UK Britain, afed: austerity & debt: an interview with -kim from
critisticuffs (a-infos-en@ainfos.ca)
Austerity is something we are constantly hearing about. It is discussed by everyone from
Tories and right-wingers through to those on the Left. We were lucky enough to catch up
with Kim from Critisticuffs to find out more about their insightful analysis and critique
of common thinking about austerity. ---- Could you tell us something about some of the
groups and projects you are involved in? ---- I'm a member of the London-based group
Critisticuffs. Some of us in Critisticuffs are also involved in the Kittens journal,
together with some people from 'Gruppen gegen Kapital und Nation' (groups against capital
and nation). Our project is to explain and criticise capitalism, the nation and the wrong
ideas that people have about them and each other, such as racism, sexism, antisemitism.
For this, we mainly do workshops, seminars, reading groups and produce texts. This is
because we observed that many people are aware of, say, the poverty around us, but
unfortunately, they then also have wrong explanations for why this is, which leads to
wrong practice.
Thinking about this, what are we encouraged to think about austerity?
Austerity is actually a good example of wrong explanations being in circulation. Many
people will know that austerity produces hardships but most people will misunderstand why.
Most people on the Left dismiss austerity as a (misguided) political project by
conservative, 'neoliberal' governments without any basis in economic necessity ('Tory
cuts'). Against this, those who support austerity say it is a simply given necessity. In
this narrative, sovereign debt is a result of frivolous spending, a deviation from good,
sober governance. The argument usually put forward is an analogy to credit card debt. We
are encouraged to think of the state's finances like consumer credit: you have to pay it
off or the debt collectors take your TV: "you can't live beyond your means forever".
Why is that last bit wrong?
A capitalist state is not constrained in what it can spend in the way, say, a private
household is. Furthermore, unlike a company, it does not earn money by partaking in
capitalist endeavours: investing in order to make a profit. Instead, the state has the
power to decide on its earnings itself - by collecting taxes.
So the state could just collect what it wants in taxes?
The way the state arranges its tax regime is that it participates in the economic success
within its territory. Any economic activity gets taxed, from companies' tax, to income tax
and sales tax (VAT); the state takes a percentage of the economic activity of companies
and private citizens. The income of the latter in turn again being dependent on the
success of companies. In this way, the state makes itself dependent on the economic
activity and success of the companies active on its territory, an activity which it
neither controls nor wants to control.
At the same time, imposing taxes on companies means that they have less money available
for investments which stifles their growth. Collecting taxes is detrimental to capitalist
growth.
Is that an argument for lower taxes from the state's point of view?
Well, taxes are used to spend on infrastructure, the military, the police, education,
healthcare, research and so on. Regardless of the popularity of the individual
expenditures, they all aim to serve a common purpose: to create the conditions for and the
continued success of the national economy. The police and judicial system make sure that
the foundation of capital accumulation - private property - is protected through the
maintenance of law. Education and healthcare are supposed to provide capital with a
sufficiently healthy and competitive workforce, now and in the future. The creation of
industrial areas and business parks allow new businesses to settle and to expand. Roads
and public transportation allow the workforce, materials and goods to reach their
destinations.
Hence, in order to provide the capitalist economy with the infrastructure it needs to
function, the state spends money, which is why it can be precarious to implement massive
spending cuts. From the standpoint of facilitating growth, therefore, cutting spending can
be rather counter-productive.
So that's an argument for higher taxes from the state's point of view?
Indeed, the state has to deal with the following self-made dilemma: It uses taxes to
provide the conditions for capitalist growth on its territory and its tax income is
dependent on the success of the capital operating on its territory. But at the same time,
these taxes also stifle growth, a purpose of the whole exercise in the first place: taxes
are used to create the conditions for capitalist growth and taxes are detrimental to
capitalist growth.
So we see, when it comes to the national budget it is not easy, arguments can be made both
against higher taxation and against reduced spending. It is quite neat then that there is
another way for a state to pay for the expenditures considered necessary, without
immediately taking the money out of the economy: debt.
Debt allows a state to finance what it wants without impairing its capital's capacity to
invest: now credit is used to finance the conditions under which future resources of
revenue, e.g. taxable profits, are supposed to develop. By this I mean the following. For
example, the state takes on new debt in order to finance high speed train lines to connect
the South of England with the North, hoping for a revitalisation of a sluggish area. If
this speculation works out then the new bit of infrastructure is a tidy boost for the
national economy allowing it to grow. More debt in this sense then hopefully means more
growth, which then justifies this debt.
The mounting debts of nation states are hence not the result of frivolous spending.
Because there are always good reasons to spend, and because it is an apt way to pay for
these things, we find that most states have a huge amount of outstanding debt and have had
so for some time. This way successful capitalist states live permanently 'beyond their
means': so that their means develop in the future.
Austerity is a policy to tackle sovereign debt (as in debt owed by a country). What is the
relationship between the two?
The point of austerity is not pay off the debt, but to reduce the absolute amount of debt
a state owes. Actually, no successful capitalist state would be able to pay off its debt
obligations from taxation - contrary to popular belief that the taxpayer has to shoulder
the burden of debt - unless it would be willing to severely impair its economy and ruin
it. Instead, when states have to pay up to one investor they borrow the money from another
(or the same) investor - a process called refinancing. Whether this works out, crucially
depends on that they find investors who are willing to buy these debts.
States borrow by issuing bonds. Bonds are a form of loans. By purchasing a bond the buyer
is lending money to the state - with the promise of repayment in full, at a certain time,
with regular interest payments in between. In addition to having this entitlement on
repayment, the bonds can also be sold to other people on the so-called secondary bond
market. The secondary market is simply the name for the fact that those who bought these
bonds trade them as well. The buyers of bonds are mostly financial institutions such as
banks and pension funds on the one hand and other states on the other hand. Financial
institutions buy bonds as a form of investment, in order to make profit, either by taking
the interest paid or by reselling the bonds at a higher price. What makes bonds issued by
successful capitalist states particularly interesting for financial institutions is that,
firstly, they were and are considered comparatively safe investments, even though usually
at the expense of paying only low interest. Secondly, successful capitalist states have
issued a lot of these bonds and many investors are interested in them, which means there
is a huge secondary market where these securities are traded. These two qualities of state
bonds taken together mean that financial institutions hold on to rather safe titles of
revenue streams that they can sell at any time - usually for a price which does not
fluctuate much. To them it is almost like having money which also pays interest - the best
kind of money.
Indeed, this is how these banks use state bonds and this usage is encouraged by state
regulation. However, this also means that any doubt about the quality of a state as a
debtor is of immediate relevance, not just for when its bonds mature (Will the UK be able
to repay me in 10 years' time?") Instead, the question affects the ability to sell these
bonds on the secondary market now and hence can undermine their money-like quality (can I
sell my bonds at any time for a stable price?).
Since investors rely on other investors buying and selling bonds, they do not only have to
consider their own assessment of safety of these bonds but also what the general market's
verdict is. They speculate on the speculation of other investors. Doubt about whether
other investors would be willing to buy a certain bond makes the bond less attractive,
possibly leading to a downward spiral of devaluation.
In response to declining trust in its quality as an investment - expressed through
changing assessments by rating agencies - states implement measures to boost confidence in
themselves as debtors and/or have to offer higher interest rates to their creditors. So,
when financial institutions distrust each other's willingness and hence their own ability
to trade a state's debt, that debt becomes more expensive to maintain for the state.
Therefore, the ability of a state to find someone to buy its new bonds at a good price
(that is low interest), in order to be able to fulfil their old obligations and to spend
money on future growth, is heavily dependent on the verdict that they are able and willing
to service their debts.
And this is then what led to the consensus about why there was no alternative to
austerity. In the past, the risk of sovereign defaults was generally seen as low for
successful capitalist states. However, the financial crisis and subsequent sovereign debt
crisis changed that. The growing deficit in most states, because of the bailouts, because
of reduced income due to the recession, and because of increased spending to combat its
effects on the economy led to an increased concern about the security of sovereign debt
even of successful capitalist states like the UK. The shrinkage or stagnation of economic
performance of their respective national economies only added to that concern. Even worse
from the perspective of their creditors was that the states just spent all that money to
secure bad debt of businesses which have failed in their purpose of capitalist growth.
That is, money was spent unproductively - not on the development of national economies but
merely to preserve the status quo - and it was put into question whether these states were
still good investments. Austerity programmes are therefore mainly measures to boost trust
from investors so that they keep on lending.
How does cutting spending restore trust from investors when state spending is necessary
for the economy?
The key data point that investors use to gauge the quality of a state as an investment is
the often referenced ratio of gross debt to GDP. This relates the total debt a state has
with the Gross Domestic Product. This figure is meant to express the overall economic
output of a national economy. The debt/GDP ratio is hence meant to express how much a
state's debt is in line with the growth of its national capital. If the ratio remains
steady both grow at the same rate, if the ratio increases - say from 60% to 100% - a
state's debt has grown faster than the national economy.
While investors and (mainly) commentators use this ratio to assess a state's credit
worthiness, it should be noted that none of the ratios discussed in the media for
themselves express a 'healthy' or 'unhealthy' relationship. Regardless of whether the
ratio is 60% as stipulated in the EU Maastricht treaty or 150%, no state could or plans to
pay off its gross debt by confiscating 60% to 150% of its economy's output. As explained
above, states rely on investors lending them new money whenever they have to pay back some
other investor.
Still, regardless of whether these numbers are in themselves meaningful, a state now is
concerned with managing capitalist growth of its national economy on credit where that
economic growth justifies that credit. In this situation the point is not so much to
achieve a specific debt to GDP ratio or certain absolute saving in expenses, but to
demonstrate to investors that the government does everything necessary to restore growth
to justify debt levels.
In this situation the state is especially self-critical in its spending. When it looks at
all the areas it might want to spend money on, it always decides where to spend it based
on considerations of what it considers most important. No expenditure is safe from this
consideration. Creating a national budget means to compare the benefits of such wildly
differing expenses as the NHS (keeping the population healthy enough so that it can
function as human resources) and the nuclear warfare programme (for respect from other
states in international competition). The questions simply are: will the potential target
of expenditure be worthwhile in comparison to other priorities the state might have? And:
will the potential target of expenditure justify the burden on the economy through
taxation of deficit? Often the decision where to spend money and how much is not without
tension: a lot of disagreements between political parties and factions are about what part
of the budget is more important than another one. This is not different in an austerity
budget, except that every item in the budget has to survive even more scrutiny regarding
its usefulness for the power of the state and the growth of the economy.
Why does it always seem to be welfare spending which is targeted by cuts? What does the
bedroom tax, or any other cut, have to do with the UK's AAA global credit rating?
Welfare spending is a common target of cuts. This is partly because it is a good chunk of
state spending and also because it is easily identified as an unproductive expenditure.
Merely providing for people who are not used by the national economy to produce profits -
so that they can in the future - is considered a waste of good money. The bedroom tax is a
good example of this. It sends the signal that the UK is revisiting all its expenditures
and cuts those deemed superfluous for the purposes of a strong economy and state. In
contrast, cutting down on nuclear weapon spending decreases the imperialist respect from
other state directly, whereas cuts in the welfare sector 'only' lower the standard of
living of those on benefits.
Cutting welfare spending has another benefit. It does not just save money but
simultaneously signals to creditors that the state will only spend money on what is now
seen as productive projects. In addition, a reduction of welfare benefits will also put
pressure on the unemployed, people with disabilities, or low income earners to accept
(second) jobs. That is, to accept jobs regardless of how bad the pay is, working
conditions are or the suitability of the job. By making it even harder to survive on
benefits, the state can 'persuade' people to accept worse jobs under worse conditions.
This puts additional pressure on wages which in turn is a basis for increased profits for
capital. Working 40 hours a week for less money than the dole makes little sense and hence
out-of-work benefits effectively establish a minimum wage. More generally, if more people
are competing on the labour market, this drives down the price of labour. Cutting benefits
means worse conditions for those with a job.
The left frequently criticises austerity measures for punishing the poor and vulnerable.
However, you state that "proposing alternative ways for the state to save money is missing
the point: mass impoverishment is not a side effect but a deliberate goal of these
policies" - could you expand on this?
The hardships of austerity are not a fact of life, a by-product of stripping away excess
or an expression of a misguided policy. They are the direct result of:
A programme which is intended to show to the financial markets that their concerns are
being taken seriously, by cutting costs which are now considered superfluous. This way the
government demonstrates that the costs of the state remain in balance with a nations'
capital growth as demanded by the markets.
A programme which is intended not to burden the growth of capital. On the contrary, states
improve the conditions for companies to accumulate, not least by making people more
desperate jobseekers.
A programme which is intended to serve - if necessary - as a signal to express the
government's willingness to implement even painful and unpopular measures against popular
discontent in the interest of servicing the debt: servicing debt obligations is and will
remain the highest priority.
Would there be any difference in the fiscal policies of an ostensibly Left wing government?
The Left response has been one of Keynesian measures: counter cyclical spending, deficit
spending or stimulus packages. This is not completely off. For example, spending has been
a response to the crisis from the very beginning. The government knows that state spending
can be useful for the economy. However, in the left-wing variant, spending would go
directly to the people in the form of increased welfare and tax cuts for the poor. This
money then is supposed to generate demand for various goods and services which in turn
stimulate the economy to meet this demand. This increase in economic activity then is
supposed to allow the repayment of debt or to justify the increased sovereign debt when
more is borrowed later. In short, what makes this variant of Keynesian ideas so
interesting to people on the left or people campaigning against cuts to services is that
they promise to bring about capitalist growth by giving poor people money - win-win, so to
speak.
Note, though, that potential welfare programmes and hence welfare recipients play the role
of a means not an end. Money spent on them ought to stimulate the economy; they are a
means to the economy instead of the other way around. The end of this endeavour is
economic growth and the state's ability to maintain the services it deems necessary
through debt. These reformers campaign for a plan in which the role of those addressed is
that of being material for the sake of capital and the state.
In fact, this topsy-turvy relationship of economic growth and provision for those
producing it expresses itself in the moderation of the proposed demand. If state spending
on poor people was such a great means to get an economy going, why not increase benefits
massively? Why not give everybody on the dole £5,000 each month? That would surely
generate much more demand than simply maintaining the meagre current benefits. By
restricting their demands to the current poverty level these reformers indicate that they
too have not found a convincing argument why material provision for everyone would make
sense according to the principles of capitalist economic growth. They implicitly recognise
that widespread poverty and national economic success belong together. It also implies
that these Left reformers understand that the dole is a means to convince people to find a
job with a company - it is only meant as a 'safety net', a means to maintain the poverty
of a worker - and not a means to end it.
That's the contradiction of the Left which, on the one hand, campaigns against poverty but
does this via well-meaning suggestions on how to reform the welfare state to be better at
what it is for. They know that their demands are demands against capital, but they think
if they moderate them enough they can make them compatible with its accumulation. We do
not claim that this cannot work, but it always means committing to a situation where the
premise of economic success is generalised poverty.
Thanks very much for taking the time to speak with us. We encourage our readers to look at
their website or go to one of their meetings. Info at: https://critisticuffs.org/
https://afed.org.uk/austerity-debt-an-interview-with-kim-from-critisticuffs/
