Alternatives to Austerity
The IPR has hosted a range of distinguished contributions – public lectures, policy briefs, research reports – concerned with the policy responses to the recession that followed the 2008 financial crisis. This report draws on some of these, to offer a coherent and distinctive view of the policy challenges we still face, seven lean years after that crisis unfolded. It is intended to add to the debate among policy actors, researchers and those political parties who see the need for an alternative to austerity: and beyond them, their engagement with the public at large.
1. Austerity makes reduction of the public sector deficit the principal economic goal, pursued mainly through cuts in public expenditure. Shrinkage of the public sector is meant not just to reduce the deficit, but also to stimulate the private sector.
2. There is however an alternative and very different analysis of the modern economy. Government must develop a coherent investment strategy, to re-build the UK’s economic capacity, as a ‘postindustrial’ low-carbon economy. It must mobilise the energies and talents of all sections of society: and we are more likely to pull together if the distribution of rewards is less unequal. It must also decide whether budget surpluses should be used to reduce taxes and national debt or to invest in future economic capacity. The last of these must be given priority.
3. The burden of austerity has fallen disproportionately upon the poor and the young. We need a new social contract which provides security to all; invests in everyone’s capabilities and provides decent jobs; and supports vibrant local communities, as places of learning and creativity for all. This would leave the market where it properly belongs, as the servant of the community not its master. If the social changes of the 21st Century are to be managed successfully and with public consent, it will need this new social contract to underpin them.
4. High public and private R&D expenditure tend to go together. The fruits of capitalist progress are not therefore the reward for private enterprise alone. Government has a key role to play, investing in infrastructure, human capital and the science base. Today it is imperative to shift to a low-carbon economy. New regulatory regimes will be needed, to secure the public good. The rhetoric of austerity serves however to undermine popular support for active and benign government and to leave capitalist enterprise unquestioned.
5. The globalisation of the world economy reduces what can be done by individual countries. While international banks and corporations bestride national boundaries, governments are left trying to cope from within national jurisdictions. What therefore is needed is a set of reforms to the international order that will enable national governments – working both individually and in concert – to retrieve some control and leverage over their economic and social destinies. This includes the taxation of footloose multi-national corporations.
6. In the Eurozone, the same economic orthodoxy evokes balanced budgets, low inflation, stable currencies and support for business. This ignores Keynes’ analysis of the relationship between public investment, economic growth and the public deficit. It also ignores the interconnections of the European crisis, with Germany enjoying a ‘virtuous circle’ of exports, investment and productivity growth, alongside the weakening of the economies of the European periphery. This is likely to be politically destabilising.
7. In 2008, much of Europe’s financial system lay in ruins, its economy and employment under grave threat. Public funds were used to prop up the financial system: spending on public services was cut. Recent decades have also however seen vigorous calls for public and private investment in Europe’s knowledge economy, in the social cohesion of its diverse peoples and the solidarity of its regions, whatever their different stages of social and economic development. Without these, Europe is likely to face stagnation for the rest of this decade.
8. The austerity debate connects to a much wider range of policy debates. The choices we make will shape our societies through much of this century: their cohesion, their prosperity, their democratic institutions, their environmental sustainability and their global influence.
IPR Lectures and Policy Briefs used in the report.
IPR Public Lectures and Seminars
- John Eatwell (February 2015): Why is policy making so difficult today?
- Mariana Mazzucato (April 2015): Economic Policy: From Fixing Markets to Market Making
- Christos Pitelis (January 2014): Perspectives on developmental industrial policies and economic sustainability
- Emma Carmel and Thanos Maroukis (2015), Temporary agency work in the UK today: Precarity intensifies despite protective legislation
- Paul Gregg (2013), Youth employment – still waiting for the upturn
- Paul Gregg and Susan Harkness (2013), The 2013 Comprehensive Spending Review and the implications for making work pay and family poverty
- Paul Gregg (2014), What are the prospects of a Wage Recovery in the UK?
- Chris Martin (2013), A very large gamble: evidence on Quantitative Easing in the US and UK
- Phil Tomlinson (2013), A new industrial policy for the UK – some guidelines for policy-makers