Tag: austerity

‘No one is left to speak for me.’

By Daniel Margrain

The systematic redistribution of wealth from the poorest to the richest which began under Thatcher, continued under Blair and currently is increasing at a pace under Cameron, is emblematic of the relationship between welfare state retrenchment and the notion of the role of the state as facilitator of welfare handouts to the corporate sector.

Farm subsidies, public sector asset stripping, corporate tax avoidance and evasion, government share giveaways and housing benefit subsidies are just some of the ways in which the richest 1,000 people in Britain have seen their wealth increase by a massive £155bn since the economic crisis of 2008.

Meanwhile, in June this year, the UK government announced £12 billion of welfare cuts that included the abolition of working tax credits to the poorest and the top down reorganisation of the NHS brought about by the 2012 Health and Social Care Act which removes the duty of the Secretary of State for Health to provide a comprehensive service. The act requires up to 49 percent of services to be tendered out to “any qualified provider” . This will rapidly lead to the privatisation of the NHS in England and Wales.

The punitive attacks on the unemployed, sick and disabled have been stepped up resulting in 500,000 people using food banks in addition to increasing rates of depression, anxiety and incidences of suicides among those on benefits. In social care, a combination of cuts of around 30 percent to local authority budgets since 2010, increasingly restrictive eligibility criteria for services, and inadequate personal budgets will leave millions without the support they need.

Finally, the reduction in housing benefit to the unemployed allied to the bedroom tax is a double whammy that has resulted in growing rates of homelessness and/or the social cleansing and displacement of entire communities, many of them long established.

What are these attacks on the welfare state about? The government have long argued that they are needed in order to reduce the budget deficit. But on the very same day that the bedroom tax was announced in parliament (estimated to “save” the Treasury £480 million) the top rate of tax in the UK was cut from 50 percent to 45 percent, resulting in a loss of revenue of £1 billion.

The only rational explanation is that “austerity” is being used by the Tory government as a pro-corporate ideological weapon against both the welfare state as a concept and the general population who, in one way or another, rely on it in some shape or form. Those affected are not just the poor and traditional blue collar workers but also the lower ranks of the middle classes highlighted by the fact that the cuts are now beginning to have political repercussions within David Cameron’s own Oxfordshire constituency.

An obvious example of how Tory cuts are beginning to impact on the community at large, is in the field of social care for the elderly. In an increasingly aging society, the pressure on the social care system will become more acute as demand for its services increase. But a service motivated by profit is necessarily compromised in terms of its ability to provide a universal service of care predicated on need.

Another example, are the government’s proposals to cut the police budget by 40 per cent with the predicted loss of some 22,000 front line police officers to be replaced by private security firms. These firms will be drafted in by communities in suburbs and villages to fill the gap in neighbourhood policing left by the budget cuts. In an Essex seaside town, more than 300 residents have effectively been forced to club together to pay for overnight private security patrols.

The implications of the drive towards a privatized police force motivated primarily by profit are clear. The tendency would be for any crime not committed on the patch where customers pay privately for their service to be ignored or underplayed. The potential for the creation of protection rackets and vigilantism exists in situations where people who are not in a position to be able to afford for protection live near to people who can.

Justine Greening’s Kafkaesque contention on last Thursdays (November 5) Question Time programme that the reduction in policing in areas where crime is falling, justifies cuts to those areas, illustrates further the political undermining of the concept of universal provision. It’s my view that outsourcing is part of the Tory strategy to run down public services as the precursor to their dismantling prior to them being sold off. In fact, as Noam Chomsky put it, this process is standard practice:

“[T]here is a standard technique of privatization, namely defund what you want to privatize. Like when Thatcher wanted to defund the railroads, first thing to do is defund them, then they don’t work and people get angry and they want a change…
That’s the standard technique of privatization: defund, make sure things don’t work, people get angry, you hand it over to private capital.”  

What underlies the privatization strategy are the various vested interests involved. For instance, the husband of the woman responsible for cutting police budgets – Home Secretary Theresa May – is a major shareholder in G4S. Moreover, 70 MPs have financial links to private healthcare firms, and more than one in four Conservative peers – 62 out of the total of 216 – and many other members of the House of Lords “have a direct financial interest in the radical re-shaping of the NHS in England.” 

For the Tory government, the ideological crux of the matter is that profit maximization for the corporations they represent is regarded as taking priority over the concept of a properly functioning and accountable welfare state and public sector. Profit has become the guiding principle for the organisation of society from which everything is judged including perceptions of success and happiness.

This is reinforced daily on television programmes and in the lifestyle sections of magazines and newspapers. Moreover, power that profit implies, is linked to the concept of biological determinism in that it tries to convince us that the social order is a consequence of unchanging human biology, so that inequality and injustice cannot be eliminated.

Any rejection of this model is regarded by the apologists for the system as being the fault of the individual and not the social institutions or the way society is structured. The solution is thus to change – or even eliminate – the individuals, not to challenge the existing social structures.

It’s the current form of social organisation that biological determinism reinforces which ensures the David Cameron’s of this world secure their place at the top of the food chain. It also highlights to the rest of us the artificial limits that the system driven by profit imposes.

The Austerity Con-Trick

Cash machines targeted by Occupy protesters

Cash machines targeted by Occupy protesters (Pic: Guy Smallman)

The UK government mantra that it’s imperative to reduce the deficit (the difference between the money coming in and going out) is one of the greatest confidence tricks to have ever been fostered on the British people. In reality, the deficit could be wiped out at a stroke. In his documentary film The Spirit of ’45, Ken Loach highlighted that in the decade after the war, the UK government built 300,000 affordable homes a year and brought the NHS into being.

The chart below shows at that time UK national debt – the accumulation of deficits – stood at about 180% of GDP. At present it’s about a third of that.

UK National Debt since 1900.

Source: Reinhart, Camen M. and Kenneth S. Rogoff, “From Financial Crash to Debt Crisis,” NBER Working Paper 15795, March 2010. and OBR from 2010.

So why in 2015 are we apparently unable to afford to prevent the most vulnerable in society from committing suicide as a result of cuts to their benefits, yet after the war we were able to build hundreds of thousands of affordable homes for people to live in as well as bring our NHS into being? Why the insistence on getting the deficit down especially since there is no law forcing the government to repay the debt?

The answer to those questions is that since the crisis hit in 2008, there’s been an iron clad consensus between both the Labour Party hierarchy and the Tory right, predicated on neoliberal ideology which is used as a weapon with which to beat the poor with by way of the former’s support for, and the latter’s implementation of, a sustained programme of austerity and cuts. It’s this iron clad consensus that Jeremy Corbyn wants to break.

The notion that it’s imperative the British government “balances the budget” in order to reduce government debt is nonsense, as is the analogy that national budgets need to be treated just like household budgets. The bailiffs won’t be entering the House of Commons or the Bank Of England any time soon. The truth is, unlike personal debt, the deficits and debts of governments’ are not of primary importance.

When he became chancellor in 2010, Gideon Osborne boasted that he would eliminate the deficit by April 2015. But that plan is in tatters. He has now put back the promise to 2018/19. The government had to borrow £3.7 billion more in the first seven months of last year. This was partly because North Sea oil and gas revenues plummeted to a four year low.

The UK is a relatively low wage economy compared to it’s major rivals and its productivity gap with these nations’ is at the widest it’s been for 20 years. Moreover, because many of the new jobs created in Britain are mainly part time (against a backdrop of the longest drop in real wages since records began), means that tax revenues are low.

In order to make up the shortfall between real and expected revenues, the government borrows money by selling bonds which are essentially IOUs with the promise of future repayment. In the meantime, the government pays interest on these bonds which are sold to banks, insurance firms and even pension funds. The total of bonds that have been sold is called “public debt”.

In a crisis like the one we’ve had since 2008, bond buyers can demand higher interest payments which they have done. This explains why the cost to the government in terms of the interest on the national debt has risen since the beginning of the crisis as illustrated in the table below.


To appease the bond buyers, the government has imposed austerity on the people. We constantly read in the gutter press about the rail workers allegedly holding the government to ransom, but never the bankers – funny that!

During the peak of the swinging sixties, government debt was greater than it is in 2015 and yet, unlike those golden days, we are told that both the government and the citizens of today have to tighten their belts as though we were living the austere days of the Great Depression in the 1930s.

The truth is the post war Keynesian boom resulted in a steadily declining debt from it’s peak in the 1950s. This is because higher wages and high employment means greater spending power, which in turn means greater economic activity and higher government tax revenues.

This is precisely the kind of argument progressive capitalists like Nick Hanauer point to. The reason billionaires like him argue for a doubling in the national minimum wage is not because they are altruistic but because they understand that it’s in their best interests’ and that of the capitalist system as a whole. That message needs to be relayed to Cameron and Osborne.

The Rich Need To Be Forced To Pay Their Way For The Benefit Of All

Leading American venture capitalist Nick Hanauer has argued that the actions of capitalists’ need to be reined in through a system of planned and coordinated regulation in order for the capitalist system to be sustainable. This is what he said in a BBC TV interview in front of a live audience:

Capitalists have the idea that THEIR things will be bought by everybody else as a result of higher wages paid by OTHER capitalists. But this logic of paying higher wages to staff to help improve business activity more generally, doesn’t seem to apply equally to them since they will insist on paying THEIR OWN workers next to nothing thereby not absorbing the costs themselves resulting in them gaining a competitive advantage over their rivals. The simple truth is, if a higher minimum wage was introduced universally, not only would it be affordable, but something like 40% of American’s would be able to buy more products from everybody thus benefiting all capitalists across the board. Business is challenged today because fewer and fewer people are able to buy things [1].

The implication, in other words, is that the capitalist system needs to be regulated by governments’ in order to save it from the rapacious actions of competing capitalists driven by their insatiable need for profit maximization. This rationale was long ago grasped by Karl Marx who understood that the essence of the capitalist system is, in his phrase, “accumulation for accumulations sake.”

So why don’t capitalists insist on using free labour and make their workers work all the hours under the sun? After all, wouldn’t that lead to higher profits? And one might also ask why their representatives within the elite political establishment would bother to spend any money at all on welfare? The simple but correct answer is that where they have a choice, they don’t. Where labour supply is low, the state is in effect forced to intervene on behalf of capitalists by introducing welfare as the means of preserving and reproducing labour.

But where labour is plentiful, the state rarely feels compelled to introduce health and safety, minimum wage laws and welfare.The rationale for this is that if a worker dies of malnutrition or has an accident at work, he or she can be easily replaced by another worker. Under such circumstances, the state regards these kinds of misfortunes as a price worth paying. Consider this account of the conditions of child labour in the lace industry in Nottingham in 1861 by a local magistrate:

Children of nine or ten years are dragged from their squalid beds at two, three, four o’clock in the morning and compelled to work for a bare subsistence until ten, eleven or twelve at night, their limbs wearing away, their frames dwindling, their faces whitening, and their humanity absolutely sinking into a stone-like torpor, utterly horrible to contemplate [2].

Compare and contrast that to a recent study of the conditions of life for rural migrants in contemporary China:

The trafficked children] came from faraway Liangshan in Sichuan and most of them are not yet 16. The overseers sought and recruited them from families mired in poverty, promising them high wages; some were even abducted and sent off in batches to Dongguan and from there distributed by the truckload to factories across the Pearl River Delta. On unfamiliar soil these children are often scolded and beaten and have only one proper meal every few days. Some little girls are even raped. Day after day they undertake arduous labour. Some children think about escape, but the road is blocked. The overseers threaten them and warn them that if they try to run away, there will be a price to pay [3].

What the above illustrates, is that the plentiful supply of labour power was as pertinent during the early days of the industrial revolution in Britain as it is to present day China. In both cases the introduction of welfare as the means of preserving and reproducing labour was not a concern for capitalists or the state. Consequently, welfare provision is as scant in China today as it was in 19th century Britain.

Similarly, while the deaths of more than 1,100 garment workers in a factory building collapse in Dhaka,Bangladesh, in April 2013 [4], most of them women on subsistence wages, is an unspeakable tragedy for their families and friends, it is of much less significance, other than concerns about negative publicity, for companies such as Primark for whom they were producing cheap clothes, simply because there are plenty more desperate workers who will take their place [5].

Where, however, the supply of labour is less plentiful or where labour becomes more skilled and consequently more expensive, losing workers through injury or disablement, or through working them to death doesn’t really make economic sense. But that doesn’t mean that capitalists in Britain or America wouldn’t insist that their workers work all the hours under the sun in the short term for peanuts if they thought they could get away with it.

One of the contradictions inherent to capitalism is that the system as a whole needs to spend money to make profits, yet every individual capitalist wants to spend as little as possible. The lengths to which giant companies like Amazon, Google and Starbucks will go in order to avoid paying tax shows how that dilemma is played out.

In the longer term, having workers working 14 or 16 hours a day for peanuts is very wasteful. It’s like over-exploiting the soil. However, given that individual capitalists themselves won’t do anything about it for fear of losing their competitive advantage over their rivals, the state as the representative of the capitalist class as a whole is forced to step in.

This brings me back to the wisdom implicit in the Nick Hanauer quote at the beginning of this article. Hanaeur’s argument about the necessity of the United States government to substantially increase the legal minimum wage across the board in order to save capitalism from itself, is in principle, no different from the minority of capitalists in 19th century Britain who argued in favour of the introduction of the Factory Acts of the 1830s and 1840s which set down a maximum length for the working day.

An advanced low wage and minimal welfare provision capitalist state like Britain is the modern equivalent of its counterpart during the industrial revolution prior to the introduction of the Factory Acts. What is required is a radical re-think with regards to our current direction of travel.away from the failed neoliberal economic model of austerity which economist Paul Krugman describes as:

A con that does nothing but harm to the wealth of this nation. It has been discredited everywhere else: only in Britain do we cling to the myth.[6].

It’s in Britain where the redistribution of wealth from the bottom to the top continues at apace, much of it as a result of huge subsidies paid to the richest landowners [7]. As inequality continues to rise so does the potential for public disorder. At present, the richest tenth pay 35% of their income in tax, while the poorest tenth pay 43% [8]. Is it too much to ask that those with the deepest pockets pay their way, thus creating the potential for the kind of equitable society in which everybody wins?

This is not pie in the sky stuff but a pragmatic solution to the problems we face. Individuals as politically and ideologically as far apart like Jeremy Corbyn, Caroline Lucas, Nick Hanauer, Joseph Stiglitz, and other top economists and capitalists, understand what’s required to get us out of the mess we’re in. It’s a pity that people like Duncan Smith, Cameron and Osborne prefer to put ideology before pragmatism.