Premature Declarations of Austerity’s Death

November 16, 2021  

In a recent issue of Adam King’s newsletter, King interviewed Jim Stanford, perhaps Canada’s best known progressive economist. The interview revolved around the apparent recent reversal of negative attitudes to government spending. Confronted by the pandemic, governments everywhere had to set the deficit orthodoxy aside. The question put to Stanford was whether this apparent reversal signals new norms in economic policy as we transition out of the crisis.

Stanford cautioned that we can’t yet say that austerity is, as the Munchkins of Oz so eloquently put it, “positively, absolutely, undeniably, and reliably, dead.” But he expressed confidence in austerity’s retreat. Austerity, Stanford insisted, was always the wrong way to go; the difference now is that this is increasingly recognized as such in the centres of economic policy and the broad public. He cites the recent federal election to back up his claim, noting that each of the major parties rejected austerity as the way forward. It’s for this reason that Stanford, against the near-consensus view that the election was a “waste of time and money,” deems the election to have been of major significance.

While Stanford challenges the past priority governments have given to deficits, he doesn’t go so far as those who claim that deficits, and the debt accumulated through deficits, are irrelevant. His argument is, instead, that when deficits do need to be dealt with, this can best be done through growth rather than renewed cuts in government spending. Growth would generate the tax revenues to support our social programs, pay for addressing climate change, and ease social conflicts over how to share a stagnant pie. Growth is win-win. Growth is the magic elixir of capitalism that will resolve the contradictions of state spending.

Muddied Waters

Past experience with the difference between what politicians say when running for office and the realities that follow make it rather surprising to see the weight Stanford gives to their declarations in the last election, especially given the unique context of the pandemic. Yet Stanford is right to note that something significant is afoot.

Even before the pandemic, an unfocused rebellion was brewing among ‘the many’ against decades of frustrations with imposed austerity and permanent insecurity. While the super-rich were seeking advice on how to spend their overflowing coffers, working-class families were trying to maintain their consumption standards at the cost of family members working longer hours alongside ever-intensifying workloads. When this wasn’t enough, they went further into debt. The pandemic amplified this simmering social crisis.

The pervasive discontent and restlessness have led to a widespread delegitimation of mainstream political parties, governments, and state institutions. This has created new openings for the left – and for the far right as well. But no coherent alternative vision, and especially the organizational means of bringing it to life, has yet emerged on the left. In this circumstance, Stanford’s reassuring case for a sustained prioritizing of growth as we transition out of the pandemic is seductive.

After decades of being kicked around, it’s understandable that working-class families might find such a turn attractive. And what exasperated activist doesn’t long for a credible direction that can convince others that we can win, win soon, and win without an overload of risks or sacrifices? Growth also carries appeal for business. It tends to downplay a focus on ‘taxing the rich’ and corporate heads would no doubt emit a sigh of relief on seeing the public discussion shift from conflicts over the distribution of income, wealth, and power to the safer terrain (for them) of focusing on economic growth.

And yet skepticism abounds. If the mid-60s demonstrated the positive link between growth and social progress as Stanford emphasizes, why then did politicians – always recruiting votes – generally reject that example from the early 1980s on? Why did elites suddenly intensify attacks on workers? Did they suddenly become grumpier and meaner? Did governments raise interest rates sky-high in the early 1980s because of a wrong-headed whim, hurting not only workers, but also, damaging a good many businesses? And was it a coincidence that these shifts in attitudes happened at roughly the same time across most capitalist countries?

Was there not something larger going on? Where, for example, does the end of the post-war boom come in? Would an alternative not also have to incorporate the emergence of new international competitors, free trade, our deep integration into the US, and accelerated globalization? Most fundamentally, where does the capitalism that envelops us, and its structures of power and class that limit us, enter this narrative?

Capital, the State, and Deficits

It is generally taken as a given, including on the left, that capitalists stand in opposition to extending state involvement in the economy. Capital’s hostility to government deficits follows. Such sentiments were aggressively consolidated in what is summarized as neoliberalism, and austerity – the imposition of cuts in social programs and concessions on the workers who provide those services – is seen as a fundamental element in that assault. All this is, of course, partially true. But only partially. Importantly, what is missing, or treated only peripherally, is where class divisions fit into the narrative.

Capitalists certainly want to weaken certain state activities. For example, they push to minimize the social safety net (e.g., employment insurance, healthcare, pensions); this increases the cost of job loss and helps constrain the militancy of workers. They also don’t like to see public sector wages, benefits, and working conditions set high standards that private sector workers might look to emulate. And they don’t want to be taxed or regulated in the name of reducing inequality and addressing the social interest.

Yet capitalists simultaneously want states to be strong enough to protect property rights, contain labour strength, and support the internationalization of their production and investments. They want states to be effective in making and supporting markets at home and abroad and creating the physical and social conditions that support corporate profits. The business classes push for finance, the most ephemeral yet universal dimension of capital, to be liberalized, yet also understand that this must be monitored and coordinated by states so financial relations don’t dissolve into chaos. They depend on the capacity of states to overcome recurring economic crises.

That business spends so much time ideologically attacking states does not belie their need for strong states. Rather, it reflects their nervousness that under liberal capitalism, democratic pressures may lead such states to use the state apparatus to threaten corporate ‘rights’. Constant attacks on states are therefore not a rejection of a substantive role for states; they are intended to act as a check on states going ‘too far’.

The issue for business, some ideological cranks aside, is not deficits per se, but rather, who benefits from the public spending, and who pays. Business doesn’t object to deficits if they are the result of their taxes being lowered or of business subsidies increased. Nor when a costly pipeline is financed with massive government support. And they ultimately accept, even if it comes with some reluctance, that the financial system must be preserved no matter the cost.

The deficit tantrums surface when the spending has the effect of radically increasing social equality, easing the coercive pressures in the labour market to take up any job, and boosting worker confidence in standing up to their bosses (imagine the outcry if the government announced it is no longer bailing out the banks, but rather, taking whatever steps are necessary to save homeowners). If deficits were really the principal concern, they could be corrected by dramatically increasing taxes, above all on those who have benefitted disproportionately from their place in society and who can best afford to pay.

That’s where ‘austerity’ comes in. Austerity is code for taking increased taxation out of the deficit-fighting toolbox and focusing instead on restraining the social programs that working families and the poor rely on. It’s not a technical response to deficits; it’s a class weapon in the control over production and distribution of society’s wealth. Moreover, it’s often preceded by cuts in taxes on corporations and the wealthy that cause the deficits in the first place and then pose the ‘necessity’ of cutting back what we cannot afford.

“Austerity is code for taking increased taxation out of the deficit-fighting toolbox and focusing instead on restraining the social programs that working families and the poor rely on.”

Austerity and the Neoliberal Project

In the 1950s and 60s, working classes in the developed countries made significant gains as strong labour movements acted to make up for the lost consumption during the Great Depression and the Second World War. Worker demands were further enabled by the post-war boom and the consequent concern of corporations to avoid production interruptions. For a time, corporations could afford such demands, but by the late 1960s, with the boom fading and international competitiveness intensifying, profits were squeezed. Lowering worker expectations became paramount for capitalists as well as the state.

Workers resisted, however, and states everywhere stumbled for a decade or so through various unsuccessful responses. They finally concluded that labour had to be directly attacked even if this came at significant economic and political cost. ‘Neoliberalism’ emerged. Record interest rates crashed the economy and increased unemployment to double-digit levels. Social cutbacks added to worker insecurity. Unions were undermined through the legislature, courts, and coercion. Without a political alternative that challenged corporate-controlled investment, worker resistance was crushed.

Though neoliberalism is commonly employed to orbit around the balance between states and markets, weakening the former in favour of the latter, this is a false opposition; markets and states are mutually intertwined. Though important functions of the state were indeed eroded, transformed to serve different purposes or privatized, other functions of the state remained or even increased – as with establishing/enforcing free trade agreements; enacting back-to-work legislation; bailing out auto companies, (with the caveat that they cut wages and outsource operations to cheaper suppliers); and taking massive steps to save the global financial system.

The key to neoliberalism lay beyond the market-state dichotomy. Neoliberalism was about rebalancing the relative weight of social needs vs corporate demands in order to maintain profits. The neoliberal solution to the contradictions of capitalism was more capitalism – what some characterized as “capitalism on steroids.” And this, as Adolph Reed so directly put it, meant moving to a “capitalism without a working class opposition.”

Three lessons stand out here. First, the issue confronting us is most fundamentally about the balance of class power, not more or less state and higher or lower fiscal deficits. Second, working class gains are fragile. Gains that don’t also address the structures of power within capitalism, as was the case with the postwar so-called ‘welfare state’, leave the gains vulnerable to reversal. Third, if the organization and mobilization from below that Stanford mentions does occur, some progressive reforms are indeed possible. The corporations and the rich can afford some concessions on their part, given the extremes class inequality has reached, and high state expenditures remain necessary to ensure the revival of the post-pandemic economy and to fix misguided policies (e.g., operating hospitals at capacity levels that don’t allow for ‘unexpected’ events).

But there are limits to such gains. Truly substantive shifts in equality, security, quality of life, and ability to cope with ecological change demand radical shifts in the structures of power. Options are polarized, either such a radical shift is addressed, or we are left with reforms that remain both moderate and vulnerable to reversal.

Growth as the Escape from Polarization?

It should be noted that even though growth since the 1980s was slower than in the previous decades, significant economic growth did occur. Real GDP per capita – the measure of the production of goods and services after deducting the impact of price inflation and accounting for population growth – has more than doubled since the early 1980s. But the benefits of growth were extremely skewed. Profits and stock markets soared, driving the income and wealth of the top income brackets, yet this is precisely the period which we identify with austerity for the working class and the weakening of unions. Growth itself does clearly not ‘fix’ things. Why?

In a capitalist economy, growth depends on the investment decisions of private corporations. In the absence of fundamental challenge to this minority power to shape all aspects of our lives, we’re left with trying to make corporations profitable and happy. The catch is that much of what we fight for – whether making it easier for workers to unionize or spending more on social programs – does not make them happy.

Prioritizing growth tends to shift the discussion from conflict over the distribution of income and power – class struggle – to strengthening corporations. That is, growth and addressing social needs are related but not in the way often suggested by progressives: under capitalism, accepting greater corporate power becomes the condition for social gains. And so, even prioritizing growth has the very real risk of undermining the working-class capacity to win a share of the growth – something we’ve witnessed for decades now.

It is, as well, especially in the context of the ecological crisis, important to add a lot of qualifiers to ‘growth’. If we try to sustain growth of the past, notably the postwar capitalist boom, we will end up with an incomprehensively dystopian world that will eradicate even what we now have. The only real option is a cultural shift that redefines societal wellbeing in a way that is less driven by private consumption and more by climate-friendlier collective services like health, daycare and eldercare, education, sports, music, art. If sacrifices in individual consumption are to be imposed, then it is all the more unacceptable to tolerate ‘the few’ grabbing such a disproportionate share of our scarce environmental capacity in order to indulge in their luxuries. And since such a transformation in society will still require material resources, it requires wresting control of the economic surplus away from capitalists and replacing private investments now driving economic growth.

Most importantly, however, addressing global warming will not be accomplished through market incentives such as creating massive pools of private capital and credit for energy conversion, or spending more on climate-friendly fuels. It will involve transforming everything about how we live, work, and play. And this requires not only retaining, but also, expanding our productive capacities. The closure of a facility because it is not profitable to private capitalists (or because they can get higher profits elsewhere) is an attack on our ability to address the environmental crisis.

Any such closures, which are, in fact, daily occurrences across the country, should instead be reconfigured to meet the massive challenges of an ecological conversion and the social needs to be addressed. This clearly can’t happen without the economic mobilization and conversion of the economy on a scale comparable in capitalist societies only to war-time planning. And since you can’t plan in the general interest what you don’t control, a serious response must include massive intervention in the ‘commanding heights’ of the economy, ie., conversion to public ownership, – and where we aren’t yet strong enough to do so, the tightest kind of social regulations.

More generally, a focus on economic growth avoids the basic socio-economic (and democratic) questions of deciding what goods and services we should be producing, what production conditions should be organized, and how the social output produced is distributed. Growth itself, to re-emphasize, is not a panacea. The economic decisions that shape our lives and communities are a matter of conflict, especially between those who currently have the power to drive these decisions and those who carry them out. Identifying growth as a goal, or even the goal, that the left should pursue obscures that conflict.

Conclusion

It’s ironic that a newsletter entitled Class Struggle and whose issues have generally adhered faithfully to addressing this concern, has in this case so blithely skipped over the salience of class, its capitalist context, and the challenge of how to build the capacities to extend the struggle.

Part of this neglect reflects a tendency in many sections of the left to retreat from the complexity of the challenges that we now face and accepting, instead, comfortable answers. It is true enough that addressing the larger issues can be overwhelming. But unless we’re sober about what we’re up against, we’ll never develop the strategies to get somewhere else.

This is not a matter of restating the old dilemma of reform or revolution – a false opposition when stated so bluntly and without context. People live in the here and now and need to fight for immediate improvements in their lives. Moreover, a mass appreciation of the need for social transformation can only come out of the confidence that comes from actual victories and learning organically that preserving those victories and extending them comes up against limits rooted in capitalism’s structures of power.

What we need is not easy and patronizing answers, but instead, honest framings of what we face. Facile analyses and easy solutions may mobilize more people more quickly. But the illusions they’re based on will sooner or later spell defeat. A more complex, sober analysis is harder to get across and will take far more engagement, education, debate, and time. If we really want another world, and believe it is ultimately linked to the role of movements from below, there is no other way.

This raises a further dimension of the gap in the King-Stanford discussion. It is fine to say that labour and the social movements must be ‘mobilized’ to achieve their goals. The point, however, as Jane McAlevey has insisted in her No Shortcuts: Organizing for Power in the New Gilded Age (2016), is not just mobilizing, in the sense of bringing your members out, but organizing to broaden the base and build new and deeper capacities of the membership. And this demands a frank assessment of the failures of the labour and social movements that our goals depend on.

The weakening of the labour movement over the period of neoliberalism cannot be explained just by the external factors of global competition, more aggressive corporations, free trade, and reactionary governments. The failures of unions to think bigger and further ahead in the best of times left them vulnerable to their subsequent defeats. What needs the most serious and in-depth investigation is why, after all those years of stagnation or worse, unions have, in general, (there are exceptions) been so slow to respond to the new realities as well as the new opportunities – and have still not opened themselves to strategic debates involving their members about what, among other things, needs to be changed in their structures, their relationship to their members, the breadth of their internal membership education and of staff training, their bargaining priorities, co-operation across unions in organizing, and the leadership roles in their communities and politically.

Such re-evaluation applies to social movements beyond unions as well. The left has often been ready to criticize unions for being particularist in their focus on their own members and their sector of employment, but is reluctant to ask why movements (with some exceptions) have been so unable to move beyond their particular campaigns and sector of activism to link up with larger issues? Despite their energy and commitment, most activist movements remain small, uncoordinated, unable to challenge state power, and accepting of the political parameters of neoliberalism. They have had limited success in penetrating the working class or sustaining any organizational linkages they might have achieved. Even the environmental movement, which has impressively affected popular consciousness, has been unable to go beyond slogans like ‘just transitions’ for workers because of their limited resonance in concrete actions.

All this is, of course, inseparable from our own failures on the left. We have only rarely managed to provide the kind of leadership and structures that bring our principles and understandings into worker struggles and movement campaigns. Confronting this is not a matter of self-flagellation, but rather, of confronting our challenges. Popular expectations are inseparable from notions of the range of possibilities, and possibilities are intimately related to having the analysis and structures that offer collective confidence in the struggle. It is this kind of “concrete hope” that depends on a left presence.

As for the ‘death of austerity’, a reading of the tea leaves of election platforms will not do. It’s a question of, first, recognizing that there is, in fact, no free lunch. If we want an expansion of collective goods, they cannot be conjured up through printing money or calling on growth led by those who oppose our very goals. And, second, following from this reality of class conflict, moving on to the necessity of class struggle and all this entails. Austerity will, sooner or later, return to the agenda – with the current stern warnings of the horrors of inflation an opening gambit – because it is a constituent element in the on-going battle regarding for whose benefit and what purposes our labour-power, our ecological resources, and our democratic capacities are addressed. •