The idolatry of “the markets”

LEVEL PLAYING FIELD
The Hindu, 19 May

In the wake of Britain’s inconclusive general election, there is much talk of the “national interest”. It’s said that politicians of all parties have to pull together to address the crisis caused by the country’s enlarged fiscal deficit. Specifically, they must agree to a package of deep cuts in public spending. Nothing, it is said, is more urgent, more unavoidable. In contrast, climate change, it seems, can be left perpetually on the back burner, though there is a far greater expert consensus about the dangers of the latter than the former.

It’s simply not the case that all Britons have the same economic interests, and this was plain on election day. The poor and working class in the cities turned out in unexpected numbers to vote Labour in order to stop a Tory government making them pay for the crisis in service and job cuts. In the shires and suburbs, middle class and rich voters turned out to vote Tory to make sure they didn’t have to pay for it in higher taxes.

The media is full of dire warnings of the disaster that will befall the country should it fail to make the severe cuts “the markets” demand. Greece is held up as a dark mirror of our future. Here an emergency bail-out worth some $150 billion, put together by the Euro-zone countries and the IMF, has been accepted (by the government if not the people) at the price of brutal fiscal austerity: $38 billion in cuts over three years, equivalent to 13% of GDP. Public sector workers will face 20% wage cuts; pensions will be deferred, with the retirement age being raised to 63; VAT and a variety of regressive taxes will rise steeply.

The story is that the Greeks have been profligate, luxuriating in feather-bedded public sector jobs while engaging in rampant tax evasion. They must therefore swallow the medicine prescribed, however bitter; resistance in the streets is a futile protest against the iron laws of the market.

As so often in neo-liberal narratives, the victim is being blamed.

As a percentage of GDP, Greek public spending is and has been for some time almost exactly average for Euro-zone countries, and lower than in France, Denmark, Austria, Belgium, the Netherlands or Italy. Greek civil servants take-home wages are lower in relation to per capita GDP than in most Euro-zone countries. And pension costs as a percentage of GDP are little more in Greece than in France and Germany and less than in Italy.

In the months before the bail-out, the Greek government passed four successive rafts of spending cuts. Each time the “markets” rejected them as inadequate and increased the interest rates demanded from the Greek treasury, making it more costly to borrow and further adding to the deficit. Every 1% rise in interest payments cost Greece an additional 1.2% of GDP; since 80% of Greek debt is foreign-owned, that amounted to a massive export of wealth even as the country reduced domestic spending. As the Greek economy grew weaker (because of the global recession) speculators sought to extract ever greater profits from it.

In April, the international credit ratings agencies radically downgraded Greek sovereign debt, making it impossible for the government to borrow at affordable rates and meet its current obligations. The subsequent bail-out ensures that those who have speculated on Greek debt will be able to sell their holdings at a profit. The difference will be paid entirely by the taxpayers – Greek and European.

There were and are alternatives. There could have been a restructuring of Greek debt (which would have meant concessions from debt-holders). Greece could have left the Euro, devalued its currency and cut its interest rates; the speculators would have had no choice but to continue to hold on to their bonds and accept repayment as and when it could be made.

Greece is being penalised pour encourager les autres. Britain, with Spain, Portugal and others, is being warned: slash public spending or face ruin. Our long-term economic policies are being shaped by the whims and threats of the credit rating agencies: the people who gave top marks to Lehman Brothers and other investment houses up till the very moment they were revealed as virtually insolvent, who happily endorsed dubious debt packages of the type which Goldman Sachs is now being prosecuted for selling.

These agencies are not independent institutions comprised of neutral economic experts but (mainly US-owned) private companies representing huge vested interests. The biggest, Standard and Poor’s is a subsidiary of publishing giant McGraw Hill. On the S&P board sit: a retired CEO of Coca-Cola who is also a director of Wal-Mart, the BT (formerly British Telecoms) group chairman, the chairman of Lloyds Bank (bailed out by the UK taxpayer at a cost of £66 billion), a former treasurer of CA Luz Eléctrica de Venezuela, one of the power firms nationalised by the Chavez administration, and an erstwhile long-serving Mexican secretary of finance whose policies led to the financial crash of 1994.

For bankers and their allies in governments, it is vital that the burden of paying for recession does not fall on those who caused it. As a result, their champions in the media and the political parties are exaggerating the scale and misrepresenting the nature of Britain’s current dilemma. The panic-inducing fiscal deficit was not caused by “excessive” public spending: as a proportion of GDP public spending in the UK remained more or less stable until the onset of the recession in 2009, which led to increased spending on unemployment benefits along with decreased tax revenues, on top of the immediate costs of bailing-out the banks.

The rich benefited disproportionately from the years of growth but have been shielded from the impact of recession. Even in 2009, when hundreds of thousands lost their jobs, the collective wealth of the richest 1000 people in the UK grew by one third – an increase of £77 billion, a little less than the total amount spent that year by the UK government in propping up the banks. The same people will now benefit from the cuts being made as a result of the recession caused by their own profligacy. By easing the tax burden on the rich and pressing down wages for the majority, the cuts will redistribute wealth upward, and make Britain an even more unequal society than it is already. The “national interest” turns out to be nothing more than the interest of a self-serving global elite.

Though it’s skated over by the media, the core injustice of the cuts programme is widely felt: the costs of the crisis are born by those who took no part in creating it. Workers will lose the jobs and the public lose services it needs not because of any shortcomings in those workers or services, not because of “waste”, but because of decisions and habits of small groups of people accountable only to themselves.

The economic “law” that we are told we break at our peril is in fact an arbitrary imposition. The elevation of the “markets” – constructed and manipulated by a particular class with a particular interest – is a form of idolatry: worshipping a human artefact as a god.