Austerity – it can really drive you Wilde…

Dr Sue Konzelmann, author of Austerity, discusses the long-term impact of a policy that places price before value.

Over the last decade, most of us have been on the receiving end of innumerable attempts to justify continued austerity in the UK, all of which have had one thing in common – they focus purely on money. There has been much talk of public deficits and debt – although at times, even our prime ministers have confused one with the other. The impression you get is that everything has a price; and when it comes to austerity, that’s all that matters. In the words of Oscar Wilde’s Lord Darlington, a cynic is “a man who knows the price of everything and the value of nothing.”

There has been a fair amount of cynicism in discussions about austerity. For example, the value of spending over £136bn in public funds bailing out the banks following the 2008 financial crisis would be questionable enough in itself, without then using it as an excuse to deprive so many tax payers of essential government support services – especially since, as described in my new book, Austerity, the case of Iceland had clearly shown that there was a viable policy alternative to austerity. But whilst it all came down to cash at Westminster, the vast majority of us were losing essential public services that we use, value and, in many cases, depend upon.

If this continues, our society will soon begin to unravel at an even more alarming rate, as we cut the ties that bind it together. Cuts to local authority spending have already had a drastic effect on the level and effectiveness of social services, whilst you hear a lot on the TV – on a daily basis – about the devastating effects of cuts to the police and emergency services.

The corrosive effects of multiple cuts, acting together, became all too clear whilst filming a video about austerity at the Euston food bank – but that’s something you hear a lot less about in the news.

Perhaps counterintuitively, the vast majority of people who have been forced to use the food bank since it was set up in 2010 are actually in work. But the government’s attempts to save money through changes in the benefit system, like Universal Credit, has meant that people claiming it would not get a payment for up to five weeks. How many of us would be comfortable about missing a month’s salary – or more? Not many, I suspect.

It also turns out that in order to avoid homelessness, many Euston food bank users are choosing to pay their rent, rather than buy food. This is probably rather less surprising, given that the average UK household income is around £28,000 – and renting a two bed flat anywhere in that part of London will cost around £2,000 a month. Cuts to social care have also resulted in rising homelessness – and another source of people reliant on food banks.

Austerity, as a single policy, is a very blunt instrument, that has focused on price, rather than value. As a result, it has critically impacted many inter-related policy areas. Undoing its damage will therefore mean not only sharply revising policies in such areas of affordable housing, employment, health, education and social services; it will also require changes in benefit structures and delivery – to ensure that they work together as seamlessly as possible.

In a world where it is, for some unknown reason, apparently impossible to integrate such obviously linked services as the NHS and social care, this vision might seem ambitious. It shouldn’t be. In the words of Oscar Wilde’s Lord Darlington once again, “we are all in the gutter, but some of us are looking at the stars.”

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What if Cameron’s austerity had been “harder and faster”?

Dr Sue Konzelmann from the Department of Management assesses the potential impact deeper cuts would have had on the UK in the wake of the Recession.

David Cameron’s recent description of the government’s management of the Brexit process could equally well have been applied to his government’s programme of austerity, which started in 2010 – and for most of us, is still rumbling on.

After almost a decade of austerity, during which growth has sputtered, poverty has risen and reliance on food banks has ballooned, the fiscal deficit is now almost gone. Something to celebrate? Well, it might have been, had public debt not continued to increase significantly. This is because the only way to reduce public debt is to run a significant and sustained fiscal surplus. And there is still no sign of that.

But Cameron has form when it comes to confusing a fiscal deficit with national debt. Back in 2013, Andrew Dilnot, then head of the UK Statistics Authority, found it necessary to publicly rebuke him for claiming that his government was “paying down Britain’s debts”. At the time of course, national debt was still rising strongly.

Nonetheless, Cameron now claims that things might have gone better, had he implemented his austerity plan “faster and harder”, during the “window of permission” following the 2010 election. Is he right?

“Cameron’s programme of austerity was misguided in the first place.”

In my new book, Austerity, the case study of the UK following the 2008 financial crisis strongly suggests otherwise. The period following that crisis is now often referred to as the “Great Recession” – the definition of recession being two or more successive quarters of zero or negative GDP growth. We all know that recessions usually result in higher unemployment-related social costs, as well as reduced government tax receipts. This double whammy means that an increased fiscal deficit – and therefore public debt – is pretty much inevitable during a recession. Especially if you’ve also just spent billions bailing out the banks.

Cameron’s programme of austerity was therefore misguided in the first place. Since it only targeted government spending, it simply reduced the size of the economy further. The idea that a contraction in public spending could be more than replaced by private investment and enterprise – so-called “expansionary fiscal contraction” – is at best highly controversial. In our new book, Rethinking Britain: Policy Ideas for the Many, we describe is as “the economic equivalent of Big Foot; some economists claim to have seen it, but none have been able to prove that it actually exists”. A forlorn hope then.

Cameron’s austerity was implemented when the economy was slowly beginning to grow; but the recovery was not yet strong enough to withstand its dampening effects. Policy should instead have focused on encouraging growth, which would, in turn, have reduced social costs and increased tax revenues – both of which help to reduce the fiscal deficit and – if a sustained surplus is created – public debt as well. But with a fragile economy, like the UK’s in 2010, austerity inhibited growth, with predictable results; and growth has never been stellar since. But even so, make no mistake: It isn’t austerity that reduced the deficit; it’s what little growth we’ve had. Imagine where we could have been by now had policy priorities in 2010 focused on encouraging growth, rather than killing it off.

“In economic terms, the results of “harder and faster” austerity would probably have been even more unhelpful than what actually happened.”

And what are the likely effects of “harder and faster” austerity? Deeper and more abrupt cuts in government spending would have shrunk the economy more drastically and immediately – producing a deeper recession in the process. This, in turn, would have increased social costs and reduced tax receipts “harder and faster” as well. The knock-on effect would have been a sharp rise in both the government’s deficit and debt. And it is very hard to see where the growth to lift the economy out of such a deep recession would have come from, without some kind of stimulus. In other words, in economic terms, the result of “harder and faster” austerity would probably have been even more unhelpful than what actually happened.

In social terms, the probable effect of deeper and more immediate cuts is harder to assess. Cameron’s austerity programme has – in spite of claims to the contrary – resulted in growing poverty and inequality, increased homelessness, worsening crime and reduced public services. And this has contributed to a sharp increase in the number of people who have had enough of austerity. Since many of these people were looking for some means of getting back at Cameron’s government, offering them the vote on EU membership in the middle of his austerity programme, was clearly a high-risk strategy as well. All of this has resulted in a radically changed political configuration in Britain.

It’s hard to see what’s so great about eliminating the fiscal deficit, if in the process public debt has vastly increased and social outcomes for most have sharply deteriorated. Not only has austerity not worked, it’s done immense damage to Britain. We’ve had nearly ten years of austerity, and over three years of Brexit wrangling, with apparently no end in sight for either. Surely, developing policies to fix the all too obvious problems in our economy and society, would be far more productive that crowing about a reduced deficit?

The only crumb of comfort in all this is that given Cameron’s recent comments about wishing he’d imposed austerity “harder and faster” in 2010, things might have turned out much worse.

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Rethinking Britain – How to build a better future

Sue Konzelmann, Reader in Management at Birkbeck, and her colleagues John Weeks and Marc Fovargue-Davies introduce their new book, Rethinking Britain: Policy Ideas for the Many. 

Mind The Gap, London, Underground, Transportation, Uk

Of the nineteen UK governments since the Second World War, only two have torn up the rule book and tried to build a better future, instead of simply recycling the tired slogans and policies of the past. The two governments that did try radical change – not always successfully – were those of Clement Attlee in 1945 and Margaret Thatcher in 1979.  We are therefore well overdue for another major policy rethink, aimed at solving the problems we have now – largely as a consequence of Thatcher’s legacy – rather than endlessly trying to reignite the ideological battles of the past. That’s why we concluded it was high time for Rethinking Britain: Policy Ideas for the Many.

Rethinking Britain is not only for the many – it’s also written by the many. As a result, it doesn’t set out the vision of one or two people, but instead offers the assessment of a wide range of experts, who are working in or studying the areas we cover. We not only set out the problems and suggest policy solutions to address them.  Our aim is to help improve life for people living in today’s Britain.

Between each set of policy ideas, you’ll also find interludes.  These draw upon real-life stories of people in Britain who are experiencing unresolved difficulties that should be considered unacceptable in any developed economy or civilised society – and we suggest how these problems could be solved, too.

“We strongly believe that a society that produces healthy, well educated, strongly motivated people – who have, or can realistically hope for, a good standard of living – will also help to generate a powerful and dynamic economy.”

Although some depressing situations are described, our overall approach is extremely positive. Instead of denying that there are problems – or ignoring them, as many politicians have done – we take a much more “can do” approach to building the society that most of us would want to live in.  That leads to another significant point: Whilst Attlee’s 1945 government put people and society at the centre of its policy ideas, less than forty years later, Thatcher’s administration reversed this, focusing on the individual, privatization and the wealthy. This raises the question: “In whose interests should the economy be run”?

The shift to individualism, private profit maximization and an obsession with “free” markets resulted in serious wealth for the few – and runaway inequality and poverty for the many.  It’s therefore not hard to guess where those contributing to Rethinking Britain are coming from!  We strongly believe that a society that produces healthy, well educated, strongly motivated people – who have, or can realistically hope for, a good standard of living – will also help to generate a powerful and dynamic economy.

The post-1979 dogma – that the British government should play as small a part in the economy as possible – is also misguided. Far too much capital is being used for short-term, speculative purposes, whilst not enough is finding its way into the development of sustainable businesses that provide long term employment and pay decent wages – not the hand to mouth existence of a zero hours contract. In other words, the economy should work for the many, not just the few.

Another theme that runs through Rethinking Britain is the concept of citizenship – where sets of rights and obligations mean that you are indeed part of something bigger than yourself.  This is the polar opposite of Thatcher’s point of view, that there is “no such thing as society”.  Many of her policy ideas were developed in the context of the Cold War – which came to an end thirty years ago; and it’s time for her policy ideas to do the same.

By investing in Britain’s people, we can build a stronger, more cohesive society – which will underpin a more vibrant economy.  Rethinking Britain shows how.

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