Europe’s Right still full-steam ahead on mad dash for austerity
Posted by William Bain, MP for Glasgow North East, at 12:46, Mon 21 May 2012:
After the longest Parliamentary session since the Second World War, and a collective battering for the Coalition parties at the polls, a relaunch of the Government’s economic agenda was expected among the traditional pomp and circumstance of the Queen’s Speech. If this was the point of the State Opening of Parliament, the Queen might have been saved the trip. David Cameron and Nick Clegg are still not listening. Voters in Scotland, England, and Wales joined millions of others across France, Greece, and Germany in recent polls in delivering a collective no to mass unemployment and destruction of living standards by ditching the king of bling Nicolas Sarkozy, the Conservative New Democracy movement in Greece, and in handing the architect of Euro-austerity Angela Merkel and the CDU their worst results in North-Rhine Westphalia, Germany’s most populous state, since 1945.
The reasons for this are unsurprising. The OECD predicts that demand in the Eurozone is set to fall by 0.2% this year, at a time when the different policies on jobs and growth being followed by President Obama in the US are leading to an increase in US economic demand of 1.9% in 2012. Nearly 25 million people in the European Union cannot find a job. In Greece, even the middle classes are finding it hard to survive given pay cuts of up to 30%, and suicide rates are surging. Austerity literally kills. Given that ordinary people face the biggest drop in living standards since the 1920s in the longest slump since the Long Recession of the 1870s, the State Opening should have been the moment for a change of course. Instead it simply confirms that the Liberal Democrats are propping up a radical right-wing administration whose aim is to use the aftermath of the 2008 financial crisis to slash the role of the state in society, further concentrate power in the hands of the wealthy, and use the law and the fear of unemployment to drive down wage levels, and smash rights at work. Like mediaeval doctors with single-minded obsession to bleed the patient with leeches whatever the illness, the proponents of austerity believe the answer to self-defeating cuts in public spending leading to a hollowing out of demand is further austerity. In the 1930s, only the outbreak of the Second World War led to different economic policies, but across Europe, the cry for an alternative now is growing louder. In the UK, the TUC has estimated that 6.3million people are looking for a full-time job, but cannot find one. Real wages for people in the lowest 10% of the income scale are falling twice as fast as those for the highest 10% of earners, the biggest real terms decline since the 1970s, as the overall inflation rate masks big rises in the costs of food and clothing. The Resolution Foundation showed that by 2020 ordinary people will be no better off than they were in 2001, while the top 1% skyrocket away from the rest of the country in terms of financial clout. Nearly a third (32%) of adults in the very poorest households are struggling to afford essentials, compared to 18% of those on low to middle incomes and 6% of higher income households. It is a natural aspiration for many families to want their children to do better than they have – this is the first generation since the 1970s that will do worse than their parents if the Tory-dominated Coalition continues unabashed with its campaign of radical redistribution of wealth from poor to rich, stagnant incomes, and continuing slump. What would an alternative programme for jobs and growth from the left involve now? Firstly, increase demand by creating jobs, building homes, and increasing the purchasing power of wages. The benefits bill has continued to rise by £10bn given unemployment is rising above 2.6million, and tax revenues have undershot the OBR’s forecasts by a massive £15bn. A jobs programme now, funded by a tax on bank bonuses, in building 2,500 homes in Scotland as a start would employ 10,000 young people north of the border, and boost the Scottish construction sector which saw a 4.3% drop in output in the first three quarters of 2011. Cutting taxes for ordinary people by cutting VAT to 17.5%, putting £480 back into household budgets, and reversing tax credit cuts, withdrawals, and freezes, which are penalising the low-paid and part-time workers, a disproportionate number of whom are women. Second, change the banking system. Bank lending to SMEs has fallen in five successive quarters. Businesses face a short-fall in capital of £190bn over the next decade at a time when £700bn in private sector finance could be put to greater productive use in economic investment. As the Big Innovation Centre and the IPPR have argued, new thinking in methods of lending, and a new range of state-supported banks, with a UK National Investment Bank, and regional banks based on the German model, would lever in long-term finance to support new industries like the renewables sector, and stimulate the creative sector, retail and manufacturing. Third, deal with inequality. The top 3% of the population, including top directors in FTSE registered companies, have increased their wealth by half in the last couple of years despite the recession, while 250,000 people in Scotland alone face in-work poverty. More and more people understand that this wrecks long-term growth. Taking action on top pay, while introducing a living wage, are key. We discovered from the IPPR last week that top FTSE companies could pay a living wage of £7.20 an hour (or £8.30 an hour in London) at an extra cost of less than 1% of wage bills. Stronger collective bargaining has helped cut income inequality in countries such as the Netherlands. Fourth, Germany should use its economic power to increase demand in the Eurozone. A system of Eurobonds would help reflate the weaker economies in the Eurozone, given a collective budget deficit in the Eurozone last year of just 4.1%. After its recent rout, the Merkel Government is likely to make some leftwards moves to tempt public sector workers with pay rises ahead of the federal elections in September 2013. This too would increase overall economic activity by boosting demand for exports from other Eurozone countries. Keynes said in the 1930s “madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back”. George Osborne and the European right are embracing a new monetarism inspired by Milton Friedman and the Chicago School of economics from the 1970s to bolster their disastrous austerity policies. Spain has gone from a budget surplus and relatively low debt in 2008 to utter calamity via austerity with over half of young Spaniards out of work. Imposing austerity in already depressed economies without any credible plans for growth is a monumental error in faith-based economics from Europe’s right. It falls to the British left to develop a convincing and popular alternative to end this unnecessary recession and the social disaster left in its wake. The writer is Labour MP for Glasgow North East and Shadow Scotland Office Minister