Two seemingly trivial stories that appeared in the newspapers a few weeks ago actually could be of profound significance given the CSR (Comprehensive Spending Review) last week. The first involves clotted cream taking a 340-mile round trip to end up in a supermarket 2 miles away from where it was originally made. The second is a similar story involving Ginsters Pasties: despite being made in a factory that is walking distance from a Tesco supermarket, it takes a 240 mile round trip, via Bristol, to end up back in the supermarket in Cornwall.
The main point here is to highlight that there can be as many different anomalies, diseconomies of scale, and good old-fashioned “waste” in the private sector as well as in the public sector. Over the past thirty years, governments of all stripes have been arguing that “private sector = good, public sector = bad”. This dichotomy is inherently misleading. There are some things that the state is better at providing; others are best left to the free market. Government provision of health, education, street lighting and even transport is the most just way of providing essential services for all, regardless of location or ability to pay. On the other hand, government provision of tomatoes, for instance, would be ludicrous, and this is best left to private companies.
To simply have a Manichean divide between “private” and “public” sector is intellectually dishonest. Yet this is what the coalition has been attempting to do with its spending cuts. The cuts are founded on this logic, and this logic is misguided, as I hope to show below.
Ideology and cuts
One cannot criticise the cuts simply because they are ideological. This would mirror smears that New Labour drones like Hazel Blears would make of the Labour left, who dismissed any complaints they had of academies, ID cards or killing foreigners as “ideological” complaints that were not of any concern. I would welcome politicians using “ideology” more. Of course the cuts are motivated by a certain ideology, and you could equally argue that those arguing against the cuts are also motivated by a different ideology. The key point is not that the cuts are “ideological” per se, but that the ideology that motivates them has been tried before, and did not work. Johann Hari, in his excellent article on the CSR, had this to say:
When was the last time Britain’s public spending was slashed by more than 20 per cent? Not in my mother’s lifetime. Not even in my grandmother’s lifetime. No, it was in 1918, when a Conservative-Liberal coalition said the best response to a global economic crisis was to rapidly pay off this country’s debts. The result? Unemployment soared from 6 per cent to 19 per cent, and the country’s economy collapsed so severely that they lost all ability to pay their bills and the debt actually rose from 114 per cent to 180 per cent.
George Monbiot wrote another excellent article that is worthy of your attention, comparing the spending cuts to the “disaster capitalism” written about by Naomi Klein in her book The Shock Doctrine. This is what he has to say about Chile, where Pinochet implemented a rather, um, radical free market economy after his coup:
By 1982, Friedman’s prescriptions had caused a spectacular economic crash. Unemployment hit 30%; debt exploded. Pinochet sacked the Chicago economists and started re-nationalising stricken companies, whereupon the economy began to recover. Chile’s so-called economic miracle began only after Friedman’s doctrines were abandoned. The Chicago School’s catastrophic programme pushed almost half the population below the poverty line and left Chile with one of the world’s highest rates of inequality.
Hari summed it up best: “George Osborne has just gambled your future on an extreme economic theory that has failed whenever and wherever it has been tried.”
The alternative ideology
It is also fundamentally dishonest of the right to label those opposing the cuts as “deficit deniers”. Our problem is not that the deficity does not exist, but that the deficit is not such a drastic problem to justify cutting spending in some government departments by as much as 25%. From http://www.ukpublicspending.co.uk, here is a graph showing Britain’s deficit as a percentage of GDP since records were kept in the late seventeenth century. The deficit doesn’t look like such a massive problem in this context, does it?
As Hannah has pointed out, our economy depends on debt to some extent. If you don’t like it, then you have a problem with capitalism generally. Don’t we all? Thankfully there’s something called social democracy. You should give it a try.
And before anyone mentions the G-word, here’s Larry Elliott:
Britain is not Greece. Ministers have not been cooking the books to disguise the true state of the budget deficit. At 14 years, the average maturity of Britain’s debt is one of the longest in the developed world. And the fact that the UK has its own currency provides policy freedom in London not enjoyed in Athens.
The cuts are an over-reaction, pure and simple. Gary Younge put it as not letting a broken leg heal, but amputating it instead. I prefer to use the analogy of Monty Python’s “restaurant sketch”. The deficit is the dirty fork, and the coalition are the kitchen staff. You’ll get the picture:
Also, the deficit was not caused by a crisis in the public sector, but by a crisis of the private sector, which led to the banking bail out. This happened because of inadequate state intervention, not because of excessive state interference! As Paul Krugman has noted, in the US the deficit has increased because of tax revenues dropping, not because of exhorbitant government spending. Instead, in Britain we are cutting the welfare budget whilst making 500,000 more people unemployed. To quote Johann Hari again, surely it is obvious that:
When an economy falters, ordinary people – perfectly sensibly – cut back their spending and try to pay down their debts. This causes a further fall in demand, and makes the economy worse. If the government cuts back at the same time, then there is no demand at all, and the economy goes into freefall.
This is just basic Keynesian economics. Caroline Lucas was making the point very well on QT last week. You make people unemployed, you lose their tax revenues and have to pay them benefits, the deficit goes up. Straightforward really, isn’t it?
The coalition, of course, claim that these cuts will create jobs. Rolling back the state will allow the “good” private sector to invest, new businesses will start, and umemployment will fall. The CSR estimated that although 500,000 public sector jobs will be lost, 1.5m jobs in the private sector will be generated. The obvious question is from where? Here’s Flying Rodent‘s typically irreverent take on it:
Still, the news isn’t all bad. As George Osborne himself has said, cutting government expenditure will create space for several million jobs to be created by the Magical Ponies of Fuckadoodle. I paraphrase, but the meaning is the same.
The problem that has to be emphasised again and again is that private companies also rely on government expenditure. Cutting government jobs will have a knock-on effect on private businesses. The axing of the Building Schools for the Future programme is an obvious case in point. On QT last week an audience member said that she was trying to start up a small business, but could not get any money lent to her from the banks to get started. The whole situation is baffling.
I hope I am wrong, but I am not sure that I will be. The cuts won’t work, they’ll just make it worse. Those who don’t want cuts are not “deficit deniers”, but are unconvinced that making 500,000 people unemployed will make our economic situation any better.