Austerity or Growth?

It seems that for many people austerity isn’t working.  The French people have voted for M. Hollande and Greece has rejected the parties that signed up to a bail-out deal that imposed stringent austerity and very difficult structural reforms.  Even in the UK the government, whilst sticking to the deficit reduction plan, is suggesting various ‘supply-side’ measures in the Queen’s Speech, including reducing red tape and cutting back on employment laws that might reduce business flexibility and competitiveness.

As far as M. Hollande is concerned it seems that, despite the rhetoric from Germany, Mrs Merkel will bend so that some kind of accommodation or at least a form of words can be found to reconcile their two positions.  Publicly, they are being more hard-line with Greece, perhaps dare it be said because they are smaller and can be bossed about, but in reality Greece holds considerable power.  Despite most Greeks not wanting to leave theEuro they could wreak considerable havoc if the markets and others get the jitters and see a precipice approaching.  It remains to be seen whether there are enough politicians in Greece who are prepared to see if a deal could be done that might satisfy the voters that can form a government or if the rhetoric of outright rejection will stand in the way and lead to another election with all the uncertainty that will bring.

Whilst in the long-term we must all live within our means, one has to wonder whether the present prescription is the best means to achieve that.  In the short-term Greece’s debt is un-repayable, which is why there has been a bail-out and effectively the writing off of some of it.  It is also clear that structural change has to come to Greece.  Some of the alleged practices on tax being optional for those on higher incomes and the early pensions said to be paid to many people and so on mean the country is clearly uncompetitive.  Many of these sorts of abuses have to stop.  It is difficult from the outside to know the detail and whether some of the claims are correct.  What is clear, though, is that austerity is leading to very high unemployment and as usual in those situations the poorest suffer most.  Even more stark is the situation in Spain.  Whilst it is said that some people drop out of the official economy into the cash economy, 24% unemployment and double that for young people surely cannot be sustainable or just.

At the same time I wonder about the tyranny of markets.  I suppose I would be anxious if I thought that some of my money or future income held by my bank or pension fund in who knows what kind of financial arrangement was at risk because of some potential default.  But we seem so beholden to the money markets that their ‘view’ trumps all others.  Of course, markets are really a collection of individual views that may well be based on partial information and which collectively do not always act rationally, despite economic theory.  And to some extent, markets only have power because they are allowed power.  At the moment it appears there may be another wobble in the bond markets about the stability of Spanish banks.  That is due to debt bubbles built up due to the property boom, but one can’t help wondering whether austerity is likely to work in Spain and other southern European countries where GDP is falling so that unless the level of debt falls quicker deficits actually get bigger rather than smaller.

I was interested, in a talk at the recent IndustrialMission Association national conference about the regeneration of Longbridge, to hear about modernist and post-modernist planning.  In the past, modernist planning was based on the big ideas – planning – of people like Le Corbusier and those involved in the New Towns movement (and having lived in Redditch I know something of how that was planned) but now we are in an era of post-modern planning, which depends on a developer and economics and markets to succeed.

I make no comment on the merits of different forms of planning; other than as a citizen I have no expertise, though I live on an undifferentiated housing estate built by many building firms that has two small shopping areas really best accessed by car, and we wonder why there is no sense of community.  Nor do I want to get drawn into a left-right argument about the merits of individual freedom and state intervention.

But as a Christian who has a pastoral concern for people at work and for those who have no work, I wonder how best the love of Christ should be shown in this situation.  Yes, we are all uniquely valued and cared for by God but that doesn’t seem to me to be an argument for individualism and pure market forces.  Mutuality and a concern for the weak are a part of Christian thinking, and indeed not just Christian thinking.  Whilst many now criticise the welfare state in the UK, which has perhaps gone beyond the safety net intended by its architects, including Archbishop William Temple, none the less it has been a part of our social settlement for the past 70 years.  It may in some cases allow a culture of dependency but we must also recognise that the climate of growth in the 1950s and 60s that allowed some support to tide one over occasional misfortunes has changed for many in the UK where not only have we got a cyclical downturn but also a structural one.

This is the major challenge faced by all of Europe, not just France with its much vaunted social model that many think is unsustainable, or Greece that was less than honest about its financial situation as well as taking advantage of policies in the Euro area that encouraged over-expansion.  Western Europe (some eastern parts of the EU may be more like parts of the Far East) must recognise not just greater competition from China and other growing parts of the world but also that socially as well as economically we have become focussed on consumption and individual satisfaction and comfort.  Most biblical comment about consumption is critical (it is better to give than to receive, the rich man and his barns, etc.), perhaps because it was an era in which most people were still having to work hard to make a living, but also because it says something about our nature as created by God that we are made to be creative and productive.

Perhaps this kind of debate is needed alongside the economic sticks of austerity.  We also need to differentiate between borrowing to fund consumption, which surely is bad deficit spending, and diverting funds into investment that will make us more efficient and competitive.  This, of course, would be a version of Keynesian economics that the Germans, with their history of anxiety about inflation would not recognise, but one might hope that a clear path set out to invest in areas that would get the economy moving and through that inject spending into the wider economy might be recognised as a credible way forward – one would hope that the spending would be in the hands of those who, finding new work would spend it on good things and not just frivolous consumption!

There is a tension in this between growth and pressure on the environment and a longer-term debate is needed about the shape of our economy if growth is not sustainable.  That is a huge issue about distribution of resources and benefits that we have not even begun to have yet.  In the short-term, however, there are no shortage of green investment programmes that would be possible. All of this requires us to ask where the money is at the moment, for whilst we focus on those who are in deficit there must also be an opposite amount of surplus, though it may not be equally distributed.  What those in surplus need to recognise is that though they may have put their house in order by accepting painful measures that enable their success now (like Germany ten years or so ago) none the less their surpluses cannot continue indefinitely if those with deficits struggle to make ends meet.

Some have characterised our present situation as zombie economics – just keep going because we don’t accept the alternatives of either right wing supply-side measures or policies to promote growth.  Whilst it is going to take a long time to unwind the debt we have accumulated unless we can come up with some imaginative ways of mitigating it or creating some economic momentum, it means we will continue to bump along the bottom for a long time yet.  What worries me are the large number of people, especially young people, who will pay the price in unemployment and under-employment, opportunities lost and lives blighted.