a beginners’ guide to cuts

by Robert Kirby

In the last few months, the constant refrain from all the mainstream parties has been the need for cuts in the public sector. Lib Dem leader Nick Clegg promised “savage”  cuts at his party conference – before rapidly backtracking when his attempt at virility didn’t go down well with the party faithful. David Cameron has promised an “age of austerity”; an entire political era built around government belt tightening. George Osborne has threatened a pay-freeze for all public sector workers. And whilst Labour party figures like Peter Mandelson have complained that the Tories would be “gleeful” in enforcing cutbacks, their “responsible” brand of austerity will mean the same cuts in living standards for ordinary people.

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The UK national debt is currently around £800 bn; around 60% of GDP, and is predicted to rise much higher in coming years. The government runs an approximately 12% deficit, meaning that a predicted £175 bn more will go out than come in. Around half of this deficit is structural – meaning that it is a permanent feature rather than a credit-crunch induced blip. This means that the increasing interest on government debt has to be serviced, a cumulative weight on the exchequer that will get worse and worse without action. The deficit could raise interest rates throughout the economy, cause inflation and potentially lead to a devaluation of the currency. From the perspective of the ruling elite, these figures make it seem pretty imperative to restore the economy to balance and competitiveness. But ultimately, capitalism isn’t about balance and competitiveness, but about profit.

A Marxist understanding of the “age of austerity”

The “age of austerity” isn’t just the abstract book-balancing act of accountancy that it is presented as by the mainstream parties and the media. It is a counter-crisis measure, designed to return capitalism to prosperity by the most rapid means possible. The proposed cuts are about the private sector, not the public, and can only be understood in the context of the recession, and from the perspective of the totality of the capitalist economy.

Marx understood that the driving force of the capitalist economy is the production of surplus value: that part of social wealth produced above and beyond what is necessary to pay for the means of production, raw materials etc. used in production, and that which goes to sustain and reproduce the working class at the generally accepted standard of living. This surplus is the source of a capitalist’s profits.

But this surplus doesn’t just go into the pockets of businessmen. A portion is hived off into the coffers of the state, to supply those services necessary to the reproduction of society as a whole that no individual capitalist can make a profit from doing; building roads to transport goods, healthcare to maintain the working class, and police to maintain social order. This state spending, whilst needed by capital in general, becomes an increasingly heavy drag on the profits of individual capitalists. Whilst this is a bearable burden during the good times, during a recession, when capitalists can’t produce sufficient surplus value to turn a profit, this becomes a crippling and potentially bankrupting outgoing. The state, as the ultimate guarantor of the capitalist mode of production needs to step in (or out, as it were), and reduces its spending to ensure that it doesn’t squash the capitalist goose that lays the golden egg of surplus value.

Where the axe falls

The main political discussion in British politics is currently about exactly where the spending axe should fall, whether on the “surveillance state” or on “greedy” public sector workers. But it is clear where cuts will have to fall, no matter how many promises to protect “front line services”. The cuts agenda is about a return to profitability. If the state cuts spending on Trident or aircraft carriers, then the deficit goes down. But if they cut public sector wages or benefits, then not only does the deficit go down, but the standard of living of the working class and reserve army of the unemployed are reduced, enabling employers to apply downwards pressure on wages as well. The axe can’t fall on the police or army, without whom the state’s international prestige and monopoly on violence would be weakened; or on the “corporate welfare state”, the massive subsidy to private industry that is much of state spending, through government purchasing and PFI. To ensure a return to profitability in the private sector, the cuts must be made at the expense of the working class.

Theory and practice

The argument above suggests why the age of austerity might be tempting to Cameron and co. – it offers a way out of the chronic crisis of profitability that has been afflicting the British economy for years. But whether this far-reaching clampdown on workers’ living standards is possible is another matter. As mentioned above, the corporate welfare of recent years keeps many companies in business and can’t be cut. Equally, more than a million jobs have been created in the public sector in the last ten years and the state is the largest employer in many regions. Cutting such jobs will merely shift spending from wages to welfare, and decimate economic activity. Likewise, an overly-vigorous programme of cuts could drive down effective demand and damage the economy further. But the British elite faces the problem that the Keynesian solutions that are their other potential way out of the crisis haven’t worked historically, and, more importantly are currently unaffordable.

Equally, the “age of austerity”  presents a challenge to the left. The left need to understand that the cuts agenda is a necessity for capitalists, rather than just a subjective tendency towards being bastards on the part of the Tory party. Likewise, it is impossible to challenge the cuts agenda on the basis of counter-proposals for “affordable” restructuring. Good standards of living for the working class are unaffordable for the bourgeoisie. But it is worth remembering that these living standards – though not perfect – were affordable before the crisis. That they no longer are is their problem, not ours. These cuts ultimately present an opportunity; they clearly reveal the divergence of interest between the working and ruling class: our task is to organise against them.

2 thoughts on “a beginners’ guide to cuts

  1. Good article. c.f. this from The Economist http://www.economist.com/world/britain/displaystory.cfm?story_id=14505343

    Also: “I think that what we’re going to see is a situation in the western world which will be heavily constrained by all the huge debts that have been built up over the last few years, not just household debt but also government debt as well. Both of these are really big problems that will lead to an age of austerity, I think, and that age of austerity will imply that the growth of the states in Europe will be pretty weak…”
    – Steve King, Chief Economist, HSBC Group (http://www.youtube.com/watch?v=CBDPGkW6SCU)

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