Austerity is a weapon of class domination

by Aug 4, 2023All Articles, The Economy

Studies show that austerity has not increased growth, has not helped to pay back the debt has not produced employment. So it has failed on its own terms.

This is an edited extract from a talk which Clara Mattei gave on International and Historical Experiences of Austerity at the Alternative Information and Development Centre.

CAPITALISM IS ABOUT CLASS warfare. Capitalism is about winners and losers. There is no harmony in economic relations in our socio-economic system. Austerity is no exception. Austerity is in the DNA of our economic system. It cannot be reduced to bad economic theory, which leads to bad economic policy. And it is not just a technical tool to manage the economic machine. If you take this view of austerity, as a tool, then the only way you can understand what is going on right now is that it is pure madness. Studies show that austerity has not increased growth, has not helped to pay back the debt, has not produced employment. So it has failed on its own terms.

But austerity is not stupid, it’s very intelligent. And it is intelligent because it works structurally to disempower the people, to shift resources away from the many who live off of wages and state benefits, to the few, very few, who make a living from capital and rent, from profits and interest. It makes us all depend on the markets.

With the birth of capitalism the majority loses the connection to the resources, the connection to the land.

Thus, we become market dependent, which means simply that to survive, to pay rent, to buy food, to go to school, we have to have money in our pockets. Because without money, we don’t do anything. The majority of us have no other option but to go and work for a wage, which means that we are exploited, because we produce more value than what we are paid for. Surplus, the foundation of wealth, of capital, depends on us basically being trapped in this condition of low pay wage workers.

When we think of austerity, we usually restrict the concept to reduction of expenditure. But austerity is much more than that. We have to think about austerity as a trinity, as a combination of a set of policies that all help reinforce one another.

So we have fiscal austerity, monetary austerity and industrial austerity. And you cannot think of one without the others.

Fiscal austerity

This is usually what people focus on when they talk about austerity. Usually, they say austerity is about reducing expenditure and increasing taxes, full stop. But this type of definition looks only at the aggregate. By looking at aggregates, what happens is that you lose what austerity is all about.

Looking at aggregates only allows them to say that in South Africa, in 2023, there’s no austerity. “Look at how much we’re spending”, they say. But the point is, we need to look at where they’re spending and what they’re spending on.

And what you find out is actually that they’re spending R300 billion on debt servicing, and they’re spending far less on health, on education, on public development, which includes, by the way, water and electricity. So you see that the resources are not for the people. They go into the hands of the creditors who, by the way, are mostly our international financial institutions. They are the monied few, the global elite.

Historically, we see that the state cuts public benefits of all sorts, and it uses the resources to pay back the debt. This means that the money is taken away from the majority of the working people to a very small minority of the people who make more money out of the money they have because they lend it.

And this is not a mistake. Because if you take away from public healthcare and education, you take away resources. So people typically have to revert to the private sector. The more you take away from the welfare of the people, the more that people become precarious, more market dependent, because you need more money in your pocket. If you’re not given certain benefits, you’re going to have to pay for them. And this is, in fact, the logic of austerity. They want the general public to be more docile, politically docile, because they’re trapped in economic precariousness.

Then we have the other side of fiscal austerity, which is where does the money come from? The revenue side. Because fiscal policy is also about where the state takes the money. And guess what? You can’t just talk about tax hikes or tax cuts in general. Again, you need to see who is being taxed. And what you find out is that austerity is about regressive taxation. And when we talk about regressive taxation, what we mean is that the majority is bearing the brunt of taxation much more than the moneyed minority.

The state increases consumption taxes, while it cuts corporate taxes, taxes on inheritance, all taxes on wealth. Corporate taxation was 50% in the 1990s in this country. Now it’s down to 28%.

Regressive taxation is all about taking money away from the people and, again, preserving the money in the pockets of the few. And those few are also the ones who gain from lending and from the interest on what the state is spending. So it’s a shift of resources to these few.

Monetary austerity

Then we have monetary austerity. And monetary austerity is what we have been seeing over the last year. Interest rates have been going up. Central banks around the globe have been increasing interest rates like crazy. And this is true also in South Africa.

Our society is not meant for the good of the whole. There’s winners and there’s losers, and austerity helps preserve this social reality.

Again, when you increase interest rates, it’s not a stupid policy. It’s very intelligent, if you understand the logic of capitalism. When you increase interest rates, working people have a harder time at the end of the month, especially if you’re indebted. For households, it becomes more difficult to take on loans. But what’s most important is that increases in interest rates induce recessions. It becomes more expensive to borrow also for businesses. And this ultimately leads to more layoffs, less people getting hired, unemployment. And guess what? Unemployment is a fundamental disciplinary mechanism, under capitalism. Marx called it the reserve army of labour. It is something that Fed officials understand very clearly as being fundamental to discipline people to accept lower wages (the Fed, the Federal Reserve Bank, is the US central bank). Why? Well, because if you have competitors out there, and you risk losing your job, you will be silent and will accept lower wages. And this is exactly what capitalism needs to have lower wages.

In the United States, people right now are unionising more, people right now are getting higher nominal wages, because we are in a moment in which the labour market is tight. There are more job openings than people willing to work.

And this is a huge problem for capitalism. When people decide to stop working, start unionising, this is a capital disorder that needs to be ordered. This is a moment in which the experts of the Fed said, no, no, no, we’re sorry. This labour market is problematic, right now. Let’s fix it. Let’s fix it with a good dosage of monetarist austerity. We increase the interest rates, people will suffer from unemployment and will go back to their jobs, accepting a low wage because they are market dependent.

Once more, austerity is an intelligent project. It keeps us all under a capital order.

Industrial austerity

Finally, we have industrial austerity, which is usually not thought about. But it’s very important because industrial austerity goes directly to discipline workers. How? Privatising plays an important role. Because all economists know that people who work for the public sector are more entitled. So that’s no good. You need to privatise. In Italy right now, the government just privatised water. This was after we had a referendum around 10 years ago, in which people explicitly voted against privatisation of utilities and water. They’re advocating for privatisation of electricity, of utilities, of water etc.

And then we get attacks on labour unions. Wage repression, deregulation of labour. Deregulation is very important. Making work more “flexible”. This is industrial austerity.

So I think it’s very important to think about austerity as this trinity. Because this shows you how the project is, again, to shift resources away from the people, extract resources from the majority in favor of a minority. All this is to say that our society is not meant for the good of the whole. There’s winners and there’s losers, and austerity helps preserve this social reality.

Clara Mattei is an Assistant Professor at the Economics Department of The New School for Social Research and author of The Capital Order: How economists invented austerity and paved the way to fascism.

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