We are hearing it every day, in the papers, in the media: austerity. We are told that most, if not all, of the European economies have national debts that are so high, that the economies need "structural adjustments" and "radical reforms" in order to "restore confidence". But we should all think quite carefully about what this means.
Just a couple of years ago, the financial sector showed itself to be based on ludicrous, almost insane, overconfidence as banks lent far in excess of any sensible level, boosting credit and the sale of financial products without the necessary underpinning of real capital. Such speculative exploitation of the market in confidence led to the biggest financial crisis in decades, some say since 1929.
Because the financial sector is so crucial to maintaining the flow of capital, all those businesses that oil their production and investment with doses of credit need the financial system working smoothly, making available cash at low interest rates to encourage investments, and of course, growth. That magic word trips off the tongues of politicians as if just the mere mantra suffices to allay any fears that they might have other interests at heart, such as the public good. As long as everything is subservient to growth, all will be well, or at least that's what we are told. And in order to get back confidence, that essential quality of a functioning market so easily squandered by the financial sector, investors have to regain confidence that the economies are business machines that are working for their benefit.
So each economy across Europe is being turned into a debt-repayment vehicle, a combination of a state-backed restoration of the flow of credit, together with the opportunity to invest the newly available capital into profitable ventures. But where are these investment opportunities to be found? As Chris Harman ably demonstrated in Zombie Capitalism, one of the problems that periodically besets capitalism is a surplus of production and the lack of profitable investment opportunities for the surplus capital.
Unless new outlets are found for the investment, and markets found for the surplus product, the flow of capital grinds to a halt. There aren't many new areas on the globe ripe for new investment so the attention has been turning towards state assets, which brings us back to the structural adjustments and radical reforms.
For many decades, states have subsidized the provision of services which industry has found to be essential: education, health, roads, social services, and so on. Because these services were paid for by taxation, private capital was freed of the cost of providing such necessities to its workforce. But now the needs of capital for new areas of investment bring a focus onto these internal markets. Liberalization, as it is euphemistically called, now demands that states open up these services to private capital investment.
In the international version of these structural adjustments, there are typically financial strings to tie up the national government: you can have some measure of economic aid if you agree to spend the cash in our companies, and also open up your state assets to foreign takeover. We again euphemistically call it globalization.
Whilst on the surface it looks as though aid is being given, we have to watch where the benefits go. If the capital is actually flowing out of the country back to the investors, then regardless of how much infrastructure is being created, that country is still being improverished. In many cases, the cash never actually gets to the target economy at all but is simply moved between bank accounts in the investor country. Any infrastructure created is work for foreign corporations who reap the profits, and is owned by the business elites in the target country.
When such adjustments form part of "austerity" plans, the situation is very similar. The cost of restoring confidence in the markets is a systematic attack on the standard of living of working people. In Spain, we see a 5% cut in public sector wages and a freezing of pensions, while in the UK, a comprehensive reduction of public services is imposed. The pattern is repeated across Europe. So who benefits from trying to restore confidence to these markets? Certainly not working people, who are just as much held to ransom by the owners of the companies as before. Those people still hold the power to cause another crash, another catastrophic drop in confidence as their financial gambling undermines the industries on which we all depend. At best, working people will see the same people, the same institutions, in control. The same people whose instinct for quick profit and lack of concern for the public good led to the crisis in the first place.
The banking sector resists the idea of a tax to provide an insurance fund to manage the failure of unsuccessful banks on the rather facetious grounds that it would encourage risky behaviour. We've all seen how successful self-regulation and self-control has been recently in the international financial markets. This sector is demanding austerity measures to try to restore the confidence it clearly doesn't deserve.
States have paid vast sums for insulating the financial sector from the consequences of years of irresponsible profit-grabbing, inflating the national debt of each economy now in the spotlight. How will such debt be repaid when the cost of servicing such massive borrowing cannot be sustained unless the economies are growing? And how will they grow unless capital flows?
There are two clear consequences which are expected from the austerity measures. One is to reduce the confidence of working people, to discourage them from fighting back against the drop in their living standards. Such a demoralization will enable company bosses to increase the rate of exploitation, to impose temporary and short-term contracts, to increase working hours and unpaid overtime, all of which will contribute to increasing profits. The second is to move the cost of funding the present crisis directly onto working people themselves to protect the profits of the investors. Social service cuts, tax increases, benefit cuts and increased privatisation of essential welfare provision are all costs for working people.
Social-democratic politicians are trying to sell this to working people on the grounds of the TINA principles, commonly quoted under Margaret Thatcher, There Is No Alternative. Recovering growth is seen as the number one priority and to do that, investors have to recover their confidence, which means structural adjustments, radical reforms, and although they don't say this plainly, pay cuts, longer hours and increased unemployment to force working people to accept worsening conditions. This represents a significant shift of wealth from working people to just those responsible for the financial crisis. And the social-democratic politicians are united against opposing anything the markets want.
These politicians want to be seen as responsible managers of capitalism and have cast off any pretensions of defending working people. Nevertheless, they obtain their electoral mandates by claiming to represent the interests of their citizens. So, like Zapatero in Spain, they are now squirming, pretending that there is no alternative. It is clearly not in the interests of working people simply to accept this transfer of wealth away from them. The fight-back going on in Greece is clear evidence that in at least one country, the TINA principle is being challenged. The claim by social-democratic politicians that growth and increased market confidence is in everyone's interests just doesn't ring true because a vital ingredient is missing: any measures to prevent the situation occurring again.
It is a fair question to ask why working people should bail out financial speculators whose actions have affected millions of people, losing homes and jobs, savings and investments. Why should they be called on to make such drastic sacrifices just to get investment back and capital flowing? If those who have such enormous financial and economic power are unwilling to support the public good, then surely it is time to think about some fundamental questions, such as how and when to clip their wings.
There is an alternative and it involves working people refusing to accept the cost of bailing out the banks and financial institutions. If their mismanagement produced such catastrophic results, they should not be left in the hands of private capital. But such a position would mean that the social-democratic politicians would have to confront the power of capital, and that's something none of them have stomach for.