Government cuts - 'Are they really as stupid as they seem', by Hillel Ticktin

There are a surprising lack of convincing explanations as to why the capitalist class is pushing through the present unprecedented austerity drive - even at the risk of provoking both mass opposition and a double-dip recession. The following excerpts, from Hillel Ticktin's recent articles in Critique, do offer an interesting partial explanation:

Submitted by blebber on November 26, 2010

It remains very unclear why a section of the ruling class is going for these cuts. It is one thing to reduce government spending and raise taxes during an upturn, as Canada did in the 1990s, and quite another to do so today. The large scale unemployment consequent on such reductions in the public sector is being matched with substantial salary reductions. As there are often disproportionate numbers of female employees in the sectors being proposed for downsizing, the measures will bear heavily on women and families. There are suggestions that the poorest will be protected, but this is a fig leaf to provide a semblance of humanity. The poorest may be protected but most people are by definition not in that category, but are nonetheless scraping by, with incomes a fraction of the so-called upper middle class. Whatever their present views, they will be jolted into opposition to the government and ultimately to the system.

The government and bodies associated with the ruling class, or influenced by them, are doing their best to supply reasons why the cuts are necessary and inevitable to sustain the various economies affected. There is no doubt this is having an effect, depending on the country. It may even win the day for a short period, but only due to a hard sell. The appearance of the downturn was that bankers caused the crisis itself, for which governments have then had to borrow money. Why then should ordinary individuals have to bail out those bankers? This question is being, and increasingly will be, asked. The effect of what amounts to a coordinated system of reductions in government expenditure over Europe will at best inhibit an upturn and at worst force a ‘double-dip recession’, which has every potential of lasting some time. People will turn against government policy and an increasing minority will go further and turn against a system which has so patently failed.

... A new generation of activists will be formed, which, like the 70s, will turn young people into the militants of today and tomorrow. As the atomisation of the Soviet Union cannot be duplicated, history cannot be wiped out and we may expect a return to the socialist demands of yesterday, shorn of Stalinism and social democracy. There is little doubt that this process is slowly getting under way. What is less certain is the nature of the reaction of the ruling class. Are they really as stupid as they seem? Do they not have an alternative plan to deal with the failure of the contemporary cuts?

Capitalism today is less rational than it was in its heyday. That much is obvious, given imperialism, fascism and two world wars. Short-termism rules, and it has indeed worked remarkably well up to now. If capitalism is doomed then delay is a sensible tactic and pragmatic delay is one way of doing it. The ruling class is divided on a national basis, under the hegemony of the leading finance-capitalist power, the US - inevitably, the latter acts in its own narrow interests. In other words, since the US is in decline, it acts to preserve its own position, which may be at the expense of its role as the guarantor of capitalism. It may not be able to see the wood for the trees.

As capitalism declines the dominant capitalist power necessarily declines, and vice versa: as the dominant capitalist power declines, capitalism itself declines. This would not be inevitable if there were room for another finance capitalist power to arise, but there is not. China, India, Brazil and other emerging economies are not going to fulfil that function. The eurozone is clearly too weak, but is also based more on industry than on finance capital. And the UK, the original imperial/finance capitalist power, has ceded its position, lost its empire and has lost most from the current crisis.

The capitalist class today is less united than it has been since before World War II. The end of the Cold War has had a series of important effects, particularly in the decline of ideological control and the economic use of the arms sector. To these has to be added the absence of an overriding enemy which allowed a form of international control through Nato, the IMF and other institutions and meetings. As a result, it is much harder to impose a single line on capitalist policy today.

This makes it more difficult for a consistent policy to be followed. When the US was able to impose its policy, whether it was stupid or intelligent, it had to be followed. Today, the situation is almost a nightmare for capitalism. In the first place, they did not a have clear policy as to what to do in the course of the crisis. They have simply been reacting to events, often rather late in the day. ...

Because different strings are being pulled at the same time, policy has tended towards irrationality. We have to ask why, for instance, the Con-Lib Dem coalition wants to cut so severely when the risks are so obvious. There are four arguments being used to justify the cuts.

Firstly, and least unbelievably, they argue that increased borrowing will frighten investors and the rating agencies. However, this is not automatic. Most of UK borrowing is from UK investors and the time period for redemption is over 12 years - points made time and again in newspapers and journals and, presumably, well understood by investors. So, the UK does not have the same issue about balance of payments, and the need to redeem bonds, as is the case in Greece and elsewhere. In any case, the previous Labour government had already implemented cuts, but was intending to restore balance over a longer period than the Tories. Neither party was bent on destroying capitalism or taking a reckless populist line. Why then would investors be concerned, under conditions where there is a vast surplus of capital? After all, investment in the US is the only other solution and it is fraught with problems, given the precarious nature of the dollar. It is true that if the pound were to fall further against the dollar investors would try to hedge their bets; but the pound, which has risen against the euro in the last period, will only fall if money is taken out of the country. This is more likely to depend on factors other than the budget deficit.

Secondly, it is argued that inflation will take off and cause the pound to devalue further, sparking a flight of money from the UK. In addition, inflation is regarded as necessarily a bad thing, as it leads to, or is caused by, rising wages, and can result in increased power for the trade unions. Under conditions of diminished demand this scenario is highly unlikely, leaving aside some price rises due to devaluation. This debate has taken place quite widely. Apart from the difference between monetarists and Keynesians, there are also differences in the assessment of the political situation.

Thirdly, supporters of private enterprise hold that the public sector is crowding out the private market, or indeed the market itself, by absorbing the lions’ share of available funds. This is a simple ideological argument, which has obvious and important political consequences. If one rejects the implicit view that private enterprise is necessarily superior to the public sector, the argument falls. Indeed, it is very likely to be tested in the next few years, as the only way that the deficit can fall substantially is through growth, particularly industrial growth. Leaving it to private enterprise to grow is an over-optimistic policy, given British history over the last 50 years. The problem is that without government intervention, industrial growth is unlikely to take off by itself, if it will take off at all.

Fourthly, there is worry over the British balance of payments, given the decline of British industry and the new problems of British finance capital. However, reliance on rising taxes and a reduced public sector does not do the job of raising British exports in itself, unless it is felt that private enterprise will automatically build up industry, which is unlikely, as indicated above.

In one way or another these issues are part of the current crisis for most countries, though differently for different countries. However, there appears to have been a common policy to use Keynesian deficit financing and monetary expansion in 2008-09, whereas at the mid-2010 meeting of the G20 it was agreed to do the reverse: cut deficits and restrain the money supply for the developed countries. The US did not agree, continuing to support an expansionary policy, even if it is somewhat limited. It also did not fight very hard to impose its own viewpoint. As a result, there are two views as to the effects of adopting a restrictive economic policy, with various influential figures warning of a double dip-recession.

Indeed, it is hard to see how it could be avoided. If all the countries of Europe cut back, while China is also reducing the money supply, given the inflation and rising wages in China, growth can only be reduced, if it is not actually negative, while unemployment will continue to rise, as it is doing in the US.

It is hard to avoid the conclusion that capitalism has no way out. If it cuts its deficits the downturn continues, but if it expands it risks all the effects described above, including sovereign crises. In addition, China is now experiencing widespread strikes for higher wages and better conditions, while the trade unions and left political parties are demonstrating and striking in many of the countries of Europe. Harsh political measures will lead to the rapid growth of the far left and new generation of leftwing militants, while concessions risk market failures in bonds and currencies.

In reality, the right-wing arguments for cuts to the public sector have another agenda, as former chancellor of the exchequer, Alistair Darling, made clear. Keynesian arguments are more sensible concerning the immediate crisis, indeed they are irrefutable. However, the crisis is not simply a periodic crisis, but a crisis in both the strategy of capitalism and its structure, and Keynesians are not addressing these issues, whereas the right, consciously or unconsciously, is trying to come to terms with the real underlying political economic problems of capitalism. The only solution, from their point of view, even if historically limited, is a restoration of capitalism back to the controls existing before the Great Depression, or before World War I. This requires mass unemployment, a very limited welfare state applicable only to the very poorest, and the restoration of commodity fetishism, in part by privatising everything that can be privatised including health and education.

... The right can see that the so-called centre-left is without a programme and that the only viable alternative is the genuinely left-wing. They are afraid that governments might be forced to move towards the left under popular pressure. Instead they are, therefore, proposing an unreconstructed, if utopian, capitalism.

... Sections of capital have decided to fight to the bitter end in order to inflict an epoch making defeat of the working class. Other sections are afraid to do so, and regard it as counter-productive but have no alternative, leading to the muddle that we have seen. However, the scenario is not controllable, so that it can spiral out of the hands of capital itself.

One has to wonder whether the bourgeoisie has a death wish ... [The cuts] can only educate a whole new generation of the population of the need to change the capitalist system. In a sense, it makes no difference whether or not the authorities succeed in containing the mass demonstrations, strikes and other forms of militant and non-militant action for the time being. The contemporary form of the ideology of capitalism is now so threadbare that only a masochist can support it. The triumphalism at the end of the Stalinist Soviet Union as solidifying a permanent capitalist future now looks foolish, to put it in the best possible light.

(Other articles by Ticktin can be found at