By Pete Dolack
Austerity is just another word for punishment. The corporate mass media serves us a daily diet of central bankers, government ministers, financiers and industrialists lecturing us that we must swallow bitter medicine as repentance for living beyond our means.
Those who caused the economic collapse ask everyone else to swallow the medicine, and those financial doctors are not yet done writing their austerity prescriptions. Saddled with high unemployment, a shrinking job base as production and services are steadily moved to overseas low-wage havens and a lack of incentive to invest as the products that are made can’t find a market, the solution, we are told, is: Cut wages and social programs more. Medical doctors long ago stopped using leeches and blood-letting as their primary “cure.” Mainstream economics, sadly, has yet to evolve beyond that medieval stage and its practitioners have no licenses that can be revoked.
The costs to working people who have been forced to pay for the excesses of financiers has been high in many countries. Rather than isolate individual countries, a tactic used to enable finger-wagging at Irish, Spanish, Greeks & etc., let us instead look at several countries at once, and see if we can spot patterns.
Spain: Pain for people, bailouts for banks
- 25 percent unemployment
- 52 percent unemployment for people younger than 25
- Spending cuts and tax increases biggest in Spain’s modern history
Spain ceded its remaining sovereignty on July 10, when the so-called “troika” — the European Central Bank, International Monetary Fund and European Commission — agreed to give Spanish banks a bailout in exchange for the usual harsh conditions. The twist here is that the bailout will go directly to Spanish banks, rather than the previous European practice of using a national government as an intermediary. This is a bookkeeping trick so that the deficit of the Spanish government is not technically increased, but Madrid nonetheless will now have its finances directly supervised by the troika.
The next day, Prime Minister Mariano Rajoy dutifully wielded the ax. According to a report in El País, the national sales tax will rise to 21 percent from 18 percent; cuts in wages and benefits to civil servants and the unemployed will be imposed; tax benefits for employers who hire will be reduced; Christmas bonuses will be eliminated; tax setoffs on mortgage payments will be eliminated; and energy prices will increase. Those measures are on top of earlier rounds of austerity, including new rules to make firing workers easier. In just the first three months of 2012, about 375,000 jobs were lost, representing an estimated loss of about 950 million euros in income tax receipts.
The hard-line vice president of the European Commission, Olli Rehn, strongly hinted that more austerity will be expected: Spain “will have to comply fully” with the new conditions and impose more cuts if told to, El País reported. The Spanish economy was already expected to contract this year, and these measures will depress consumer spending further. Yet consumer spending is the engine of economic activity in Spain, as it is in any other advanced capitalist country. Blood-letting.
Spain is the one country that experienced an even larger housing bubble than the United States. When the bubble burst, Spain’s system of community banks, known as “cajas,” were hit hard because they had lent heavily in real estate and construction. The cajas were consolidated in an effort to create banks with more assets, but instead larger banks with bigger debts was the result. Debts that are to be repaid by austerity imposed on Spanish working people.
Ireland: Asserting ‘sovereignty’ by keeping taxes low on corporations
- 15 percent contraction in economy
- Middle-class wages have been cut by about 15 percent
- 15 percent unemployment
Fifteen does not appear to be Ireland’s lucky number. Seeing no future for themselves at home, Irish students are leaving in droves — more than 1,000 per month. Irish banks engorged themselves on loans to fuel a housing and construction bubble at home, with bank executives and speculators making fortunes but homeowners left holding the bag when the bubble burst and prices collapsed. Ireland’s three biggest banks were bailed out when Brian Cowen, then prime minister, unilaterally stepped in and announced that the government would assume all the debts of the banks.
The ex-prime minister put on a show, huffing and puffing that Ireland would not give in to unreasonable demands, would not surrender its sovereignty. Where did Mr. Cowen draw the line? Was it cutting wages, lowering the minimum wage, drastically raising water rates, raising university tuition or reducing health care services? No, none of those were of concern to him. What he did get worked up about was Ireland’s ultra-low corporate tax rate — set far below what working people must pay. He demanded, and received, one concession: No increases of corporate taxes.
The result was an 85 billion euro bailout of the Irish government by the European Central Bank and International Monetary Fund, all of which goes toward paying back speculators. Ireland has already seen five austerity budgets since 2008, and its repeated raising of taxes and cutting of spending is likely to last for at least three more years. The sales tax is now a punishing 23 percent, while taxes on incomes, cars, homes and fuel are all higher; government-benefits payments have been cut.
An Irish economist, Morgan Kelly, who nearly alone in his country predicted the housing crash, summed up the bailout this way:
“Everyone is a winner, or everyone who matters, at least. … The Germans and French banks whose solvency is the overriding concern of the [European Central Bank] get their money back. Senior Irish policymakers get to roll over and have their tummy tickled by their European overlords and be told what good sports they have been. And best of all … the senior management of the banks that caused this crisis get to enjoy their richly earned rewards.”
Latvia: “Solving” problems through emigration
- Unemployment peaked at 20.5 percent
- Real gross wages fell seven percent in 2009 and another eight percent in 2010
- Population has fallen from 2.7 million in 1991 to 2.2 million in mid-2011
The return to capitalism as Latvia regained its independence with the fall of the Soviet Union in 1991 has not been smooth sailing. First there was hyperinflation, as prices rose more than 1,000 percent in each of 1991, 1992 and 1993; a widespread loss of savings during economic turmoil in 1995 and 1996; and another crash in 1998 as the Russian ruble collapsed. A credit boom sparked by cheap loans from Swedish banks following Latvia’s ascension to the European Union in 2004 did not last long — and times have become so difficult that Latvia is undergoing a demographic implosion as Latvians see no choice but to leave.
Lativa’s unemployment rate has fallen to 16 percent — a decline due to the heavy rate of emigration. The economy contracted by 25 percent for the three years of 2008 through 2010. Assisting in that decline was a 30 percent cut in public-sector wages and cuts to pensions — a so-called “internal devaluation” as the Latvian government refuses to devalue its currency to make its export products more competitive; it maintains a peg to the euro in hopes of joining the eurozone. A slight rebound in 2011 is hyped by neoliberal apologists as “proof” that Latvia is on a sound course, but a look at the bigger picture reduces that claim to rubbish.
The U.S. economists Jeffrey Sommers and Michael Hudson, in a tart analysis, note that nationalism keeps austerity-minded parties in power because the main opposition to austerity comes from a party that represents Latvia’s sizable Russian minority; anti-Russian sentiment continues to remain strong enough to override all other considerations. They write:
“Birth rates fell during the crisis – as is the case almost everywhere austerity programmes are imposed. Only now is Latvia seeing the social effects of austerity. It has among Europe’s highest rates of suicide and of road deaths caused by drunk driving. Crime is high because of prolonged unemployment and police budget cuts. There is less accessible, lower-quality education and there is a soaring brain drain alongside blue-collar emigration.
“The moral for Europeans is that a Latvian economic and political model can work only temporarily, and only in a country with a population small enough (a few million) for other nations to absorb émigrés seeking employment abroad. Such a country should be willing to have its population decline, especially its prime working-age cohort.”
Lithuania: Another Baltic Tiger “stabilizes” through emigration
- Unemployment peaked at 18.6 percent
- Three consecutive years of economic contraction, including by 15 percent in 2009
- Highest emigration rate in Europe
Latvia’s Baltic neighbor has feared little better. A fast-falling economy has led to an exodus out of Lithuania. As in Latvia, unemployment has declined because so many have left. And although the economy did grow last year, that does not mean all the losses will soon be made up: the International Monetary Fund projects that by 2015 Lithuanian gross domestic product will remain 12 percent less than it was in 2008.
Most the emigrants are young people. In 2010, eight percent of all Lithuanians ages 25 to 29 emigrated. The European Institute reports Lithuania’s austerity measures include a two-year freeze in public-sector salaries; a 30 percent cut in public spending; an 11 percent cut in public-sector pensions; and cuts to parental-leave benefits.
Portugal: Forgoing investment in exchange for a dictated bailout
- Unemployment has reached 15 percent
- New laws making it easier for employers to fire workers
- Rent controls eliminated
Portugal last year accepted an 80 billion euro bailout, in return for which the government had to postpone the building of two high-speed rail lines and a new airport, cut spending, impose yearly layoffs and sell off state energy companies. As a result of the austerity, the economy is expected to contract by another 3.4 percent this year.
The European Union did not leave any room for democratic discussion — although the bailout was negotiated during an election campaign in Portugal, E.U. finance ministers announced there would be no release of bailout funds without an agreement by all Portuguese parties. “We call on all political parties in Portugal to swiftly conclude an agreement on the adjustment programme and form a new government after the upcoming elections with the ability to fully adopt and implement the agreed fiscal consolidation and structural reform measures,” the statement said.
Greece: Experiencing the logic of neoliberalism first
- 22 percent unemployment
- 40 percent wage cuts
- 13 percent shrinkage of economy, with another seven percent decline expected this year
With all the coverage of Greece, no more than a brief summing up is necessary here. Two crucial results of the 130 billion euro bailout agreed to early this year are that Greece was required to change its constitution to ensure that banks are paid back before there is any spending on social programs and that the bailout is used almost exclusively to service the interest on Greece’s debt — not even to pay down the principal. Small businesses, the backbone of the Greek economy, are closing by the tens of thousands because few people can afford to buy what they once could.
As I have previously written, Greeks worked, on average, 42.3 hours per week on their main job — the most working hours of any people in Europe). Their reward is the most punishing austerity of any European country. One aspect of that austerity is the crumbling of Greece’s health care system, which has endured a 25 percent cut in spending since 2009. The result of those cuts is under-staffing, shortages of medicines, dangerously long waiting periods for operations and increased out-of-pocket expenses that many can’t afford.
Greece’s largest industry is shipping. Not only do Greek shipping tycoons pay no taxes (not unusual among Greek big business), but the industry’s tax-free status is enshrined in the constitution. Greek business leaders don’t pay taxes, but the people who can’t avoid paying taxes — government workers — are demonized as the cause of Greek’s problems, and are being laid off in large numbers, while those who remain have been saddled with draconian wage cuts. Similar wage cuts and layoffs are imposed in the private sector.
Austerity for who?
It would seem to defy understanding how more of the medicine that has made most of the world’s economies sick could possibly be seen as the solution, until we observe the pattern.
Financiers can’t tolerate losses flowing from their own greed and reckless gambling. Their solution is to have the state guarantee their stratospheric profits, bonuses and salaries. Governments can only do so through extracting money from their citizenry and facilitating the upward flow of wealth within corporate structures. Industrialists don’t mind those subsidies for financiers because the banks will be more willing to lend to them in a time of economic uncertainty and the “market discipline” applied by financiers boosts their own profits.
Markets do not serve people; rather, people exist to serve markets. And “markets” are simply the aggregate interests of the most powerful capitalists, both financiers and industrialists. Entire countries — a list not limited to those sketched above — have been harnessed to the dictates of “markets.” This has long been the pattern imposed by the North on the South; now the stronger countries of the North are imposing it on their weaker neighbors. Taxpayers in those stronger countries are on the hook, also, as some of their taxes go toward the bailout funds, for which bailed-out countries are merely a conduit to send the money to financiers.
The race to the bottom, of which austerity programs and the continual shifting of production to locations with ever lower wages constitute critical components, represents an intensification of market dominance over human life. It is also a result of a scramble to maintain profits, which have been under continual pressure from the economic crisis.
All that is on offer is more pain, more austerity. The most any government, all of which lie prostrate at the feet of their biggest capitalists, is able to offer are weak, unfocused attempts to inflate another financial bubble or to indulge in fantasies of “green capitalism” whereby the same economic system that causes massive environmental destruction will somehow be re-tooled to profit further by cleaning up its own mess.
We are to be servants of the richest, so say “markets” — more a resemblance to feudalism than to a democratic society. Continuing to do so is not simply irrational; in the long run it will be suicidal.