There is an alternative to austerity: economic growth

Contrary to the claims of the critics of the Liberal-Conservative government, the austerity measures announced in yesterday’s Budget do not represent a return to Thatcherite free-market ideology. Instead, they are the blinkered reaction of a technocratic government to Britain’s high level of public debt.

Equally, the Lib-Con coalition is wrong to claim that austerity is unavoidable. In truth, the alternative to curbing consumption is working out how best to raise production. After all, economic growth is beneficial in itself, and should also make it easier to pay off the deficit.

Neither side’s claims should be taken at face value. Instead, this whole discussion needs to be looked at afresh.

Despite what the headlines say, no new spending cuts were announced for this fiscal year in the Budget, which was unveiled yesterday by the Lib-Con chancellor of the exchequer, George Osborne. There certainly are savage cuts planned until at least 2015, but the government is planning to implement austerity slowly at first. From a political perspective both the Budget itself and the preceding discussion in recent weeks should be seen as an attempt to persuade the public to accept austerity as unavoidable. Indeed, the media have talked widely of a government campaign to ‘soften up’ public opinion.

Both the government’s prevarication and the scale of the attacks on living standards ahead point to an urgent need to build a campaign against austerity. But this can only be successful if strong arguments are developed to counter the government’s insistence on the inevitability of austerity. In particular it is essential to put the case for restructuring the economy to promote dynamic growth – a case that neither the government not its shrill critics are currently making.

Although Labour and some other commentators are mentioning growth, their conception of it is extremely narrow. Essentially their argument is that the government should try to avoid a ‘double dip’ recession by maintaining the fiscal stimulus for a little longer – something that the coalition is more-or-less doing, as it happens. All sides fail to see that if Britain’s productive base is not rejuvenated, then the chronically weak economy will not be able to survive without extensive state intervention.

To grasp fully the urgent need for a principled campaign against austerity, it is necessary to look at each step of the argument in turn: the government’s prevarication; the intellectual weakness of the mainstream opposition; and the pro-growth alternative.

Government prevarication

A close look at the figures in the Budget shows a very different picture to that drawn in some of the mainstream coverage. The fiscal squeeze – spending cuts combined with tax rises – is actually modest this year, but will become more severe in the run-up to 2015.

Although a net £5.2 billion of spending cuts for the fiscal year of 2010 to 2011 were included in the Budget, these had in fact already been announced on 24 May. If these are added to the £800million in tax rises already announced by the last government, and the £2.8 billion of new tax rises, then the total ‘squeeze’ this year will be £8.9 billion.

Although £8.9 billion might sound like a lot, it needs to be set against total public spending of £697 billion and a GDP forecast to be £1,474 billion. In other words, the total squeeze (including tax rises) is equivalent to only about 0.6 per cent of GDP this year. Admittedly, the squeeze gets increasingly tight as the years go on, to reach a forecast cumulative total of £128 billion in 2015-16.

This actually suggests a government that is fairly nervous about making cuts. Although from a blinkered fiscal perspective – the outlook favoured by all the main parties – there is a strong case for a squeeze, the government seems slow to implement austerity. A closer look at the patchy discussion over the past 18 months or so confirms this reluctance.

Nick Clegg, the Liberal Democrat leader and now deputy prime minister, said on BBC Radio 4’s Today programme as far back as 3 January 2009 that: ‘As we come out of this recession, people will be looking for a Britain which is fairer, which is greener, where a mood of austerity, responsibility and accountability is evident not only in business but also in public life.’

David Cameron, then leader of the opposition and now prime minister, also started talking in similar terms in early 2009. He told the Conservative Party spring conference in April 2009 that ‘the age of irresponsibility is giving way to the age of austerity’.

But rather than go on to have an open debate about austerity, the discussion became a lot more guarded, until after the recent General Election. Labour, when it was in power, avoided using the A-word entirely, while the Conservatives and Liberal Democrats refused to spell out the implications of their earlier arguments. If they had wanted a genuine debate about Britain’s economic future, the run-up to the General Election in May this year would have been the ideal opportunity to hold it.

Instead, a carefully orchestrated discussion of austerity only started after the 6 May election. This is the ‘softening up’ of the public to which the media have often referred in recent weeks. This has included speeches and interviews by leading politicians, starting with David Laws (then chief secretary to the Treasury) on 23 May, followed by David Cameron and George Osborne.

In addition, the government has taken other measures to distance itself from responsibility for cuts. A new Office for Budget Responsibility will take over the role of making economic forecasts from the Treasury – allowing the government to argue that its decisions are objective and impartial rather than political. Osborne has also announced an ‘engagement exercise’ to consult the public about cuts, while the government’s spending review, which will spell out what the cuts mean for individual government departments, will not report until October this year.

All of this indicates a government that is quite nervous about imposing austerity. Ministers are, as Mick Hume has previously argued on spiked, acting like anxious accountants rather than the aggressive free-market ideologues that their critics like to depict them as.

Opposition weakness

Unfortunately there has been no convincing opposition to the government’s call for austerity. Instead the debate has focused on where best to make cuts. This has led to a sad spectacle where everyone is pleading their special case against the demands of others. Would it be less painful to cut swimming pools or libraries? Is one type of welfare benefit more important than another? Is it better to curb wages or pensions?

To the extent that there is talk about growth, it is extremely limited. When Harriet Harman, Labour’s temporary leader, said the Budget would end up ‘stifling growth’, she was essentially arguing that the government should continue the stimulus for a little longer. She certainly does not favour a radical economic restructuring to promote economic expansion – something Labour conspicuously failed to deliver during its 13 years in office.

Essentially the opposition shares the technocratic outlook of the Lib-Con government itself. It looks at the economy through the eyes of an accountant or even someone managing a family budget, where the obsession is with making income and expenditure balance out.

What this perspective underestimates is the enormous potential of economic growth. Increasing prosperity is beneficial in itself as it enables people to lead better lives. It also has the added advantage of making it easier to pay off debt. The more rapidly the economy grows, the more quickly debt can be repaid. Yet apart from a few rhetorical flourishes, and even a reference by Osborne to ‘prosperity for all’, there has been virtually no debate about how to revitalise the economy. To the extent that growth is mentioned, it is usually either in relation to fiscal stimulus or in the forlorn hope that cutting back on the state will automatically lead to higher growth.

This underestimation of growth should not be a surprise – it is consistent with an outlook that has evolved over many years. Since the 1970s, it has become increasingly common for mainstream commentators to call the benefits of growth into question. It is an outlook I have called ‘growth scepticism’, because it claims to support growth in principle but makes it conditional on numerous caveats. Most often it argues that there are environmental, moral and social limits to economic growth. It can also mean redefining prosperity to downplay its economic dimension while emphasising factors such as emotional wellbeing and happiness.

The growth sceptics only see problems in relation to growth, such as climate change, loss of biodiversity and unhappiness. They do not understand the enormous creative power of generating growth to help transform the world for the better. Their outlook rests on a grossly one-sided view of humanity, seeing us as a mass of consumers rather than as having the potential to reshape the world through increased production.

A genuine alternative

A genuine opposition to austerity must therefore reject the accountants’ mentality of the elite. It must challenge the outlook that downplays or even stigmatises production and which can only see the world through the perspective of consumption.

There should be two sides to this opposition: negative and positive. Negative in the sense of rejecting the shackles imposed on growth, such as the idea of environmental limits and the dogma of sustainability. And positive in the sense of proposing measures that can help promote the transformation of the economy through innovation and increased output.

A positive alternative should promote a restructuring of the economy and innovation through the development of an industrial policy. Old economic sectors can be diminished or even closed down – as long as new ones grow to take their place.

We will need heavy investment in infrastructure rather than, as sometimes happens, simply talking about it or hyping up small-scale measures. This can include a far larger energy infrastructure (including nuclear energy and other measures), big breakthroughs in transport (airports, roads and high-speed rail), and serious innovation in telecommunications.

Rather than participate in phoney ‘engagement exercises’, it is necessary to pose a real alternative to austerity. The government’s patent anxiety about the future should provide cause for hope. We should not hesitate to capitalise on their fears or mock their lack of imagination. But if their premises are left unchallenged, the pain of austerity will inevitably come.

Daniel Ben-Ami is a journalist and author based in London. Visit his website here. His new book, Ferraris For All: In Defence of Economic Progress, will be published by Policy Press in July. The need for innovation in telecommunications will be discussed in a public meeting held by spiked and Big Potatoes on 8 July. Click here for more information.