From Austerity to Inequality

There is much talk of 'austerity'. But what does it really mean?

It is now almost eight years since the global economic crisis emerged. It was a remarkable time because with the conventional wisdom so obviously failing to deliver, it was ‘socially acceptable’ to think and talk outside of economic orthodoxy. Even mainstream papers were talking about the relevance of previously maligned economists like Keynes and Marx, and speculating about an end to the form of capitalism initiated by Margaret Thatcher and embraced (with a few social democratic add-ons) by New Labour.

The crisis represented a rare opportunity to fundamentally change the way the economy is understood, discussed, and managed. But the consensus was so complete that there was no real opposition ready to seize the initiative and take politics in a new, more progressive direction. The window of opportunity soon closed and it fell to people with the very mindset that created the crisis to define its causes and prescribe its solutions.

The new analysis was set out in David Cameron’s 2009 speech in which he declared that “the age of irresponsibility is giving way to the age of austerity”. Cameron was referring not to the gambling and greed of the financial institutions which caused the crisis, but to the public sector which took on a huge amount of debt bailing out and recapitalising those institutions. So the financial sector was written out of the script and the problem was redefined as one of extravagant public spending, logically to be addressed through a reduction in public expenditure. And with welfare reform a target of cuts (or ‘savings’ in the Treasury’s parlance) those with the least were also expected to bear the burden of this ‘austerity’.

The Labour Party, keen to disassociate itself from New Labour, declined to challenge the austerity story, allowing it to circulate freely among opinion-formers, acquire authority through repetition, and develop into the potent discourse it is today, capable of being marshalled for various purposes - not just to support spending cuts. Declaring, with a heavy sigh, that ‘we are in an era of austerity’, helps to lower expectations in the context of a dysfunctional economy that is generating chronically low levels of economic growth and high levels of inequality.

For that reason the beginnings of a public conversation on the issue of economic inequality is a very interesting development. It has long been argued that inequality is socially destructive. Evidence is now emerging that it also economically damaging. But if Northern Ireland wants to address inequality, and if it wants to have the option to increase public spending, then it will have to take more control of its tax affairs. While there has been strong opposition to welfare reform and to budget cuts more generally, with limited control over taxation it is difficult to adopt a different approach. Fiscal devolution is high on the UK political agenda but here there has been a narrow focus on Corporation Tax. It’s time to widen out the discussion to other taxes, such as Income Tax.

Austerity is more than a policy of budget cuts. It is the orthodox way of reinterpreting and responding to the economic crisis caused by that very orthodoxy. The issues of economic inequality and fiscal devolution offer an alternative basis for understanding and addressing the economic problems currently framed by the disingenuous discourse of austerity.

 

The opinions, views or comments in this article do not necessarily reflect any views or policies of NICVA.

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