Six reasons why it’s easier to impose austerity
In the last five years, many western democracies have pursued tough austerity policies — cutting expenditures and raising taxes in an attempt to balance the governmental budget. There’s been intense debate about whether austerity is a good idea during a period of slow economic growth. But the decision to pursue austerity is also shaped by politics: Will the public put up with it?
The conventional wisdom is that austerity is a hard sell. But the reality is that the pursuit of austerity policies is actually easier than it was a generation ago. Since the late 1970s, we have restructured the world of politics in ways that undermine resistance to tough fiscal policies. Here’s how:
1. More power to creditors
Sometimes politicians adopt austerity policies to provide reassurance to the people who buy government bonds. If governments aren’t perceived to be tough on spending, those creditors might refuse to continue lending money. This could cause an increase in interest rates and a weakening of the currency. But these bad effects only happen if creditors have options — that is, if they can do something with their money other than buying a particular country’s bonds.
Over the last thirty years, western governments have given creditors more options. By loosening capital controls, it has become easier for domestic investors to move their money overseas. Similarly, a larger share of domestic government debt is now held by foreign investors (See chart). By giving more power to creditors, we have put more pressure on politicians to pursue austerity — and given those politicians more back-up in the domestic debate about whether austerity is really necessary.
2. Weakened trade unions
Popular resistance to austerity policies doesn’t just happen. Somebody has to organize it. Historically, unions have played a key role in mobilizing opposition to cutbacks. But the union movement has been weakened in most advanced democracies over the last generation (See Chart).
Admittedly, the decline in union membership has been more dramatic in the private sector. Unionization among public sector workers remains at a relatively high level, and those are the workers who are directly affected by austerity policies. But public sympathy for protests against austerity appears to be weakened if it is organized solely by public sector workers. Broad-based unionization helped to sustain public sympathy for beleaguered government workers.
3. Tougher policing
In the late 1990s and early 2000s, many activists hoped that information technology would compensate for the decline of unions. The internet and social media would allow rapid mobilization of protesters without the need for a central organizing structure, like a traditional trade union.
This has turned out to be wishful thinking. Internet-based modes of organization have their own problems: they are slow to get started, and struggle to maintain a long-term focus. Moreover, police forces around the world quickly adapted to the new forms of protest. In some countries, police avoided serious downsizing. They acquired better equipment and invented more sophisticated tactics for containing crowds. Laws that restrict the place and time of protests have also been toughened.
4. Stronger budget institutions
Governments have also become better at designing institutions to promote fiscal discipline. The techniques include more powerful finance ministries; laws that impose “binding constraints” on deficits and debts; methods of multi-year and accrual budgeting; special procedures for overall review of government expenditures; independent offices to validate budget projections; and better techniques for international “surveillance” of national fiscal policies by bodies like the International Monetary Fund.
5. More privatization
At the same time, policymakers have developed a broader range of techniques for making government work more efficiently. One important technique: outsourcing government work. In their 1993 bestseller “Reinventing Government”, David Osborne and Ted Gaebler described this as “injecting competition into service delivery.” Sometimes whole agencies (like Britain’s air traffic control organization, NATS) have been privatized. Sometimes it has been complete facilities, such as prisons, schools, or highways. One result of this shift in policy: there is now a globalized network of multinational corporations that vie for the right to take over work previously done by civil servants. This gives austerity-minded politicians more options, and puts pressure on civil servants to make concessions.
6. Changed public attitudes
A final reason why austerity is easier, and maybe the most important: Public attitudes have changed. This has two aspects. First, public opinion about the role of government has shifted since the late 1970s. Trust in government has declined in many countries. People have largely accepted the diagnosis of government that was first advanced by “public choice” scholars in the 1970s: government is easily captured by special interests, including bureaucrats. It’s hard to control, and has a tendency toward expansion. Austerity is the medicine for this disease.
A second key change for most voters: austerity has become routine. Imagine the situation of a forty-year-old voter in Britain or the United States in 1978. Their political life experience consisted of two decades of prosperity. Austerity, when it first arrived in the late 1970s, was a shock. Contrast that with the forty-year-old voter of 2015. What’s happened since the early 1990s? The recession of the early 1990s; the global crisis of 1997–98; the recession of the early 2000s; and the global crisis that began in the summer of 2007. All of this has been accompanied by a steady drumbeat about the need to control spending in the context of a turbulent global economy.
Put all of this together, and what do you get? A world in which it is easier for austerity-minded politicians to cut expenditures. Of course, that doesn’t mean that austerity is a good idea, from the point of view of maintaining economic growth. It only means that governments will have more friends if they want to pursue austerity, and that they will encounter less resistance when they put the policy into practice.
Alasdair Roberts is a professor of public affairs at the Truman School of Public Affairs, University of Missouri. His website is http://www.aroberts.us