Despite slashing public spending, the coalition's economic medicine has failed. Now the economy is taking another turn for the worse.
According to the Greek legend Prometheus, who angered the gods by stealing fire from them, was chained to a rock to have his liver eaten away by an eagle. Each night the liver would grow back so when dawn broke the torture might begin again. So too the budget deficit. No matter the savagery that chancellor George Osborne perpetrates, it is still there the morning after.
According to his 2010 plans, the gap between government spending and income ought now to be £40 billion. As he stood up to give his autumn statement last month it was £91 billion. Why the mishap?
Governments can do two things to eradicate a deficit — raise income or cut spending. There have been cuts aplenty, but tax income has been far lower than predicted.
For the first half of parliament this was simply because growth was so pitiful. More recently the British economy has been the fastest growing in the G7 but the recovery is not generating well-paid employment. Millions have seen their wages fall and others remain trapped in miserable self-employment or part-time jobs. This means income tax and National Insurance, the two biggest sources of revenue, have not bounced back.
Osborne’s solution? Cut more; cut harder; cut deeper.
He plans to reduce expenditure to 35 percent of GDP by 2019-20, lower than it has been since the 1930s. Given that health, schools and overseas aid are supposedly “protected”, other areas, including local government, could end up with less than half the budget they had when Osborne entered office. Paul Johnson of the Institute for Fiscal Studies responded to the autumn statement by asking, “How will these cuts be implemented? What will local government, the defence force, the transport system, look like in this world? Is this a fundamental reimagining of the role of the state?”
Some capitalists would certainly like this, but there are limits to this process.
A Financial Times business survey found widespread support for cutting welfare and overseas aid. However, there was only a slender majority to end the ring-fence of NHS spending and opposition to cuts to education spending. Businesses wanted more spending on infrastructure.
State spending is structured into contemporary capitalism, helping to create the environment in which businesses can generate profit and compete effectively. That is why Osborne has focused on attacking areas of state provision and welfare that mainly benefit the working class without contributing to profit-making. Nonetheless, these plans would mark a savage and reactionary transformation.
The obstacles to such changes are not simply structural; they are also political. A recent Populus Poll reports that only two in five people believe more cuts are needed during the next parliament. The Financial Times’s Martin Wolf acknowledges the danger of a “political backlash” if the “ability to deliver the level of public services and transfers the public expects” is compromised.
Despite this, the mainstream parties offer no real alternative. The Tories plan to generate a surplus in the government’s accounts by 2019-20, while Labour plans to balance the books excluding spending on infrastructure. Both parties remain committed to austerity.Does this consensus make sense even from a pro-capitalist perspective?
What propels capitalism forward is the profit capitalists make on their investments. This rate of profit remains at low levels in Britain. Attacking wages, privatising lucrative areas and reducing the tax burden on businesses can boost it a little. That is the brutal logic of austerity. Dramatically raising profitability requires more, above all a clearing out of some of the mass of unprofitable businesses through bankruptcy and restructuring.
If anything, policies such as quantitative easing, banking bailouts and low interest rates have postponed this. However, the “Keynesian” alternative won’t solve this problem either. The state could carry on borrowing in order to spend and, for a time, drag the economy onwards. But ultimately the markets would turn against the British economy. The debt would have to be paid by squeezing either workers or businesses, further undermining profitability.
The socialist solution is different because it rejects the basic rules of the game. We start from the needs of the working class, not how to fix capitalism or restore profits. From this perspective there are alternatives that break entirely with the need for austerity. The government estimates about £35 billion of tax goes uncollected. Why not hire more civil servants to collect it? Why not eliminate the £38 billion defence budget? Why not raise corporation tax from 21 percent to the 52 percent level it was when Margaret Thatcher came to power, nationalising the businesses of capitalists who threatened to move their assets abroad?
These measures would require powerful class struggles to achieve. We are a long way from this. One modest step in raising workers’ confidence would be to present a unified left challenge in the election that argued for such proposals. In the legend the hero Heracles kills the eagle and frees Prometheus from his doom. Our salvation begins with forging an alternative working class politics that can break the shackles of the austerity consensus.