As a result, the intellectual case for austerity lacks credibility. Widely cited studies sought to demonstrate that once the public debt to GDP ratio exceeded 90 per cent of GDP, growth would decline rapidly (Reinhart and Rogoff 2010a, 2010b). But recalculations of their data showed no such effect (Herndon, Ash and Pollin 2013). Similarly, the case for “expansionary fiscal contraction” has been effectively debunked (Guajardo, Leigh, and Pescatori 2011; Blyth 2013). Heterodox economists (Quiggin 2010; Stanford 2008) had long criticized the claims of orthodox economists about the impact of austerity. They have been joined by eminent mainstream figures (Krugman 2013; Stiglitz 2011). From time to time austerity proponents such as the IMF have acknowledged the settings of austerity policies are unhelpful to economic growth – too much austerity, too fast, based on miscalculations of the multiplier effect of spending cuts (Blanchard and Leigh 2013; Blanchard 2012). Still, notwithstanding its empirical record and the shallowness of its theoretical foundation, austerity remains ensconced as the crisis policy of choice and is a candidate for constitutionalization and hence removal from effective debate. Clearly this does not involve the constitutionalization of “best practices” but rather of vested interests.
Some make the argument that these are the interests of finance capital (Konzelmann 2012). Thus the imposition of draconian austerity measures by the Troika on the peripheral countries of Europe is linked to the need to protect the Eurozone’s integrity as well as that of the private bankers exposed to both public and private debt. Others emphasize the more general interests of capital rather than those of a specific sector.
Wolfgang Streek (2014, 79–86) has developed the idea that states are increasingly accountable to two constituencies or “peoples,” often with divergent interests. These are the Staatsvolk (the nationally based general citizenry), and the marktvolk (investors with global interests who are the state’s creditors). The emergence of finance “marks a new stage in the relationship between capitalism and democracy, in which capital exercises its political influence not only indirectly (by investing or not investing in national economies) but also directly (by financing or not financing the state itself)” (Streek 2014, 84). Austerity can then be viewed as functional for these interests because it involves fiscal rectitude, affecting the general citizenry, and, through balanced budgets and restraining public debt to manageable levels, builds the confidence of financial creditors that their interests will be prioritized by the state.
A complementary view is that austerity may benefit one or other fraction of capital in a particular context, but the common resort to it across time and place, and the desire to render it an automatic, normal, and constitutionalized response to economic crises, and perhaps a governing principle at all times, is because it is in the general interests of capital.
Viewed in class terms, the unemployment that results from austerity, the declining social wage, reduced public sector, structural reform of the labour market, and heightened insecurity with which working-class individuals are confronted all weaken labour – a potential threat to the interests of capital. Similarly, limits on budget deficits and debt curb any interventionist proclivities that may exist among states, themselves a potential limit on capital’s freedom to operate in accordance with its own interests. In terms of capital’s general interests, austerity policies are political stabilizers that may defuse challenges to its hegemony that might emerge, either from labour or from the state. Of course, as national election outcomes in 2015 and 2016 in Greece, Spain, Portugal, and Ireland, and the altogether unlikely ascent of Jeremy Corbyn and Bernie Sanders suggest, the austerian state can reanimate social and political forces, of the Left, which challenge four decades of neoliberal restructuring.
References
Blanchard, Olivier. 2012. “Driving the Global Economy with the Brakes On.” iMF Direct, 24 January. http://blog-imfdirect.imf.org/2012/01/24/driving-the-global-economy-with-the-brakes-on/.
Blanchard, Olivier, and Daniel Leigh. 2013. Growth Forecast Errors and Fiscal Multipliers.IMF Working Paper no.1. http://dx.doi.org/10.5089/9781475576443.001.
Blyth, M. 2013. Austerity: The History of a Dangerous Idea. Oxford: Oxford University Press.
Gough, I. 2011. “From Financial Crisis to Fiscal Crisis.” In Social Policy in Challenging Times: Economic Crisis and Welfare Systems , ed. K. Farnsworth and Z. Irving, 49–64. Bristol: Policy. http://dx.doi.org/10.1332/policypress/9781847428288.003.0003.
Greer, Scott. 2014. “Structural Adjustment Comes to Europe: Lessons for the Eurozone from the Conditionality Debates.” Global Social Policy 14 (1): 51–71. http://dx.doi.org/10.1177/1468018113511473.
Guajardo, J., D. Leigh, and A. Pescatori. 2011. Expansionary Austerity: New International Evidence. IMF Working Paper. http://www.imf.org/external/pubs/ft/wp/2011/wp11158.pdf.
Herndon, Thomas, Michael Ash, and Robert Pollin. 2013. Does High Public Debt Consistently Stifle Economic Growth: A Critique of Reinhart and Rogoff. Working Paper 322. Amherst: University of Massachusetts, Political Economy Research Institute.
Konzelmann, Suzanne. 2012. The Economics of Austerity. Working Paper 434. Cambridge: Centre for Business Research, University of Cambridge.
Krugman, Paul. 2013. End This Depression Now!New York: W.W. Norton.
Macpherson, C.B. 1965. The Real World of Democracy. Toronto: CBC Publications.
Polychroniou, C.J. 2014. “The Greek ‘Success Story’ of a Crushing Economy and a Failed State.” Truthout, 19 January. http://www.truth-out.org/news/item/21265-the-greek-success-story-of-a-crushing-economy-and-a-failed-state.
Quiggin, John. 2010. Zombie Economics: How Dead Ideas Still Walk among Us. Princeton: Princeton University Press.
Reinhart, C.M., and K.S. Rogoff. 2010a. “Growth in a Time of Debt.” American Economic Review 100 (May): 573–8.
– 2010b. Growth in a Time of Debt. Working Paper 15639, National Bureau of Economic Research. http://dx.doi.org/10.3386/w15639.
Stanford, Jim. 2008. Economics for Everyone. Halifax: Fernwood.
Stiglitz, Joseph E. 2011. “Rethinking Macroeconomics: What Went Wrong and How to Fix It.” Global Policy 2 (2): 165–75. http://dx.doi.org/10.1111/j.1758-5899.2011.00095.x.
Streek, Wolfgang. 2014. Buying Time: The Delayed Crisis of Democratic Capitalism. London: Verso.