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 erroneous notion that the financial crisis was caused by excessive government spending and debt, rather than resulting from hazardous private-sector activities which eventually came home to roost.
Austerity has both a scientific face (increasingly discredited) and a moral one (which, as we shall see, is applied only to some). Its scientific face includes a number of propositions which depict austerity as a rational response to economic crisis but which, on investigation, turn out to be flawed and incorrect (many are explored elsewhere in this volume). Austerity’s moral tone continues to be influential because its focus on individual responsibility is deeply embedded in liberal and neoliberal thinking—which, in turn, is well established in the public consciousness of most western states, as Mark Blyth demonstrates in his book Austerity: the History of a Dangerous Idea.
Austerity’s moral tale requires people to adapt to circumstances; should they fail to do so, pressures may be applied to produce behavioral change. But the moral imperatives are applied quite differently to different groups in society. Specifically, the type of pressure imposed on the jobless and marginalized (innocent victims of the crisis) is quite different from measures applied to the wealthy in general, and the financial sector in particular (those who bear responsibility for the crisis).
Austerity as practised after the financial crisis represents a moment in the neoliberal transformation of the post-war welfare state, one goal of which was to limit inequality. Neoliberal restructuring and austerity policies have led to massive and persistent inequality.
Those at the lower end of the income spectrum—the unemployed, under-employed and recipients of social benefits—are subject to activation. Activation means that those living outside the labor market (whose number increased dramatically in most countries as a result of the crisis) must if possible be removed from social-support mechanisms and (re-)attached to the labor market. Such a transition would have two beneficial effects from the point of view of austerity’s fiscal agenda: expenditures on social programs would be reduced and, to the extent that low-income earners pay taxes, revenues would increase. In moral terms, such measures are seen as preferable to passivity (decommodifying labor), since working or actively searching for work fulfils an individual’s obligation to society, in particular to provide for themselves. From a public-order perspective, the activation measures provide a means to monitor and discipline a group which has much to be angry about.
At one time, the adjective in ‘active labor-market policies’ applied to the policies themselves. In the heyday of the much-admired ‘Swedish model’ of labor-market policy, it evoked an active government role—provision of a portfolio of training programs to upgrade skills and efficiently reattach individuals to a full-employment labor market. Training was used to redeploy labor from inefficient, uncompetitive and low-wage firms to higher-quality, high-paid jobs in competitive sectors. But over the years the ‘active’ designation has become attached to individuals as the objects of government policies. These individuals need to be motivated or ‘activated’ to move back into the labor market by some mixture of encouragement, nudging and coercion.
To encourage or force a return to work—making the rather large assumption that there is actually work to be found—governments have pursued some combination of cutting benefits, reducing the length of time for which they may be claimed and tightening eligibility. This has a negative impact on recipients’ capacity to hold out until a suitable job appears (suitable in terms of equivalent salary, skill level or geographic location). Obliging a well-qualified person to take a lower-paid, lower-skilled job may temporarily reduce the burden on the public finances but it is an inefficient use of labor power.
The increased use of activation reflects a redefinition of unemployment from a systemic issue (such as Keynes’ theory that it was due to insufficient aggregate demand) to one where individuals are responsible for their own labor-market problems. This may be because of poor skills or poor attitudes. If the deficiency is skills then training might be the solution. This could be viewed as a ‘high end’ activation strategy, depending on the nature of the training provided.
More often activation is ‘low end’. Program design problems may reduce the incentive for people to exit social programs and find low-waged work (for example, loss of some benefits when returning to the labor force). Through redesign programs can increase incentives to work and thus ‘make work pay’. Alternatively, the low-skilled may be induced to work at whatever income their skill level is able to generate, by reducing benefits.
The focus on purportedly poor attitudes among the jobless arises from the perception that the unemployed are that way from choice: they don’t want to work, lack motivation and are lazy. The answer lies in close disciplinary monitoring, imposing conditions such as job search, participation in some sort of training or ‘workfare’ (having to work in exchange for social benefits). Then come sanctions for failing to adhere to the conditions and requirements that job offers not be declined (‘a work-first strategy’), however poorly they fit the attributes of the unemployed person.
Labor-force attachment and participation is a condition of full citizenship. Society has the right to demand that its members work. Previous conceptions were configured around society’s obligation to protect its weaker members in cases of unemployment and other disadvantaged situations. Rhetorically, the increasing compulsion to work is justified in the name of ‘inclusion’. Having a job, any job, is seen as better than having no job.
Under the new welfare-state and labor-market regimes the lot of those at the bottom of the class structure is not a happy one. What does all this have to do with recovery from the crisis? Nothing. Except, perhaps, the contribution to lower public expenditures, on the one hand, and the support of the low-wage sector of the economy in which employers of limited efficiency may continue their operations, on the other.
Different measures apply to the wealthy, however. Governments were quick to buy up bad debts through asset-purchase programs and to rescue failing banks. The owners and managers of these enterprises thus escaped the consequences of their inept and reckless decision-making. Their taxes were cut, in the hope of inducing them to invest and thus create economic growth and, ultimately, employment. Typically no conditionality was imposed: the tax concessions were supplied in the expectation or hope that the desired activity (investment) would occur and that the benefits would ‘trickle down’ to the rest of society—described by John Kenneth Galbraith as the idea that ‘if one feeds the horse enough oats, some will pass through to the road for the sparrows’. But in reality there is nothing to prevent hoarding, or investment (or, for that matter, consumption) taking place outside the jurisdiction of the country providing the tax relief. In contrast to austerity programs which diminished support for those at the bottom of the income distribution, policies of quantitative easing inflated asset prices and benefited those (the wealthy) who owned them.
Rather than applying moral rectitude, policies for the wealthy created a classic moral hazard: one set of people engaged in the behaviors that led to the crisis; a different set pay the costs. This provides little incentive for behavioral change. These two worlds of austerity politics show it to be a class-based project, which aims to discipline labor and advantage the wealthy.