Nat O'Connor: A wide range of Irish and international economists and commentators were interviewed for an article in last Saturday's Irish Times, including Nobel Prize winner, Joseph Stiglitz who warned about the historical evidence, which shows "There have been almost no instances of successful austerity. ... The prospect of austerity working in Ireland is very bleak. ... the probability of failure is huge."
Yet as Professor Karl Whelan from UCD argues in the same article, those proposing alternatives are "duty-bound to say where we would get the money."
Well, there is no magic solution, but there are increasingly detailed alternative economic policies being developed here and internationally.
I want to deal with three things in this post: (1) what I mean by 'austerity'; (2) what is needed at European level; and (3) alternative economic policies suggested in the UK and Germany.
(1) Austerity is unfortunately a loaded word. Technically, a policy of reducing the deficit through a package of measures to increase revenue and reduce public spending is 'austerity'. But the word is emotion-laden; cuts to education or welfare tend to be more often labelled austerity than measures to cut waste or increase taxes on higher earners, yet the latter measures are also potentially part of austerity measures.
So, to be clear, I am critical of current austerity policies because they have unfairly targetted lower earners and the services upon which they rely; and because the austerity measures are strangling the economy due to insufficient measures to sustain and increase demand to boost economic activity. An alternative economic policy must still deal with the deficit and the national debt. As such, this will involve some 'austerity'. However, any cuts should be balanced by higher public spending in other areas. And increased taxes should target people who can better afford to pay. What would also be different is measures to boost demand, foster sustainable jobs and protect people who are vulnerable.
(2) The Government's reported involvement with an initiative to boost trade and growth in Europe is welcome, but this should not overshadow more profound changes needed at European level that have - to date - been absent from the crisis talks and treaty proposals. For example, the European Central Bank should have a mandate to boost sustainable economic output and maximise employment, similar to the US Federal Reserve. This, among other effects, would allow for inflation targets to vary from the current two per cent to higher levels (maybe four or even six per cent) when this serves Europe's economies better. Controlled higher inflation would help reduce the extent of national and private debt across Europe. Other elements of possible enhanced European co-operation that seem to be missing from the proposed treaty are Eurobonds and a Europe-wide financial transactions tax.
When the final text of the proposals is revealed it will be possible to say more about what exactly they imply.
(3) I recently noted that President Obama's state of the union address echoes some of what has been called for by opponents of Irish austerity policies. The above-mentioned Irish Times article opened by reference to our call for a Plan B.
In a similar vein, Compass in the UK are promoting their own Plan B (published in October 2011), subtitled "A Good Economy for a Good Society".
In summary, Compass is calling for:
- A halt to public spending cuts;
- Quantitative easing to invest in a Green New Deal;
- Tax reform to curb avoidance and increase progressivity;
- Strategic Government support to business (such as a state investment bank);
- Better regulation of banks (including the full separation of retail banking from financial investment banking);
- Social investment, with a focus on prevention;
- A move to shorter paid work time;
- Raising the minimum wage;
- Tackling high pay;
- More employee participation in corporate governance;
- Public service reforms.
In their words, "Plan B shows there is an alternative, not just to cuts, austerity and stagnation, but to a return to business as usual and all that means for growing inequality, climate change and people's well-being."
Another report on similar lines is from the German Friedich Ebert Stiftung. They released a policy paper in January 2012 entitled "Social Growth - Model of a Progressive Economic Policy".
This includes a ten-point programme:
1. Guarantee a stable supply of credit with effective financial market regulation;
2. Use education policy to boost the forces of growth and expand opportunities for all;
3. Open up new areas of growth with industrial policy;
4. Strengthen the position of employees by means of minimum wages and codetermination;
5. Fund public tasks properly and fairly by reforming tax policy;
6. Stablilise the economy and the debt situation by means of an anti-cyclical fiscal policy;
7. Strengthen forces for growth in Europe by means of a robust public financial architecture;
8. Provide for more stability in the Eurozone by means of economic policy co-ordination;
9. Ensure decent work for all by means of European and global standards;
10. Manage globalisation by means of a new economic and monetary order.
Both the Compass Plan B and Friedrich Ebert Stiftung's Social Growth documents articulate in more detail the social democratic critique of current orthodox economics and the dead-end austerity policies it proposes. The alternative policies are not being presented as a panacea, but are suggestions for wide-ranging economic policy reform, built on extensive research and evidence. They represent a viable set of economic policies that governments can pursue to improve people's wellbeing, while restoring sustainable economic output and jobs.
In Ireland's case, we will still no doubt hear voices claiming that such policies wouldn't work here. Well, no doubt they would have be tailored for Irish circumstances. But there is still much of interest in what is being proposed, not least because the proposals see equality and sustainability as core attributes of economic reform, not 'side issues' to be addressed once some kind of mythical 'rising tide' is restored.
And Ireland has some resources that could be immediately mobilised, without altering the IMF/EU agreement. This includes using the remaing NPRF (c. €5 billion) for targetted, productive investment and likewise ring-fencing for investment any money saved from delaying payment of the Anglo promissory notes, which could be one or two billion euro a year for several years. Crucially, it is not just about substituting spending for austerity. There remains a need to reform Ireland's tax system, regulate banking, move public spending to where it is most needed, and a host of other things. While some of such measures may, technically, quality as 'austerity', they differ crucially from current policy in that they would maintain incomes and living standards, promote jobs and sustainable development and lead, ultimately, to a socially just and sustainable recovery.