Austerity and the Labor Movement

Michael Schiavone

• Publisher: SUNY Press
• Year: 2016
• ISBN:
  9781438462950
• Topic: Politique et relations internationales
• Subtopic: Relations de travail et relations industrielles

Austerity policies have become the new norm throughout both the developed and developing world. Indeed, austerity has become the new buzz word in the lexicon of politicians from across the political spectrum. At the same time austerity measures have been met with mass protest, the most famous example of which is the Occupy Movement. In the not-too-distant past it would have been the labor movement at the forefront resisting policies that arguably disproportionally target working people and their families. Throughout the twentieth century it was the labor movement that fought for all working people. However, there is an increasing assumption that the labor movement is unable to adequately defend workers from the onslaught of austerity measures. Austerity and the Labor Movement analyzes whether this assumption is indeed true. Examining the labor movements in the US, UK, Greece, Ireland, and Spain, Michael Schiavone provides a systematic explanation of the appeal of austerity policies in certain circles and why the labor movement in each of these countries has been largely unsuccessful in overturning such policies. He argues that the labor movement needs to make major changes and embrace social movement unionism if it has any hope to stop its decline and have any chance to successfully fight against austerity and neoliberalism more generally. This book is freely available in an open access edition thanks to Knowledge Unlatched—an initiative that provides libraries and institutions with a centralized platform to support OA collections and from leading publishing houses and OA initiatives. Learn more at the Knowledge Unlatched website at: https://www.knowledgeunlatched.org/, and access the book online at the SUNY Open Access Repository at http://hdl.handle.net/20.500.12648/1706.

Chapter 1

Austerity and the Labor Movement

Austerity is the new “buzz word” in advanced industrialized democracies in academia and the media, and more importantly in the lexicon of politicians from both the Left and the Right. Nowadays it is practically impossible to read a newspaper or watch the news without seeing or hearing the term. Austerity policies have become the new norm throughout both the developed and developing world. In 2009, the soon-to-be United Kingdom Prime Minister, David Cameron, infamously declared that the UK was entering an “age of austerity.” Austerity policies are now almost a given throughout parts of Europe and are the key component of International Monetary Fund’s structural adjustment programs. The United States government adopted austerity measures almost by stealth, whereas following its election in 2013, the Australian Liberal government attempted to introduce a range of austerity measures despite the relatively good health of the Australian economy. Austerity is now seemingly the rule rather than the exception, irrespective of the state of a country’s economy.

As to what austerity is and what it entails, the best definition comes from political economist Mark Blyth, who defines austerity as a

form of voluntary deflation in which the economy adjusts through the reduction of wages, prices, and public spending to restore competitiveness, which is (supposedly) best achieved by cutting the state’s budget, debts, and deficits. Doing so, its advocates believe, will inspire “business confidence” since the government will neither be “crowding-out” the market for investment by sucking up all the available capital through the issuance of debt, nor adding to the nation’s already “too big” debt.

Blyth goes on to quote University of Chicago academic and austerity supporter, John Cochrane:

Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both.1

However, what austerity entails can vary from country to country. The Economist claims that “A government can impose an austerity programme and still spend far more than it receives in the form of taxes; indeed the British coalition government had a deficit of 9.3% of GDP in the first year of austerity, a very high figure by peacetime standards. But because this was less than the 11% of GDP in the year before, it counts as austerity.”2 Nevertheless, at its heart, austerity advocates believe that a government should intervene as little as possible in the workings of the market. In other words, austerity goes hand in hand with neoliberalism. But it is important to note that under austerity measures governments have generally been raising taxes on individuals. Tax increases are not normally associated with neoliberalism. While governments have been raising taxes, primarily personal taxes, they have also been lowering business taxes. It is the general public who must endure tax increases, not business.

While there is a plethora of news stories and the like regarding austerity, one area that is neglected is the labor movement’s response to austerity worldwide. This book will primarily examine the UK and US labor movement’s efforts against austerity. As we shall see, the labor movement is seemingly powerless in the UK and the US to prevent or even mitigate austerity policies. This has been a major detriment to the lives of the majority of people in both countries. While the focus will be on the UK and the US, the book will also provide an overview and analyze the labor movement’s attempt to overturn austerity in Greece, Spain, and Ireland. The common theme throughout is that, despite mass protests (though these are rare in the US), austerity has continued largely unabated in Greece, Spain, Ireland, the UK, and the US, and has caused much human suffering, while having a limited impact, even on the most optimistic account, on improving the economic well-being of each country.

Neoliberalism and Austerity

What led to the rise of austerity? For us to answer that question we first must understand neoliberalism. Neoliberalism, which is the ideology behind the latest rise of austerity, is a revival of laissez-faire liberalism. The proponents of neoliberalism argue that by removing government involvement from almost all aspects of managing the economy, and allowing the market to perform its “natural” role, this will result in economic prosperity for a country and its citizens. Thus, governments should privatize all public enterprises, slay the inflation dragon, liberalize trade and finance, and embrace austerity policies. Neoliberalism has become such a dominant political ideology that political parties all across the ideological spectrum have adopted neoliberal reforms in both developed and developing countries. Arguably the best analysis of what led to neoliberalism comes from Stephen Gill, who identifies four essential initiators of the neoliberal order: multinational companies, the transnational financial network, transnational elite networks, and the major capitalist countries, such as the US.

Gill argues that multinationals (MNCs) have the power to play off one country against another, and are thus able to get the best deal for their operations. They can do this because they have the power to decide the geographical location of production. They can shift funds from one country to another, or even open a production plant in one country while closing a production factory performing the same task in another. Furthermore, MNCs “through pricing and intra-firm trade, minimize tax liabilities and maximize global profits, implying a narrower tax base for governments than would be the case if production were organized along national lines.”3 In other words, by threatening a government’s tax base, MNCs give governments an excuse to cut back on health and welfare services and thus please the international elites.

The second initiator of neoliberalism that Gill identifies is the transnational financial network. He argues that due to the mobility of capital, the “investment climate of one country will be judged by business with reference to the climate which prevails elsewhere.” This leads to governments being “pressured into providing an investment climate judged attractive by global standards.” In addition, the mobility of capital makes it easier for MNCs to play off one government against another, and even different regions in the same country, to obtain the best deal for themselves.4 Of course, MNCs consider that the structuring of the “best deals” is often along neoliberal lines.

The third main initiator of neoliberal globalization, according to Gill, are the “organic intellectuals” in transnational elite networks. Gill claims these transnational elites are located in unofficial bodies like the Trilateral Commission, Bilderberg conferences, and official bodies such as the IMF and OECD. Regarding the Trilateral Commission, Gill claims that it cultivates politicians and future leaders, thus further strengthening the neoliberal ideology in political circles. He also emphasizes the role that some British and American universities play in educating the proponents of IMF austerity packages and the “best and brightest” of the Third World, thus extending and strengthening neoliberalism. Furthermore, these transnational elite networks are “well-served by a range of international periodicals, such as … The Economist, Far Eastern Economic Review, and The Wall Street Journal.”5

Thus, through transnational elite networks, there is a strengthening of the neoliberal agenda, increasing pressure on states to conform to the globalization project. However, it is not just MNCs and transnational financial and elite networks that have been at the forefront of the neoliberal agenda, according to Gill. He also argues that major capitalist states, especially the US, have been a crucial part of the globalization project. Beginning with the second Reagan administration, Gill argues that the US led the push for a new world order. This involved the “liberalizing of the more dynamic sectors of the international economy, as well as liberalizing labour and capital markets within the United States, in ways which benefit the strongest American corporations.”6

As I shall demonstrate in the following chapters, the transnational financial networks, the transnational elite, and the major capitalist countries have all been at the forefront of the austerity agenda. For them, “simple” neoliberalism was not enough. Neoliberal advocates wanted further reform. Gill argues that “[w]hat has emerged is a consensus on the part of conservative, liberal and social democratic parties on the need for deeper neo-liberal reforms to flexibilize and further weaken organized labor and socialist forces, and thereby to deepen disciplinary neo-liberalism by means of policies of austerity stretching well into the future to pay for the gigantic bailouts of capital.”7 Thus, part of the austerity agenda is an attempt to dramatically undermine the power of the labor movement because this will allow even more neoliberal “reforms” in the future. Quite simply, without organized labor being a bulwark against neoliberalism, right-wing policies can be even more easily enacted.

Gill claims that these initiators of neoliberalism are trying to form a “new constitutionalism,” which he defines as “the political project of attempting to make transnational liberalism, and if possible liberal democratic capitalism, the sole model for future development.” New constitutionalism does not rely on ideology and market power alone for the restructuring of the world economy along neoliberal lines; there is also an emphasis on strengthening the surveillance mechanisms of the WTO, IMF, and private bond-rating agencies. The increase in surveillance techniques “helps to sustain the legal and political conditions for transnational capital” by locking countries in to the neoliberal project, regardless of changes in government. For example, Gill claims that new constitutionalist thinking lies behind the EU’s Maastricht agreement. Within its legal framework, governments are forced to implement neoliberal reforms regardless of their citizens’ wishes.8 This has led to a convergence of government economic thinking among EU states. Thus, there is a reduction in citizens’ democratic choice, as government and opposition parties resemble each other in their economic policies. Moreover, in this era of austerity, this legal framework locks countries into the austerity agenda. Thus, irrespective of the controlling political party, countries are forced to embrace austerity to some extent.

It is important to note that while austerity follows on from the logic of neoliberalism, and as Gill alludes to and I shall demonstrate in the following chapters, the current rise of austerity is arguably without precedent—it is neoliberalism taken to the nth degree. I will highlight that neoliberalism and, more specifically for the purposes of this book, austerity have been detrimental not only to the economic and general well-being of working people and the lower socioeconomic classes in the US and the UK but to the majority of the population in both countries. The book also demonstrates that this holds true in Greece, Spain, and Ireland, as well. Moreover, I shall argue that, as Gill notes, the rise of austerity has indeed weakened organized labor in many countries. However, a key theme throughout the following chapters is that in many cases organized labor has accepted a level of austerity due to self-interest and/or underestimating the drive by politicians and international organizations to implement austerity. Therefore, organized labor has played a role in its own decline as well as accepting the rise of austerity across the globe.

One must ask, however, if austerity has been so detrimental to the majority of people in a variety of countries why politicians have continued with such economic policies. Is it rational for a wide variety of politicians to embrace austerity? A potential answer is that with the rise of neoliberalism in the early 1980s politicians from both the Left and the Right have become beholden to such economic policies. Thus, following the world economic crisis of 2007–2008 and the perceived failure of economic stimulus packages in a number of countries to solve the problem (see Chapters 2, 3, and 4), politicians returned to their ideological roots. As such, it was necessary for countries to adopt austerity policies to stave off an even greater economic collapse. Moreover, austerity policies were seen as leading to economic booms in Australia, Denmark, Ireland, and Sweden in the 1980s and early 1990s. It is beyond the scope of this book to determine whether austerity did indeed benefit these countries, but the perception was that austerity led to economic prosperity. And, as is often the case, perception became reality: austerity works. Another potential reason why politicians continue to advocate for austerity is that such economic policies have not been detrimental to all segments of the population. The so-called “one percenters” and the rich more generally have largely benefited from austerity. Indeed, as we shall see, there has been rising economic inequality in the majority of countries where austerity has been implemented. Now whether politicians have embraced austerity and neoliberalism more generally to benefit the wealthy is open to considerable debate—one that is beyond the scope of this book. However, even though austerity has caused immense suffering to the working class, poor, and vulnerable, and seems not to have helped the economy at large, politicians still believe wholeheartedly in austerity. Thus, whether the so-called elites (politicians as well as the mainstream media, who generally favor austerity) in many countries are austerity ideologues, or believe that austerity will eventually benefit the majority, or favor the wealthy is uncertain, but what is beyond dispute is austerity is the dominant economic policy in Greece, Spain, Ireland, the UK, and the US and has had adverse effects on the working class, the poor, and the vulnerable in each of these countries.

As we shall see, the rise of austerity is in part due to the ideological agenda of the organic intellectuals to remake the world along neoliberal lines. At the same time, the rise of austerity is also due in part to an attempt to solve the world’s economic problems that came to the fore during the global financial crisis. While the current version of austerity is in many ways unprecedented, this is not to claim that austerity has not been implemented in the past. We now turn to a brief history of austerity in the US and UK.

Austerity in the United States and the United Kingdom: 1920–1930s

The early part of the twentieth century saw many countries across the globe struggling economically. The US and the UK, among others, decided the best course of action was to reduce government spending. These countries’ respective governments decided that austerity was the cure to economic woes.

The US, unlike most other countries, emerged from World War I in reasonably good financial shape—there were high levels of investment and public spending. However, despite the flourishing stock market, unemployment began to increase and agricultural prices were decreasing. This came to a head in 1929, when the stock market crashed. The crash led to a fear that—just as the UK had done earlier—the US would abandon the gold standard. This resulted in a flow of money leaving the country, which in turn led to a rise in interest rates, a weakened economy and, more important, people suffering even further. In response to the crisis, the Hoover administration initially increased public spending; by 1931 public spending was up a third from 1929. However, state spending as a percentage of GDP declined. Moreover, the budget was in deficit as taxes declined and spending increased. This led President Hoover to attempt to balance the budget.9

In 1931 Hoover infamously declared that under his watch the US could not “squander itself to prosperity on the ruin of its taxpayers.” Taxes were thus raised across the board to the tune of $900 million, and there was a reduction in public spending. Rather than help the economy, these austerity policies made things significantly worse. The economy went into a depression, with GDP declining by 12.9 percent, unemployment increasing from 8 percent in 1930 to 23 percent in 1932, and imports being greatly reduced. The latter had the effect of hindering other countries’ attempts to export their way out of financial hardship. It was a lose-lose situation for all concerned. The incoming Roosevelt administration upon gaining power dramatically increased public spending; in 1934 spending was increased by 10.7 percent. This helped the economy, and unemployment decreased to 17 percent in 1936, with GDP increasing by 12.9 percent. As a result, adjusted for inflation, GDP increased to the same level it was in 1929. However, austerity was soon to roar back when, following the advice of treasury sec...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Acknowledgments
• 1. Austerity and the Labor Movement
• 2. Austerity in Modern-Day Europe
• 3. Austerity and the Labor Movement in the United Kingdom
• 4. Austerity and the Labor Movement in the United States
• 5. Social Movements, Political Parties, and Social Movement Unionism: Hope for the Future?
• Notes
• Bibliography
• Index
• Back Cover