Austerity Might Be Over, But Everything is Still Terrible

by James Meadway

20 October 2020

Andy Thornley/Flickr

The world transformed? Both the IMF and the World Bank have, in the last week, underlined their support for significant spending increases in the wake of Covid-19. “This was the week”, writes the Financial Times’ Chris Giles, “we witnessed the funeral of austerity”. 

For those of us who spent the decade or so following the election of the Conservative-led coalition government in 2010 opposing austerity, the new situation is unfamiliar. The decisive factor in Jeremy Corbyn’s first leadership win in 2015 was his opposition to austerity, against the prevarication (at best) of the then-Labour leadership and the willingness of the other candidates to go along with it. (The biggest what-if in Labour’s recent history is how different things might have been if Andy Burnham, then favourite to win, had voted against the government’s welfare bill, rather than abstaining as whipped.)

But at least since the 2017 election, Conservative governments here have been verbally committed to ending austerity; under Boris Johnson, that verbal commitment turned into some additional spending in politically-sensitive areas, notably starting to reverse the per-pupil schools funding cuts that played such an important (if often overlooked) role in the 2017 general election. We did, indeed, ‘win the argument’.

The change today, in the wake of Covid-19, is that this turn has generalised – countries across the globe are spending freely – and deepened, with absolute spending by governments rising to levels unprecedented outside of wartime.

This changes the politics of the economy. Austerity produced a simple, clear story for the left to organise around: the Tories were once again attacking public services, and hurting the poorest; over time, these cuts gradually came to affect much of society, as the quality of public services and the public realm visibly declined, turning the general population hard against spending cuts. This story held for ten years, but it will not fit a Covid-19 world. Ending austerity on the terms dictated by this Conservative government, or indeed the IMF, will not – this will no doubt come as a shock – herald the dawn of a new era of egalitarian public munificence. 

There are three dangers here. First, the austerity lobby is diminished, but it has not gone away. Governments will still feel pressure to rein in spending from two directions. One is from a simple ideological commitment to a smaller state: in the UK, there are enough Tory backbenchers (and, more covertly, frontbenchers like chancellor Rishi Sunak) whose default setting is in this direction for this to be a problem. Two is a competitive issue: the ‘new normal’ of Covid-19 increases the cost pressures on all economies as a result of the increased biosecurity, surveillance and (eventually, we should assume) vaccination spending that is required. Stripping out public spending is one means to try and reduce costs, and thus gain a competitive advantage over other economies. (There is a further, more complicated issue here. Governments’ capacity to spend freely is significantly determined, at present, by the willingness of central banks to assist in funding that spending. That willingness may run out, and there are signs central banks are already preparing for when it does.)

Second, the fact that in many cases across the globe this increased spending is driven not by the demands of, say, an insurgent left or a militant trade union movement, but instead by the needs of capital, means this is unlikely to be spending simply directed towards broad social goals. Some will be: increased health and social care expenditure now looks like a certainty. But some will not: it isn’t clear what public purpose the significant amounts now being directed into public artificial intelligence research will eventually serve, and the same goes for the roadbuilding increases now being earmarked in Britain. It’s true that the unions, and labour in general, have increased their social weight during the crisis, as the need to regulate labour – via social distancing, primarily – has shifted bargaining power towards labour, and increased the political visibility of work. The TUC’s role in negotiating directly with the government and the political salience of ‘key workers’ in the UK are both evidence of this. Likewise, the fact that Labour fundamentally won the argument on ending austerity has helped determine what this might look like in practice. There are new Tory MPs in so-called ‘red wall’ seats with an unusual sensitivity to spending cuts as a result. 

But in general, ending austerity will be a process that a Conservative government owns and operates, which will mean both political favouritism, corruption and grift in dishing out any spending increases – we have seen this already around PPE procurement contracts, for example – and, more generally, a set of priorities for spending that will favour supposed business interests over wider society. It is essential that additional public spending is scrutinised, as Labour’s front bench are doing with some success, and that clear alternative priorities are detailed – a point on which Labour are presently remaining largely silent.

Third, and hardest of all, is the process of adaptation to a Covid-19 world. The virus is not going away any time soon, or perhaps ever; even if it can be managed to the point of being less obviously socially destructive, it will leave a dramatic legacy. This is most obvious in terms of the continual surveillance and monitoring needed to contain the thing. Less obvious is what it tells us about our future: this will not be the last pandemic we face, with climate change increasing the number of disease outbreaks, and there will be other, dramatic dangers from environmental breakdown, like the rising risk of destructive floods.

Disputes over how these costs are carried are likely to shape politics for the foreseeable future. When Dido Harding, for example, apparently responsible for overseeing the UK’s test and trace service, suggests the costs of Covid-19 tests will in future be borne by those taking them, this is a direct attempt to shift the costs onto workers. What happens, for instance, if you need a negative Covid-19 test simply to be allowed to perform your job? Having to pay for an essential test would be a direct attack on your living standards. There is an austerity-like logic at work here, in the sense that the costs of the crisis are being turned into a squeeze on real wages.

The argument from the left has to be to place these costs on the broadest shoulders – which is the main reason why arguments about taxing the richest are today so important. But the costs of the pandemic – like those of other environmental crises – are real, not a matter of political choice, as austerity has been for a decade. This means they are unavoidable. We need to get used to thinking, in rather sharp terms, about priorities for societies’ resources, rather than assuming an unlimited bounty that can be tapped into for all of our demands in a future utopia. We have drifted far beyond the point where this is plausible. And if you’re on a sinking ship, it’s no use telling your fellow passengers what dry land would be like. You need to build a liferaft, lashed together from whatever is at hand. That is the task the left must set itself.

James Meadway is an economist and Novara Media columnist.

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