Alternatives to austerity

The Great Credit Crunch of 2007–10 was, it is almost universally agreed, brought about by the irresponsibility and greed of bankers. But the huge public deficits needed to prevent a meltdown of the financial system are to be paid for by slashing public spending and shrinking social protection for many decades to come. The welfare state is to be dismantled at a time when higher unemployment and an ageing population make this a certain recipe for misery. The cut-backs are a gamble which makes recovery more difficult but has one certain result – a boost to the privatization and commodification of pensions, health and education.

For the last two decades neoliberals have been insisting that disaster would ensue if we did not have a bonfire of social entitlements. Public pensions were declared to be a nightmare in the making. Now the disaster has happened – because of the vices of financialization not the burden of welfare. The disease had quite different origins and causes from those that were forecast by the doom-mongers, but the medicine needed for this incapacitating ailment is just the same as before.

It is truly astonishing that a crisis caused by the bankers has to be solved at the expense of nurses, teachers, students, pensioners and the unemployed. The bankers are still widely thought to be culpable but few dare to defy the money markets and international financial agencies. Fear of the bond markets is excessive but not irrational. Countries that forfeit the confidence of the markets immediately find borrowing more expensive, but the clincher is that if confidence continues to plummet then default and bankruptcy loom. As citizens of Argentina discovered in 2001, businesses collapse, everyday life becomes an obstacle course and savings are wiped out.

But while it is rational to take the markets seriously, this should not mean capitulation before their false alternatives and truncated perspectives. Just as the draconian cuts menace hopes of recovery so the new regulatory requirements laid on the banks are pathetically inadequate and do little to prevent future financial crises.

The Left’s response to the crisis has to be positive as well as negative. It must reach out to alternatives, and these should centrally include the establishment of a public utility finance system, the levying of taxes on capital, the building of local networks of democratically controlled social funds and a programme of diversified development. The aim of this package would be to stimulate investment-led growth, foster sustainability, encourage the formation of human capital, and yield a growth of productivity.

Before explaining what these measures might involve, it will be helpful to identify the features of neoliberalism which ensure that it fails even as it succeeds in gaining access to new sources of profit. The IMF and World Bank have aggressively promoted commercialization of pension provision, as Mitchell Orenstein has shown in his recent study Privatizing Pensions. Between 1994 and 2008 thirty countries in Latin America and Eastern Europe were persuaded to abandon their public pension systems and replace them with personal pension funds managed by commercial finance houses. The international agencies resorted to shameless bullying and what Orenstein politely calls ‘resource leverage’. As he explains, countries in the midst of a difficult transition to democracy were denied all financial assistance unless they agreed to pension privatization. In addition funds were made available by the World Bank to carry through campaigns of public persuasion, and key individuals were offered inducements and attractive employment if they went along with the process…


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