‘As political theorist Antonio Gramsci pointed out, it is the “traditional ruling class” rather than its opponents who are best positioned to take command of a crisis.
‘the right and even much of the centre-left argue that austerity is simple economic common sense: addressing the deficit boosts the confidence of consumers and investors and enables new cycles of growth. If this were the case, the project would have to be deemed a failure. The evidence of present and past austerity programmes, and even the view of the Office for Budget Responsibility, is that they retard growth rather than stimulate it. They certainly don’t make the repayment of debts easier.
‘let’s take an example of an early austerity programme. In New York in the mid-1970s the city was running an increasingly unmanageable deficit, with the servicing of debt consuming about a fifth of its operating funds. Underlying the crisis was the evisceration of the city’s manufacturing base in the postwar era, which drove up unemployment and thus welfare rolls. One of the main factors sustaining employment had been the growth of the city administration. The growing power of public sector employees allowed them to win better pay and conditions, and gave them a degree of political clout. The costs of the state’s expansion were partly supported by federal funding, but taxes on local business and property owners made up the rest. The postwar agenda of liberal reform, especially that associated with Lydon Johnson’s Great Society programme, was ideologically legitimised by the idea of America as a wealthy, growing economy in which some of the benefits should be extended to the poorest.
‘However, as the global economy tanked in the early 70s and the Bretton Woods systemcollapsed, New York began to accumulate more and more debt. Ironically, the same banks that would later complain of fiscal irresponsibility profited greatly from the debt. As it mounted they demanded that the financial system should have first line on the city’s funds in the event of bankruptcy. From 1975 to 1978, therefore, New York City was subject to an austerity regime. This involved not simply a set of policies, but an exceptional form of the state – a set of special institutions with extraordinary, wide-ranging legal powers, the most important of which was the Emergency Financial Control Board. Dominated by bankers, corporate interests and the city executive, these institutions took command of the crisis by cutting services to low-income New Yorkers, attacking working conditions for the city’s unionised workers, and offering incentives to its wealthy financial class.
‘The elite argument for austerity was simple. The city’s crisis was primarily one of overspending, driven by too many services for the poor, too many bureaucrats to run them, a union-driven cost of labour increases, and a corrupt and inefficient city management driving the productive layers out of the city with burdensome taxes. The solution was to reduce the burden of the unproductive on the productive, and let wealth creators keep more of their wealth. This argument was supported by the majority of the media. The union-led opposition highlighted the tremendous wealth enjoyed by the bankers and corporations who were demanding austerity, but the business interests were canny enough to recede into the background and refuse to publicly comment on controversies in which they were deeply involved.
‘The unions were no match for the organised business offensive. The major corporations had their control of markets and operating capital as a considerable leverage over the city. The political clout of the unions, meanwhile, was based around bargaining mechanisms designed to swerve the very kind of confrontation they could not avoid. They accepted the dominant narrative about the crisis and its causes, accepted the need for some cutbacks, and then sought to narrowly protect their conditions within that framework.
‘The austerity solutions worked in the precise sense intended: by drastically reconfiguring the city’s class relations, reorganising the state to marginalise popular constituencies, and winning the ideological battle for placing more authority and wealth in the hands of entrepreneurs, they started to restore profitability to capital. Soon, the austerity project would be launched nationwide, beginning with the Volcker shock in which loan rates were raised to a crippling 21%, thus driving down incomes, suppressing growth and breaking the spine of organised labour, with similar overall effects.
‘The austerity project thus took hold of a situation in flux, a crisis, and imposed a solution in the interests of a specific class. It did so along three axes: class, state and ideology. First, it reorganised the balance of class power in such a way as to transfer wealth away from popular consumption and towards business investment. Second, it reorganised the state apparatus in a profoundly undemocratic way, linked to a wider tilt in the balance of power toward authoritarianism, marginalising and excluding popular constituencies. And third, it reorganised the ideological terrain: while the wider crisis was caused by generic dysfunctions inherent in capitalism – the decline of manufacturing, for instance, due in part to capital’s drive to reduce costs and rationalise production – the narrow focus on the fiscal crisis allowed elites to highlight overspending as the key problem. On the basis that theirs was the only solution that could restore growth and general prosperity, they could link their particular class interests to the interests of the whole city. And in the process they began to displace the postwar liberal consensus in favour of a neoliberal orthodoxy that placed the emphasis on markets and competition.
‘The austerity projects we face today are different in one important respect: they come after almost 40 years of neoliberal offensive. This is something which large sections of the left have totally misunderstood; a significant reason for its disarray. For most of the past three decades, neoliberalism has been chiefly analysed as a kind of free market fundamentalism, which is but a glimpsing scratch of the surface.
‘If neoliberalism was chiefly about free market fundamentalism, then it would be possible to understand the salience of the state as a post-credit crunch economic factor as a repudiation of that orthodoxy. Indeed, many on the left did prematurely pronounce neoliberalism deceased.
‘However, the dominant strains of neoliberalism have always favoured an interventionist state. It is not the volume of state activity that is the concern of neoliberals, but its character. Neoliberalism is unlike classical liberalism in that it does not assume a human propensity to truck, barter and trade as the basis for political organisation; neoliberals learned through the bitter experience of the 20th century that human behaviour could be as collective as it could be competitive. Thus, a strong state was required not merely to protect property, but to discipline its subjects and educate them in the new neoliberal dispensations.
‘Ideologically, there has been a long-term generational shift against the welfare state, and in favour of competitive behaviour. Indeed, competition has increasingly been built into the public sector (“internal markets”), and disciplinary techniques built into social security (in the form of “workfare”, for example.) While older generations experienced the welfare state as part of a collective unity, younger generations have experienced it as part of a zero-sum competition for resources. This is the ground on which support for some of the most punitive aspects of austerity, such as welfare cuts, has been constructed; this is the result of a conscious political strategy. The traditional ruling class is not merely good at exploiting opportunities; it thinks long-term in a way the left must learn to do.’