Why austerity threatens future growth of a nation
Afew years ago, when memories of the global financial crisis were still raw, Barack Obama’s education secretary argued passionately against the conservative political notion that American teachers were grossly overpaid. “Even in a time of fiscal austerity,” said Mr Obama’s minister, Arne Duncan, “education is more than just an expense. It’s an investment in the future.” It was hardly surprising that Mr Duncan, a former educationist and the son of a professor and an after-school programme administrator, would take that line.
What’s striking is how fashionable it’s becoming in disparate parts of the world, with education interpreted not just as good schools and affordable colleges, but generous government support for adult re- skilling and job-training as well. More noteworthy still is the way investment in education is becoming part of a broader new spend-tothrive mantra.
It is all about the rejection of austerity, which is defined by the Oxford dictionary as “difficult economic conditions created by government measures to reduce public expenditure”. From South Korea to Britain and France, all of which recently held elections or are in the throes of them, government investment in ordinary people is becoming a rallying cry.
That it sounds so dangerously revolutionary is a measure of austerity’s hold on policy and political debate for more than 30 years. With Ronald Reagan and Margaret Thatcher leading by example, neo-liberal economic evangelism flourished on both sides of the Atlantic. Fiscal austerity was advocated by the International Monetary Fund too. When it provided emergency loans to countries with balance of payments problems, the IMF would seek crippling cuts in government spending, even though they often did no more than turn a crisis into a catastrophe.
In recent years, the IMF has changed its approach to fiscal policy and now it seems the idea of austerity as a necessary good may be getting its comeuppance too. Consider this. Just days ago, South Korea’s new president Moon Jae-in sought bipartisan support for a nearly $10 billion (Dh36bn) stimulus package to create hundreds of thousands of jobs and to strengthen welfare provisions. President Moon’s response to a record jobless rate for the under-30s and a profound skills mismatch between young people and South Korea’s evolving labour market has been dubbed J-nomics.
In the UK, it might be called Corbynomics and in France, Macronomics. Leading politicians in both these countries are driving the debate over good economics and its importance to building a good society. There is every sign that voters are responding positively. Though Jeremy Corbyn’s Labour Party did not win last week’s British general election, it did well enough to shift the agenda away from the Conservative government’s seven-year programme of school, health and social-care budget cuts. On Monday, aides to prime minister Theresa May were forced to concede that British voters had rejected her arid vision of another decade of reduced public spending.
In France, meanwhile, which holds its second and final run- off parliamentary vote on Sunday, president Emmanuel Macron has an ambitious 50- billion- euro investment plan for job-training and infrastructure. Even as he proposes business-friendly policies that include a cut in the corporate tax rate and labour law reform, it’s worth noting the Macron administration’s promise to help with expenses that can rack up dreadfully for ordinary people. So Macronomics would fully reimburse the cost of spectacles, dentures and hearing aids, for example, while leaving France’s famously well-endowed health and educational services intact.
The significance of these developments lies in the unabashed, almost lyrical tilt away from the austerity preached as a theology by neo-liberal politicians and economists for decades. J-nomics, Corbynomics and Macronomics are not, by any means, a manifesto for the Nordic model of a decently funded and wellrun welfare state, with a marked emphasis on enhancing individual citizens’ skills and ability to improve their lot in life. But they demonstrate a clear intention towards public spending meant to achieve something development theorists call “getting to Denmark”. It is jargon for successful and pragmatic modernisation that reconciles competitive capitalism with a big-enough state, thereby preventing the dominance of the market over government.
Such a re-calibration is sorely needed. As Nobel Prize- winning economist Joseph Stiglitz put it before the UK’s election: “There needs to be an appropriate balance between government and market. When an economy is weak, as it has been in recent years, there is a need for governments to invest in people, technology and infrastructure.”
Professor Stiglitz belongs to a vocal tribe of inter-disciplinary theorists who strenuously argue that austerity threatens future growth, because it fails to build human capital by investing in the education and health of young people.
A few months ago, Harvard professor Michael Sandel explained the Brexit referendum, the rise of Donald Trump and of rightwing nationalism in Europe as the net result of Reagonomics and Thatchernomics. The US and many European countries, he said, went from being market economies to “market societies”, a wholly soulless and valueless status that does not allow man to dream. It was a catchy description, perhaps one to be expected from a political philosopher who’s been described as unusual because his lectures fill giant stadiums and he boasts the global profile of a rock star. But he has a point. Market societies are cruel, because they don’t invest in hope.