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The Big Society, the market, and society: why deficit reduction might actually be a good thing

In Economy, Events, Ideology on July 28, 2011 at 2:07 pm

David Weber

I must admit that I originally intended this to be a full response to James Bartholomeusz’s recent article on working class politics and welfare reform. However, while reflecting on his various arguments, my response to his comment underneath the article quickly became feature length, and an article in its own right:

The problem is, [the Big Society] dovetails a little too nicely with the market fundamentalism that got us into this mess, and the tough deficit reduction plan which has ostensibly been forced upon the government against its will. [emphasis added]

A number of assumptions are implied here. The first is that the Big Society is not at odds with the market. I presume this is because it is at odds with big government, because James doesn’t elaborate further. The second assumption is summed up by the word “ostensibly”, which I have highlighted. It is that deficit reduction may be a choice. The third assumption is that deficit reduction is undesirable whether it is a choice or not (“tough”, “forced” and “against its will” all imply this). By the end of this article, I hope all three assumptions will be in doubt.

It is the latter two assumptions which are the most difficult to critique. There are, of course, many who simply disagree with the need for any fiscal measures to cut the deficit. There are enough of them to make it unwise to simply dismiss or ridicule their choice, particularly given the fact that some of them occupy only a small distance from power. Most prominent is probably Ed Balls. As shadow chancellor, he does not officially oppose deficit reduction, but having only recently fought a leadership campaign saying “you can’t cut your way out of recession”, it can be assumed that he still holds to it privately. There is a similar situation with Diane Abbott, who voiced similar sentiments before and during the Labour leadership campaign, but now as shadow public health minister will no longer do so publicly.

There are probably many complex economic arguments either way. With only limited understanding of economics, I am ill-suited to consider most of them, and I instead wish to focus on 2 or 3 simpler arguments which they sometimes overlook, based on our current political context.

The first is that confidence in the government’s economic policies, at least for the time being, clearly rests in their ability to reduce the deficit fairly quickly, due to it having been a recent election issue. The last general election was almost dominated by it, and if the government loses the confidence of its citizens in the economy, it could have a fairly damaging effect.

People often forget that confidence is one of the most important roles of a government in the economy, if not the most important. In real terms, the amount of direct control a government exercises over the economy is minimal, with even public services being mainly by necessity operationally independent of central government. Most of the work of a government, therefore, is about ensuring confidence in the UK economy.

Nowhere was this effect shown more importantly than during the financial crisis of 2008. The government was faced with a joyless choice: bail out the banks, compensating them for failure, or risk the effects of allowing them to fail. The only important long-term difference between the two was that of confidence. Either option was costly, either publicly in the form of future spending cuts and tax increases by the government to pay for the bailout (as we are seeing now) or privately in the form of lost deposits, reduced lending, etc.. The difference is in how either decision would influence the future direction of the economy, which, as I understand it, boils down to confidence. By bailing out out the banks, the government used its greatest power, as a monopoly of authority, to guarantee the banks’ future, overruling the market to keep the public confident in the economy.

Therefore the government, particularly at this moment in time, will not want to risk undermining the entire economy through a failure of public confidence in its policies. So the debate about fiscal policy is in many ways pointless, as it fails to consider the most important factor: all 60 million members of the public, not to mention overseas lenders. The government may have had better options, but now it is committed; the current policy has become the ideal one.

The second point is that in any climate of general public opposition to spending cuts and tax rises in the face of a determined government, those who are most likely to lose out are the poor and vulnerable. Democracy relies on campaigning and negotiation, and those who have the least resources and the weakest voices are always at the greatest disadvantage. Therefore what is needed is hard-headed prioritisation, where the public look to protect the benefits of the most needy first, and everyone else second; yet this is hardly ever what you actually get. And I believe that those who are the more careful before they decide to oppose a cut are more likely to have the interests of the needy in mind. In contrast, many opponents of all spending cuts and tax rises end up jumping on the most popular bandwagons, which inevitably leads to the interests of the needy being drowned out.

Moreover, there may actually be benefits to spending cuts. After a lengthy period of rising government spending, it is quite possible, if not likely, that efficiency has not managed to keep up. A period of prioritisation will probably be no bad thing, as it forces the government to look at value for money as well as mere popularity. It is more difficult for the government to be populist if the cost is astronomical. The political pressures of deficit reduction should encourage the government to be more explicit about its priorities, and certainly more careful about how they spend money — if it is held to account by a wise public.

Therefore the responsibility really falls to us as a public. A responsible public could not only ensure that deficit reduction was fair, but also turn it from a grim necessity into something that actually benefits society. An irresponsible public, of course, could have exactly the opposite effect. The public needs to not just make its priorities crystal clear to the government, but also to get those priorities right.

This is not just about campaigning for what we think is fair. This is also about choosing when not to campaign, and picking our battles with care. And I think it is obvious that a social movement of this scope wouldn’t “dovetail” with market fundamentalism at all, because it relies on neither the market nor the state: it relies on us changing the way we behave to suppress the individual, an idea more antithetical to market fundamentalism than big government is. The question is, of course, how far we can go in doing this; human nature has to be admitted at some point. Yet human nature influences all things. The big society, like the market and the government, is simply another way to try and improve on it.

And it is imperative that on some level we do so. In any political survival of the fittest, such as we are seeing at the moment, the poor and vulnerable are sure to lose out. If we oppose only the cuts which hit closest to us, they are sure to lose out. If we grasp entitlements which we do not need, they are sure to lose out. The Big Society, David Cameron’s idealistic vision for government, has long been derided as a government abrogating responsibility. How ironic if in rejecting it, the public ends up abrogating its own responsibility.

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  1. This is a very interesting article David, and I’d like to respond.

    I would agree with you that a government’s role as confidence-bringer is very important, but I wouldn’t say it stops there. Through taxation, the government has the power to be the single largest investor in the country, as well as providing public services on which the private sector is (though many free-marketeers would like to deny it) very much reliant. The problem with coalition fiscal policy is a complete denial of the state’s role in the economy. George Osborne is committed to cutting the deficit in a single parliament apparently regardless of the economic outcome – statistic after statistic has shown growth stalling, aligning exactly with the change in fiscal policy from Brown to Cameron government. I have to disagree with your assertion that the current policy has become the ideal one – with clear empirical evidence that his Plan A isn’t working, Osborne admit he was wrong. The government’s only response to their critics is to set UK economic problems in the wider context of American and Eurozone default crises. This might apply right now, but before these really kicked off the UK was lagging significantly behind other comparable countries. And was it not this same front bench which, when in opposition, blamed a global financial crisis on Gordon Brown?

    I entirely agree that the poor are losing out the most, as the cuts hardest fought for are ones which affect the middle. And you may be right about public sector efficiency being less than desirable (though it’s hard to see the truth about this as any view tends to be coloured by either a rigidly pro-market or pro-state preconception) but is waste-cutting really a good enough justification for the damage that will be caused in the process?

    Unless we see a Eurozone or American default to drive the global economy back into recession, the Right has already won in the crisis. There has been a spectacular PR coup by centre-Right parties across the Western world which has left the Left almost too stunned to react – what was a fundamental breakdown in the neo-liberal ideology of the Right (which the Left has largely been forced to accommodate itself to in recent decades) has been re-branded as the fault of the big state. Forgotten, of course, is the fact that the state, firstly, is the only bulwark against the rampaging market, and secondly, that it is entirely responsible for preventing financial meltdown in 2008 when the market was no longer able to support itself. And now Right-wing governments have the audacity to shred the remnants of welfare states whilst allowing pre-crisis practices of reckless banking and tax dodging to continue as normal. We should be debating the flaws inherent in the free market ideology of the last 30 years, but instead we are squabbling over what will be cut and what won’t. On the most basic philosophical level, the individualist principles of the Right have won over against the collectivist principles of the Left.

    We already have a large civil-society movement against the cuts, but it may have already missed its opportunity. Deficit reduction is unavoidable unless a majority of people across the Western world support a campaign to completely overhaul the matrix of banks, funds, credit-rating agencies and national spending. Many on the centre-Left, including myself, certainly wouldn’t be adverse to this, but it’s a complete fantasy to anyone but the most deluded Trotskyite. A mass movement to manage, rather than stop, the cuts would be more credible, but I fear it would be impossible to create a consensus. The only possibility would be to present a majority-supported people’s Budget to the government, but marshalling support behind a single programme of deficit reduction would be unachievable. In light of all this, the Labour response to the crisis seems to be the most balanced, avoiding the extremes of both coalition austerity measures and the far-Left flirtation with default.

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