Editorial: Seven Lean Years
It is now seven years since the global economic crisis erupted that led to what is known euphemistically as the Great Recession. Overinvestment had brought about a crash in the housing market, in which poorer homeowners were unable to pay their home loans and newly-built houses could not be sold. The downturn spread to the rest of the economy, and with the sharp fall in production and employment that ensued, governments suffered a fall in tax revenue. Banks that had been lending heavily in this market found themselves laden with toxic loans that were not going to be repaid and were in danger of becoming insolvent. To avoid this, governments have had to step in and bail them out.
Governments had come to incur substantial budget deficits and to be saddled with large amounts of debt. Hence, the so-called era of austerity was ushered in, where governments introduced policies of mainly cutting expenditure on public and welfare services and raising some taxes. The impact of this austerity has largely fallen on the working class. Indeed, in the last few years, many capitalists have increased their wealth.
In the Eurozone, countries such as Ireland, Portugal, Spain, Italy and Greece had to seek bail outs from the Troika (The European Commission, The European Central Bank (ECB) and the International Monetary Fund). In return for cash, these countries have had to follow tough austerity policies. Greece has been particularly badly affected. Its people have had to endure five years of sharp falls in their living standards.
Of course, governments won’t admit that the need for austerity measures arise from a crisis in the market system. They usually blame their predecessors or the fecklessness of the working class. The last coalition government in the UK, for instance, blamed overspending and financial mismanagement by the previous Labour government.
Some have argued that if the rich were made to pay more taxes, we could avoid austerity. This misses the point that austerity measures are not just about improving the government’s finances. It is hoped that by reducing the cost of running the state, and along with the fall in real wages that occur during a recession, the prospect of higher profits will encourage capitalists to invest more in production.
Movements have arisen which seek to challenge austerity. The Podemos movement in Spain, the People’s Assembly in the UK and the Syriza coalition of different parties in Greece. In January of this year, Syriza were elected to office on a platform of rejecting Greece’s bailout terms, opposing further cuts in public services and pensions and calling for debt relief. In response, Greece’s creditors set out new bailout terms which offered no debt relief and would entail further cuts in public expenditure and reductions in pensions. On 5 July, 61 percent of those voting rejected these terms in a referendum called by the government. Despite this, Greece’s creditors imposed tougher terms and after strong pressure from the ECB and other Eurozone finance ministers, the Greek government caved in and the new terms were ratified by the Greek Parliament.
In the UK, aside from the Scottish Nationalist Party, the Green Party, Sinn Fein and other smaller parties, Jeremy Corbyn, MP for Islington North and a contender in the current Labour leadership contest, has pledged to oppose austerity. Were he, in the unlikely event, to become Prime Minister and try to put his policies into practice, he would find resistance from the markets. Investors would require a higher rate of interest before lending to the Government and there would probably be a run on the pound. He would be forced to make a climb down.
What this era of austerity has clearly shown, particularly in the case of Greece, is that in capitalism human welfare does not only come second place to profits, but it sometimes has to be sacrificed to it.