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Copyright © 2019 by Social Europe Publishing & Consulting GmbH

ISBN 978-0-9926537-7-4 (paperback)

ISBN 978-0-9926537-8-1 (ebook)

 

Cover: Ramona Almen

 

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Open Preface

PREFACE

Austerity in the contemporary sense of taming welfare-state capitalism has been haunting states and societies around the world for quite some time. First imposed on a wide range of countries in the global south by financial institutions following the world debt crisis, austerity came to hit members of the European Union in particular with a vengeance following the global financial crisis. Budget consolidation, debt reduction, spending cuts, efficient spending and so on are mantras nobody can escape in the sphere of public finance. Presented as the solution to the problems of overly generous developmental and welfare states, austerity itself must be considered a problem in search of solutions. Many years of dedicated austerity-related policies—of budget cuts, of privatization and deregulation—have not led to a revitalization of the economy, to better development and faster growth. Lackluster private investment and a still increasing propensity to marketization and financialization suggest the bitt

Open Untitled

ABOUT THE AUTHORS

Greg Albo is an associate professor at the Department of Political Science at York University.

Sheila Block is senior economist and a public commentator with the Canadian Centre for Policy Alternatives.

Alex Cobham is an economist, chief executive of the Tax Justice Network and a visiting fellow at King’s College, London.

Bryan Evans is professor in the Department of Politics and Public Administration at Ryerson University and a member of the Yeates School of Graduate Studies.

Lukas Haffert is senior researcher in comparative political economy at the University of Zurich.

Stephen McBride is Canada research chair in public policy and globalization in the Department of Political Science, McMaster University.

Moritz Neujeffski is a PhD student and research fellow at the WZB Berlin Social Science Center.

Dieter Plehwe is a research fellow of the Center for Civil Society Research at the WZB Berlin Social Science Center.

Louis-Philippe Rochon is an as

Open BEYOND AUSTERITY: MYTH AND SUBSTANCE

BEYOND AUSTERITY: MYTH AND SUBSTANCE

By Dieter Plehwe, Stephen McBride, Bryan Evans and Moritz Neujeffski

The global political economy continues to undergo rapid change in the wrong direction. Stagflation 2.0 translates into slow or no growth, into permanent and increasing austerity in many OECD countries and in major parts of the global south. Many members of the European Union in particular have been subject to severe internal deflationary adjustment, which saw wages and welfare-state transfers fall in absolute terms. While social inequality between countries has remained stable, more or less, inequality within countries has been rapidly rising due to the long and severe recession which followed the global financial crisis.

Stagflation 2.0 means economic stagnation and deflationary tendencies, rather than the stagnation-plus-inflation which characterized economies in the crisis of the 1970s. If deficit spending for public programs seemed to have little impact on employment and economic developm

Open THE GREAT STAGNATION AND THE FAILURE OF BUSINESS INVESTMENT

THE GREAT STAGNATION AND THE FAILURE OF BUSINESS INVESTMENT

By Jim Stanford

The myth: Reducing deficits through cuts in government spending will have only modest impacts on total output and employment, and in some cases will actually increase gross domestic product (GDP). This is because businesses and investors will be reassured by painful but necessary measures to repair government finances, and they will become more willing to make long-run investment commitments which will spur economic growth. Moreover, by freeing up both financial and real resources (which otherwise would be absorbed by government deficit-financing), austerity creates economic space for the private sector to assume its rightful, leading economic role.

The reality: Austerity has had large and lasting negative effects on output and employment. Those chilling macro-economic side-effects have undermined the stated goal of deficit reduction (since it’s very difficult to improve fiscal balances in an economy with high unemploym

Open MICKEY MOUSE NUMBERS IN ECONOMIC HISTORY: THE ORIGINS AND SPINNING OF 60 / 90 PERCENT DEBT-TO-GDP RATIOS

MICKEY MOUSE NUMBERS IN ECONOMIC HISTORY: THE ORIGINS AND SPINNING OF 60 / 90 PERCENT DEBT-TO-GDP RATIOS

By Dieter Plehwe and Moritz Neujeffski

Humankind has always attributed mythical meanings to numbers. Take the famous inventor Nikolai Tesla, who regarded ‘the magnificence of the numbers three, six and nine’ to be the ‘key to the universe’. In terms of fiscal deficits and debt-to-GDP ratios, the values of 3, 60 and 90 percent came to play near-mythical roles too. Through the Maastricht criteria for economic and monetary union (EMU) in Europe, a 3 percent annual deficit and 60 percent debt-to-GDP ratio were set as authoritative thresholds. The star American economists Carmen Reinhart and Kenneth Rogoff further argued that the 90 percent debt-to-GDP ratio is a maximum threshold, above which accumulated government debt measurably stifled growth and significantly undermined economic performance in general.

Both ratios have played a key role in European and global economic governance, serving as si

Open THE MYTH OF INTERNATIONAL TAX ‘COMPETITION’

THE MYTH OF INTERNATIONAL TAX ‘COMPETITION’

By Alex Cobham

One of the most pernicious economic myths of our times is that of international tax ‘competition’—the idea that the process through which countries obtain investment is somehow equivalent to the model of perfect competition between firms which is taught in introductory economics courses. This myth has been given new life by the central myth of austerity, namely that a dramatic economic shock can best be addressed by a fiscal contraction. Needless to say, these myths are not ‘neutral’, in any economic, social or political sense. Their rise reflects an ideological triumph in the face of compelling contrary evidence—and the human impacts are the price.

The myth of international tax competition presupposes an entire agenda. Indeed, the choice of language is itself deliberately misleading. ‘Competition’ conjures up ideas of a productive struggle between companies to find an edge, a process that leads to innovation and better products for consu

Open PRIVATIZATION REDUCES THE FISCAL BURDEN?

PRIVATIZATION REDUCES THE FISCAL BURDEN?

By Heather Whiteside

Revenue-challenged states around the world often turn to public-asset sales as an easy way to pay down debt and balance the books. Auctioning off revenue-generating, state-owned enterprises and infrastructure to reap one-time, lump-sum payments is not only a desperate maneuver; it is also short-sighted and counter-productive in the long run. Whether it is Greece selling its airports, harbors or telecommunications systems at fire-sale prices, to meet the repayment demands of the ‘troika’ (the European Commission, the European Central Bank and the IMF), or less fiscally-troubled states, such as Canada, engaging in ideologically-motivated privatization efforts, the notion that privatization reduces fiscal burdens for the state can be challenged on three fronts. Asset sales cut into state revenues, corporate welfare endures in areas of strategic importance and privately-financed public works are often poor value for money.

Canadian example

Open FISCAL CONSOLIDATION: CUT SPENDING, SOLVE FISCAL PROBLEMS AND INCREASE INVESTMENT?

FISCAL CONSOLIDATION: CUT SPENDING, SOLVE FISCAL PROBLEMS AND INCREASE INVESTMENT?

By Sheila Block

At the start of the Great Recession of 2008-09, governments increased their role in the economy. A concerted and fairly consistent slate of monetary and fiscal policies was rolled out. Yet, only a few years later governments shifted into reverse gear and balancing budgets became the main policy priority. Every governmental budget has an income (mostly through taxation) and a spending side—it was the latter which was tightened the most. According to those who believe in the merit of austerity, spending cuts are the most effective way to balance budgets in the short run, and to consolidate public finances in the long run. Yet, the negative impacts on individuals and society at large are ignored.

When spending is not questioned, and when it is

Central banks pumped trillions into the economy following the global financial crisis (GFC). As a result, we did not see an extended collapse in financial

Open THE PRIORITY OF DEFICIT REDUCTION AND THE MYTH OF CONSOLIDATION

THE PRIORITY OF DEFICIT REDUCTION AND THE MYTH OF CONSOLIDATION

By Greg Albo

It is hardly a stretch to contend that concern over government deficits—and hence the purported need for fiscal austerity—has been at the center of economic policy since the ideology of neoliberalism came to prominence in political discourse in the 1980s and in the state policies of governments of the right and center-left since then. Certainly, austerity has dominated economic policy as the emergency fiscal measures in response to the Great Recession, led by the US and coordinated through the G20, began to be reversed. One after another, states have been attempting to constrain annual budgetary deficits as a portion of GDP to avert a further accumulation of the stock of total public debt. They have done so with more or less political commitment.

The results have been mixed, to say the least, given the unrelenting stagnation of economic growth. The US under Trump is something of an anomaly in the attempt of his administr

Open WAS THE EURO CRISIS CAUSED BY EXCESSIVE SOVEREIGN DEBT?

WAS THE EURO CRISIS CAUSED BY EXCESSIVE SOVEREIGN DEBT?

By Thomas Fricke

German banks have spent a lot of money and effort to prevent their public image from becoming tarnished since the financial crisis of 2008. But since the euro crisis which started in 2010, the most substantive help for this strategy came free of charge: suddenly, what originally was a banking crisis evolved into a sovereign-debt crisis in the public perception, with the Greeks and others framed as the indebted southerners. Since then, talk shows have not been focusing on issues such as bank-executive bonuses, high-frequency trading or shadow banking, as was the case after the Lehman Brothers crash in 2008, but rather on early Greek pensioners or Italian tax ethics.

No other diagnosis has emerged to become so entrenched and embraced in Germany. It was years of sloppy southern-European government which plunged us into the crisis, so it goes—even worse, the (largely) virtuous German taxpayers have had to pay the clean-up bill.

Open MARKETS GOOD, PUBLIC BAD—THE FALSE PROMISES OF MARKET POPULISM

MARKETS GOOD, PUBLIC BAD—THE FALSE PROMISES OF MARKET POPULISM

By Ingo Schmidt

Ruling elites stand naked. No more hoping for a rising tide to lift all boats. No more waiting for the trickle down. Fears of drowning in the maelstroms of global finance abound. Feelings of powerlessness among the have-a-little-bits and have-nots fuel the hate of the even more downtrodden and the yearning for the good old welfare state. Bereft of their market-populist cover, ruling elites publicly bemoan the rise of xenophobic populism on the right but are really concerned about flares of left populism that might develop into a challenge to the unbridled power of capital.

Yet the anti-populism from above is helpless in several ways. First, it is blind to the role its own brand—market populism—played in rolling back the countervailing powers of labor and other social movements. Secondly, it doesn’t realize that telling the people that they shall not be populist confirms the populist charge of arrogant elites disconnect

Open THE STATE MUST LIVE WITHIN ITS MEANS?

THE STATE MUST LIVE WITHIN ITS MEANS?

By Louis-Philippe Rochon

How many times have we heard politicians say ‘the government cannot afford it’ or ‘the government cannot live beyond its means’? These statements have become the foundation of austerity policies around the world, as they are used to justify fiscal restraint, under the assumption that less government spending somehow contributes to higher economic growth. This notion is known as fiscal consolidation or more generally ‘sound finance’ or fiscal responsibility.

Moreover, these warnings are usually accompanied by dire consequences: failure to follow these austerity policies, it is argued, will result in economic catastrophe. For instance, if governments spend too much and increase fiscal deficits and debt, the inevitable result, we are told, is that inflation will soar, interest rates will increase, economic activity will slow and unemployment will increase. Worse, governments may have to default on their debt, being unable to meet financi

Open SWABIAN HOUSEWIFE ECONOMICS IS GOOD FOR EVERYONE?

SWABIAN HOUSEWIFE ECONOMICS IS GOOD FOR EVERYONE?

By Lukas Haffert

Swabia is a prosperous region in the south-west of Germany and its people, especially its supposedly thrifty housewives, became an emblem of German economic-policy orientation during the Europe crisis. According to the myth of the Swabian housewife, governments should follow the same principles as individual households when making economic decisions.

When Angela Merkel invoked the Swabian housewife to criticize financial markets in 2008, she managed to popularize two myths with just one statement. ‘One should have just asked a Swabian housewife,’ Merkel proclaimed. ‘She would have told us that you cannot live beyond your means in the long run.’ While she was specifically referring to financial institutions, her statement seemed to elevate the economic myth that governments should behave like private households into a semi-official doctrine of German economic policy-making. By doing so, she also laid the basis for a powerful poli

Open TWO WORLDS OF AUSTERITY: MYTHOLOGIES OF ACTIVATION AND INCENTIVES

TWO WORLDS OF AUSTERITY: MYTHOLOGIES OF ACTIVATION AND INCENTIVES

By Stephen McBride

Many think that austerity is a technocratic, economically scientific project aimed at balancing budgets and establishing limits to public debt. The appearance of technocratic neutrality is however a bit of a myth. Others frame austerity in moral terms: practices and behaviours which promote individual responsibility, self-discipline and restraint. This too turns out to be more myth than reality.

Austerity as a response to the 2008-09 financial crisis has a number of dimensions. Its reach extends to fiscal matters of budget balances and debt ceilings, repurposing and privatizing (or marketizing) as much of the public sector as possible, and restructuring social and labor-market policies. The language of balanced budgets and debt limits is presented as a contribution to sustainable public finance, as principles necessary to avoid profligacy by government spending beyond its means. Implicit, of course, is the errone

Open DEMOCRATIC AUSTERITY? SOCIAL CONCERTATION IN THE NEOLIBERAL STATE

DEMOCRATIC AUSTERITY? SOCIAL CONCERTATION IN THE NEOLIBERAL STATE

By Bryan Evans, Stephen McBride and James Watson

The myth of austerity dealt with here is that the working class and trade unions were simply crushed in the process of the global financial crisis and the following deep recession—that workers and their organizations had no role in the shaping and implementation of austerity. The reality is more nuanced than this formulation. A demobilized and relatively powerless working class had few options but to retreat and attempt to save what could be saved.

In the years following World War II, the so-called golden age of capitalism, the working class in much of western Europe and north America was able to exercise a serious degree of political agency to win an array of reforms. Among the mechanisms of working-class influence were neo-corporatist institutions (typically tripartite, representing the state, capital and labor). Precise arrangements differed but, as neoliberalism evolved, its proj