George Osborne's budget statement was the latest dishonest, incompetent, and vindictive moment in the managed decline of UK capitalism argues James Meadway
This year's Autumn Statement was everything we have come to expect from George Osborne: dishonest, incompetent, and vindictive.
Dishonest: Osborne will miss the only targets he set for himself – cutting the deficit and shrinking the national debt. He has been forced to extend the date by which he expects to do either, and could only claim that the deficit was falling this year by including the proceeds of the 4G mobile phone licence sale – which has yet to take place.
Incompetent: Osborne is attempting to cut most government departments' spending by another £3.5bn on top of the cuts he has already planned. He is doing this to fund £5bn of investment in roads and other infrastructure. But the government's own interest rate on its borrowing is close to zero. Osborne could fund the entire capital spend at exceptionally low cost. Instead he is imposing further spending cuts. There is simply no reasonable logic to this decision.
Vindictive: Benefit payments, an inadequate lifeline for many thousands, are being slashed to save £3.75bn. But corporations have a further reduction in their rate of tax, down to 21%. “We're all in it together” is a sick joke: the Autumn Statement was grossly regressive. Even the Treasury's own analysis shows that the poorest 30% of society are hit twice as hard as the richest 30%.
They are paying the price for Osborne's failures. The economy shrank by 0.1% this year. One in five young people are unemployed. Real earnings for most people have fallen for the last three years.
This was not, needless to say, in the Coalition's original script. The ludicrous, purportedly “independent” Office for Budget Responsibility provided that in its first forecasts, back in June 2010. By now the OBR expected Britain to be booming. They expected economic growth over the last few years to be six times what it has been. They thought business investment would be skyrocketing – up 9.8% this year and 10.6% next. In reality, total investment has grown less than half that - and investment in manufacturing has actually declined nearly 7% over the year.
The OBR claimed the economic impact massive public spending cuts would be drowned out by an astonishing, almost unprecedented recovery in the private sector. They have been proved, predictably, entirely wrong. But their fairytale allowed Osborne to push austerity.
The result of his spending cuts – equally predictably - has been a dismal slump across the rest of the economy. The reason is simple: the recession is driven, in the first instance, by falling demand. Everyone – workers, big business – is spending less, fearful of the future and burdened by debt. But everyone spending less means that earnings across the economy must also decline. If government also steps in and cuts its spending, this decline is exaggerated. Austerity is the worst possible thing for a government to do in a recession.
Not that the official Opposition made this clear. Ed Balls' Parliamentary response to Osborne has been widely derided. He is claiming his stammer let him down, and many will sympathise. But the failure here was not personal. It is political. Ed Balls accepts the myth pushed by the Coalition: that austerity is a necessary response to a crisis of excessive government spending.
This is, and always has been, self-serving nonsense. Take the deficit – the gap between taxes received by government and the money it spends. Under New Labour, before the 2008 crash, this averaged 1.1%. Under Thatcher and Major's Tory governments, it averaged 3.1%. New Labour did not spend “excessively” - quite the opposite.
It was the financial crash of 2008 that ballooned the deficit and the national debt. An exceptionally sharp recession was the immediate result. The deficit rose to 9.8% over 2009 as tax revenues collapsed and unemployment shot up. The crash was, in the first instance, due to financial system itself – bloated on increasingly risky debt, it fell over itself and dragged the rest of the economy down with it. The crash had nothing – exactly nothing – to do with “excessive” spending on public services.
But Ed Balls can't say this. To do so would be to break with his own past, as advisor to and then member of a government that encouraged the bankers and speculators of the City in their greed and stupidity. New Labour spent years congratulating itself on abolishing boom and bust while presiding over the greatest credit bubble in history. They thought they could cream a fraction of the City's earnings off for public services. In return the financiers would be let off the leash, free to gamble as they saw fit.
New Labour are now forced to accept the consequences of this Faustian bargain. The British economy is chronically weak: productivity, critical to future growth and profitability, has slumped. Investment, always low, has crashed by more than £30bn since 2008. The trade deficit – the gap between what Britain exports, and what it imports – is reaching fresh highs. In a competitive, capitalist world economy, our ruling class finds it has precious few real advantages. It must cling to the City of London as it sees few other options.
The steady management of decline
Balls is, like the rest of our political class, too tied up with the system as it stands to be able to take a meaningful stand against finance. To do so is to immediately throw open the question of how the economy should be run, and in whose interests. A meaningful reconstruction of the economy would necessarily involve an assault on the power of capital: taxing the super-rich, closing their Square Mile gambling dens, asserting public, democratic control over the banks. These are the barriers to meaningful recovery. Investment could be made – and should be made – to create green jobs and provide decent, secure employment.
Fundamentally, the UK's financial sector is now an intolerable burden on the rest of the economy. The bailouts last time cost £1.3tr, in total. With the debts of the City's banks and financial institutions now standing at (on a conservative estimate) 214% of GDP – more than double the debt of the government – another crash could be similarly and cripplingly expensive. But we have a set of political institutions now carefully calibrated to – at best – make the occasional cross noise about the “excesses” of finance, but to never seriously challenge its prerogatives.
The result is austerity in permanence. There are no plausible prospects for recovery over the next year – although we could, like the OBR, invent some implausible ones. The most likely prospect is prolonged stagnation, and steadily declining living standards for most of us. Osborne and Cameron have almost admitted as much, Cameron hinting darkly in his Tory conference speech this year of the need to square up to fresh competition from the east. If they have a long term aim, it is to strip the British economy of its excessive costs – from “excessive” real wages to “excessive” welfare spending – while retaining the primacy of financial capital.
This is more than austerity. This is the managed decline of an ageing imperial power. Short of some economic miracle – the OBR, hilariously, expects a 50% increase in the UK's share of world GDP by 2017 - the only way to break it will be through decisively anti-capitalist measures. Finance must be the first target.
The chances of the official Opposition doing this are, needless to say, remote. They are clearly resigned to the steady management of decline – pacifying their own supporters as much of what Labour once stood for – a welfare state, full employment – is slowly taken away from them. The alternative, if it is to be built at all, must come from outside Parliament. It lies with the millions of people who oppose austerity, who can be mobilised to fight cuts, and who can be won to an economic alternative for jobs, the environment, and democracy. The Coalition of Resistance has called a People's Assembly for next year, bringing together those who oppose the cuts. It can be an important step towards creating just such a movement.
Radical economist James Meadway has been an important critic of austerity economics and at the forefront of efforts to promulgate an alternative. James is co-author of Crisis in the Eurozone (2012) and Marx for Today (2014).