Britain: Make the spending cuts — or else

May 29, 2010
Protest outside the bank of England April 2009. In 2009, the collective wealth of Britain’s richest 1000 people grew by $114 b

In the wake of Britain’s inconclusive general election, there is much talk of the “national interest”.

It’s said that politicians of all parties have to pull together to address the crisis caused by the country’s enlarged fiscal deficit. Specifically, they must agree to a package of deep public spending cuts.

Nothing, it is said, is more urgent, more unavoidable.

In contrast, it seems climate change can be left perpetually on the backburner — though there is a far greater expert consensus about its dangers than those of a large deficit.

It’s simply not the case that all Britons have the same economic interests, as was plain on election day.

The poor and working class in the cities turned out in unexpected numbers to vote Labour in order to stop a Tory government making them pay for the crisis in service and job cuts.

In the shires and suburbs, middle-class and rich voters turned out to vote Tory to make sure they didn’t have to pay for it in higher taxes.

The media are full of dire warnings of the disaster that will befall the country should it fail to make the severe cuts “the markets” demand.

Greece is held up as a dark mirror of our future. There, an emergency bailout worth US$150 billion, put together by the euro-zone countries and the International Monetary Fund (IMF), has been accepted (by the government if not the people) at the price of brutal fiscal austerity.

The package involves $38 billion in cuts over three years, about 13% of gross domestic product (GDP). Public-sector workers will face 20% wage cuts; pensions will be deferred, and the retirement age will be raised to 63; value-added tax and a variety of regressive taxes will rise steeply.

The story is the Greeks have been profligate, luxuriating in feather-bedded public-sector jobs while engaging in rampant tax evasion.

They must therefore swallow the medicine prescribed, however bitter; resistance in the streets is a futile protest against the iron laws of the market.

As so often in neoliberal narratives, the victim is being blamed.

As a percentage of GDP, Greek public spending is and has been for some time almost exactly average for euro-zone countries, and lower than in France, Denmark, Austria, Belgium, the Netherlands or Italy.

Greek public servants’ take-home wages are lower in relation to per capita GDP than in most euro-zone countries. And pension costs as a percentage of GDP are little more in Greece than in France and Germany.

In the months before the bailout, the Greek government passed four successive rafts of spending cuts. Each time, the “markets” rejected them as inadequate and increased the interest rates demanded from the Greek treasury, making it more costly to borrow and further adding to the deficit.

Every 1% rise in interest payments cost Greece an extra 1.2% of GDP. Since 80% of Greek debt is foreign-owned, that amounted to a huge export of wealth even as the country cut domestic spending.

As the Greek economy grew weaker (because of the global recession), speculators sought to extract ever-greater profits from it.

In April, the international credit ratings agencies radically downgraded Greek sovereign debt, making it impossible for the government to borrow at affordable rates and meet its current obligations.

The subsequent bailout ensures those who have speculated on Greek debt can sell their holdings at a profit. The difference will be paid entirely by the taxpayers — Greek and European.

There are alternatives. There could have been a restructuring of Greek debt (which would have meant concessions from debt-holders).

Greece could have left the euro, devalued its currency and cut its interest rates; the speculators would have had no choice but to continue to hold on to their bonds and accept repayment as and when it could be made.

Greece is an example. Britain, with Spain, Portugal and others, is being warned: slash public spending or face ruin.

Our long-term economic policies are being shaped by the whims and threats of the credit rating agencies: the people who gave top marks to Lehman Brothers and other investment houses up untill the very moment they were revealed to be virtually insolvent.

These agencies happily endorsed dubious debt packages of the type Goldman Sachs is now being prosecuted for selling.

These agencies are not independent institutions made up of neutral economic experts, but (mainly US-owned) private companies representing huge vested interests.

On the Standard and Poor’s agency board sit: a retired Coke CEO, who is also a Wal-Mart director; the BT (formerly British Telecoms) group chairperson; the chairperson of Lloyds Bank (bailed out by British taxpayers at a cost of $98 billion); a former treasurer of CA Luz Electrica de Venezuela, one of the power firms nationalised by the Chavez government; and a long-serving Mexican finance secretary, whose policies led to Mexico’s 1994 financial crash.

For bankers and government allies, the burden of paying for recession must not fall on those who caused it. As a result, their champions in the media and big political parties are exaggerating the scale and misrepresenting the nature of Britain’s current dilemma.

The panic-inducing fiscal deficit was not caused by “excessive” public spending: as a proportion of GDP, British public spending stayed more or less stable until the onset of the recession in 2009, which led to higher spending on unemployment benefits and lower tax revenues.

Then there were the costs of public bailouts of the banks.

The rich benefited disproportionately from the years of growth, but have been shielded from the impact of recession. Even in 2009, when hundreds of thousands lost their jobs, the collective wealth of Britain’s richest 1000 people grew by $114 billion, a little less than the total amount spent of government spending that year to prop up the banks.

The same people will now benefit from the cuts being made due to the recession caused by their own profligacy.

By easing the tax burden on the rich and pressing down wages for the majority, the cuts will redistribute wealth upward — making Britain an even more unequal society. The “national interest” turns out to be nothing more than the interest of a self-serving global elite.

The core injustice of the cuts program is widely felt: the costs of the crisis are borne by those who took no part in creating it.

Workers will lose their jobs and the public will lose services it needs, not because of any shortcomings in those workers or services, not because of “waste”, but because of decisions and habits of small groups of people accountable only to themselves.

The economic “law” we are told we break at our peril is, in fact, an arbitrary imposition. The elevation of the “markets” — built and manipulated by a particular class with a particular interest —is a form of idolatry: worshipping a human artifact as a god.

[Reprinted from US Socialist Worker.]

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