Four pieces of news this week have demonstrated that criticisms against austerity measures introduced by the government were all well founded. “Austerity” has increased unemployment, impoverishment of the poor, and working class, and the destruction of public services.
• 110,000 public sector workers have lost their jobs since April ((http://www.bbc.co.uk/...).
• General unemployment has risen by 114,000 from June-August,
• Jobseeker claimants have risen by 17,500 (up to 1.6m people), youth (ages 16-24)
• Unemployment has reached 991,000 (http://www.bbc.co.uk/...).
• The Institute for Fiscal Studies (IFS) has projected that government policies will increase the number of children living in poverty by 600,000 in the next four years up to 1 in 4 (from 1 in 5 from the last government).
• Median household income has fallen, and is expected to continue to fall. Absolute and relative poverty in the UK are projected to increase.
• Finally, my local cash-strapped NHS hospital (Whipps Cross University Hospital) has asked staff if they would be willing to give up paid leave and work unscheduled time for free (http://www.bbc.co.uk/...).
This is the true face of austerity, and serves to remind us that each number here, each statistic, represents a human being. You, your family, your neighbours and friends, are all potential victims and we are all allies in the fight against these measures.
h/t to onomastic for editing suggestions.
It is not as though it was not obvious what the impact of these austerity measures would be; clearly if you cut money to the public/state sector and prohibit local councils from increasing council tax (they have renewed this prohibition again this year), services and jobs will be cut. It was also clear that when they pegged benefits to the CPI rather than the RPI, that benefits would be cut (that was the aim of the policy after all). Cutting child-tax credits clearly only affects those paying taxes, so that would affect the working and middle class; but cutbacks to child benefit, education spending, and provision of local services affects the poor, working and middle classes. Perhaps it was not obvious that making people poorer would actually impoverish them, I thought it was definitional, but is seems that some people may have actually not understood it.
The point is that the situation is far worse than expected. One wonders what projections they were using as this was obvious to all those that were not deluded by the fantasies of neoliberals (or those that are blinded by their greed and immorality) when they heard the government’s policies.
I. Public sector workers (http://www.bbc.co.uk/...):
Numbers of public sector workers that have been laid off so far (110,000) since April alone indicate that earlier estimates of 610,000 job losses were more accurate than the revised estimate of 4100000. oops …
“In June 2010, the OBR forecast that the government's spending cuts, designed to reduce its budget deficit, would lead to 610,000 public sector job losses between 2010/11 and 2015/16. However, in November last year it reduced this projection to 410,000.
The CIPD (Chartered Institute of Personnel and Development) said that, based on the current rate of job cuts, the actual number of jobs lost in the public sector was likely to be 610,000 - "exactly the same as the initial OBR projection" (http://www.bbc.co.uk/...)”.
In the university sector and further education sectors alone they are saying that over 40,000 jobs are at risk (http://www.ucu.org.uk/... and http://www.ucu.org.uk/...; see, for impact of cuts on universities in Europe, http://www.google.co.uk/...; for adult education see: http://www.ucu.org.uk/..., http://www.ucu.org.uk/...).
While there has been some increases in employment; jobs lost in the public sector are not necessarily replaced in the private sector. Even if they are, these jobs are not union jobs, wages will necessarily be lower, and tenure and seniority lost. To add insult to injury, these workers are not only losing their steady income and in some cases their careers, but are now facing the prospect of lower benefits due to government policy.
II. Rising general unemployment:
Unemployment levels have not been this bad since 1994, this is a 17 year high (http://www.bbc.co.uk/...). Unemployment has risen by 114,000 from June-August (see cuts in public sector employment, additional job cuts by the MNC BAE to remain "competitive" in the face of cuts in defence spending, etc). Keep in mind that these are the official unemployment statistics:
“The Office for National Statistics (ONS) said the unemployment rate also increased to 8.1%. The unemployment total for 16-24 year olds hit a record high of 991,000 in the quarter, a jobless rate of 21.3%. The number of people out of work and claiming benefits rose 17,500 to 1.6 million in September. Other figures showed a record cut in the number of part-time workers, down by 175,000, and there was also a record reduction of 74,000 in the number of over-65s in employment (http://www.bbc.co.uk/...).”
The government claims that these figures are the result of the impact of the financial crisis rather than placing the blame on their austerity measures. In the face of this, the government is offering job training for 50,000 workers; somehow I do not think that this is sufficient nor will it even make a dent in the unemployment statistics. It is becoming quite obvious that cutbacks in the public sector are not being met by private sector investment and increasing employment. Nor will the £75bn of Quantitative Easing last week lead to increase investment by the private sector (
http://www.bbc.co.uk/...) due to the lack of profitability of investment in productive industries (see
realisation crisis below). What quantitative easing will do is socialise private debt (that is what is being exchanged for government bonds) in anticipation of further bank crashes expected due to Greek default (Belgian Bank, Dexia was bailed out on Monday heavily “invested” in Greece,
http://www.bbc.co.uk/...) increase inflation and lower real wages (especially hard for those on fixed benefits and pensions), and lead to further hoarding by banks and the wealthy or investment in short-term speculative investments (exacerbating an already unstable financial market).
III. Falling incomes and increasing Poverty:
Yesterday’s news was another piece of evidence that we are clearly not all in this together as there is no doubt that the austerity measures were clearly implicated in the fall in income, rising poverty and evidence that it was not only the fact that the poor were getting poorer, but the middle class was joining them in their misery (http://www.bbc.co.uk/...; http://www.ifs.org.uk/...; http://www.ifs.org.uk/...; ).
According to the Institute for Fiscal Studies (IFS), this is the biggest fall in median household incomes since the 1970s, a £2000 drop in income for median households. Rising costs due to increased petrol prices, rising energy bills, and rising food prices are undercutting household income; part of this is due to increased VAT introduced by the government and part of it is due to increased prices due to inflation.
According to the IFS:
“The period between 2009–10 (the latest household income data available) and 2012–13 is likely to be dominated by a large decline in real incomes across the income distribution. Absolute poverty is forecast to rise by about 600,000 children and 800,000 working-age adults. Median income is expected to fall by around 7% in real terms, which would be the largest three-year fall for 35 years.
In the longer term, the planned introduction of Universal Credit will act to reduce both absolute and relative poverty. The long term effect of Universal Credit is to reduce relative poverty by about 450,000 children and 600,000 working-age adults in 2020–21.
However, the net direct effect of the coalition government’s tax and benefit changes is to increase both absolute and relative poverty. This is because other changes, such as the switch from RPI- to CPI-indexation of means-tested benefits, more than offset the impact on poverty of Universal Credit.
Absolute and relative child poverty are forecast to be 23% and 24% in 2020–21 respectively. These compare to the targets of 5% and 10%, set out in the Child Poverty Act (2010) and passed with cross-party support. This would be the highest rate of absolute child poverty since 2001–02 and the highest rate of relative child poverty since 1999–2000. Modelling of scenarios in which employment rises by more than expected or take-up of benefits increases (perhaps as a consequence of Universal Credit strengthening work incentives or being easier to understand for benefit claimants) suggests that such factors cannot be relied upon to make a large difference to poverty rates (http://www.ifs.org.uk/...).”
Having an income below 60% of the median is defined as poverty; both absolute (in the sense of the poverty level) and relative poverty (in the sense of comparison to median household income in a specific year) are set to rise. From the IFS, we have the following projections (http://www.ifs.org.uk/...):
The table below shows the central poverty forecasts from the report. An individual is considered to be in relative poverty if it lives in a household whose income is below 60% of the median in that year, and in absolute poverty if it lives in a household whose real-terms income is below 60% of the 2010–11 median. The relative poverty line therefore moves each year with the income of the median household, but the absolute poverty line is fixed in real terms.
What is the government response to these projections? “The stats are not taking into account that people are being forced back to work due to cuts in benefits” say Iain Duncan Smith, secretary of works and pensions.
Our wide-ranging reforms will have a dynamic impact on some of the poorest families, encouraging people into work, many for the first time and improving the life chances of children at an early age (http://www.guardian.co.uk/...).
Have you ever been in a situation where you didn’t know whether to laugh or cry? What the government is not getting (or they are simply lying) is that there are no jobs for these so-called slackers to get; moreover, increased unemployment of public sector workers means that they need to compete with those recently unemployed for low-wage, low skilled jobs that are simply not coming into existence regardless of how much the Tories are waving their magic wands.
This is a government blinded by its own ideology that poverty exists because the poor are lazy, drunks, immoral and dissolute rather than because capitalist economies cannot sustain full-employment due to the needs of the system for profitability. The level of employment depends on the capital available for the employment of labour as opposed to machinery which depends on known techniques of production which are chosen to maximise profits. Competition means reducing wage costs and costs of inputs so as to maximise profitability. Even during the 19th century where wage costs were incredibly low and there was continual deskilling of labour to drive wage costs down, full employment did not exist. There were extremely high profits, yet full employment was not and has never been consistent with the needs of the system (and thus the need for the creation of the social welfare state and government intervention in the free market).
IV. Increased exploitation of workers:
Employed workers are being forced to take wage cuts to keep their jobs in the face of rising unemployment. Benefits like paid holidays are been attacked. People are being asked to work extra hours for the same wages. All these things are increased exploitation of workers.
Take for example, that (e.g., http://www.bbc.co.uk/...) public sector workers have been asked to essentially take a wage cut to cover NHS debt caused by cuts to NHS funding by the government. Funding problems for the NHS by this government are being compounded by attempts to introduce privatisation of certain parts of the NHS by making contracting open to competition; this will leave the NHS open to EU competition laws which will destroy the system.
V. Why austerity measures?
We need to keep in mind that in a capitalist economic system, profits are the raison d’etre of the system; when investment occurs it is profits upon that investment with which investors are concerned, when a business produces a good, it is the return on their costs with which they are concerned.
Given the social subsistence wage, profits are earned upon goods sold at a price over and above their cost of production. How is this obtained? Costs of production relate to the capital, labour and land used in production. Capital can be broken down simply into capital used up in the production process (constant circulation capital) and capital goods that last for more than one period of production (constant fixed capital, this wears out over time and needs replacement when the machinery or building wears out). Rents on land derive from private ownership of land; if land is used in production rents are paid depending on fertility of soil and due to private ownership.
Wages depend on two things: 1) historical social subsistence levels that are dependent upon the subsistence and reproduction of the working class and societal agreement that working people should have certain things as citizen; 2) the level of class struggle.
A working class, with high levels of unemployment and low levels of trade union organisation and limited political power means that the wage will be close to, or at, the historical social subsistence level as the power balance lies with the employers. That means that capitalists can appropriate all or almost all of the surplus revenues earned on goods as profits. A strong working class with powerful trade unions and political might can demand a portion of the increased revenues earned from economic growth as surplus wages over and above their costs of reproduction. This was the situation that was obtained during the post-war period in the US and EU.
In the absence of economic growth, profits essentially need to come through a wage squeeze. What we are seeing is a deliberate squeeze on wages and incomes for the poor, working and middle class; specifically they are undermining the historical social subsistence level in an attempt to increase profits. This can only be shrunk theoretically back to the biological subsistence level, but the powers that be are pretty certain that the majority of people in the advanced capitalist world will not stand for that, so they are chopping back a bit at a time; first wage stagnation, then relative wage reductions and now absolute reductions in income.
A. But what happens when we squeeze wages?
Keynes was a very clever man that understood that capitalism was a system prone to economic crises; he came up with am idea to manage or mitigate the crises in a capitalist economic system. Keynesian economic policies do not eliminate crises as they are part and parcel of how the system operates. Keynes focused on the question of effective demand and manipulating it to ensure that demand for goods produced in the system would be sufficient to ensure that they could be sold at a price ensuring a profit. Increased wages, ensuring incomes for the poor, provide for an increase in the effective demand for commodities; this also clearly affects the production not only of final commodities, but also those goods that enter into the production of these final commodities. This does not solve realisation problems in the system (workers on their own cannot sustain sufficient demand to keep the system running), but they certainly reduce tremendously their impact. However, it is important to understand, that realisation problems are not the cause of the crisis, rather they are a part of the crisis.
B. What is a realisation crisis?
This relates to what I raised earlier of the question of capitalists selling goods and services at a price over and above their costs of production. Through the exploitation of labour (in that workers work far more hours than needed to produce the value of their subsistence), capitalists have the possibility of workers producing value over and above that needed for the replacement of capital used up in production and worker’s own subsistence and reproduction; this surplus product (or value) if realised by sale of the goods, is net product or surplus which forms the basis of profits.
Insufficient general effective demand means that the goods are sold at a level in which the surplus portion is not realised; that means that profits are lower than expected. In the absence of sufficient effective demand, profits upon investment are not high and this will also affect future investment. If this was only in one industry, capital could move to another one seeking higher levels of profits; but if this is a general problem, investment is nonsensical. Money capital will either be hoarded or invested in short-term speculative investments. If you want to know why banks are not lending or capitalists are not investing, it is because we are in the realisation crisis portion of an economic crisis.
VI. The delusions and ideology of neoliberalism:
The government in the UK has introduced measures following an economic crash that are growth restricting rather than growth expanding (even if David Cameron does not seem to understand this at all). If growth exists, profits are rising and wages can stay stagnant; increased profitability can be sustained by total increased surplus revenues produced by economic growth being appropriated as profits (rather than divided between workers and capitalists as during consumer capitalism period).
What neoliberalism has advocated and pushed for was the shrinkage of the surplus portion going to wages; this was achieved through the destruction of the traditional industrial and manufacturing sectors in the advanced capitalist world to destroy the power of unions. Shifting work first to areas with anti-union laws and then ultimately moving them overseas to areas where wages were kept artificially low due to prohibitions on union organisation and minimal laws on work conditions. The last bastion of organised labour is the public or state sector, the attack on the state sector is partly an attack on organised labour. It is also an attempt to destroy social subsistence levels (wages) by attacking social welfare provisions. Finally, they are trying to shift the services provided by the state to the control of the private sector so as to open up another area of exploitation for capital.
These policies are based upon the rather mistaken belief that it is the wealthy that makes the system work rather than the working class. Both in terms of their labour to produce goods and services and their purchase of goods and services, the working class ensure that the system keeps running. High levels of unemployment caused by the destruction of the industrial and manufacturing goods sectors, the introduction of machinery to reduce wage cost and reduce the labour in use in the economy may have enabled them to destroy trade unions and shift wages downwards, but it has also resulted in decreased demand in the advanced capital world for the goods that they are producing. Their insistence that wages were kept low in the periphery means that the replacement for advanced capitalist world effective demand does not exist as of yet. China’s economic development is based more on export-led growth than developing the domestic market; effective demand is simply not strong enough to sustain the system.
In the absence of the possibility of profitable investment, capital simply is not invested in productive growth creating investment; money capital is either hoarded or invested in short-term speculative investment which while making them more money does not ensure long-term profitability desperately needed for the system to function.
This is where we are at now, the ideology of neoliberalism justifying increases in income and wealth inequality and the greed of the upper classes on the basis that increased inequality will lead to further investment by the private sector is merely an exercise in political and economic apologetics; it is class warfare, nothing more. We are moving towards to the same situation that led to the great depression; the reason for government provision of investment, nationalisation of industry (in Europe), the creation of the social welfare state is that this free-market insanity leads to further and more devastating economic crises. In the absence of a strong organised left-wing opposition, economic crises impoverish the majority, the system uses crises to eliminate redundant capital and to revitalise the rate of profits. We are once again headed towards another crisis and this one will be devastating for the majority ...