Friday, May 11, 2012

Austerity Measures Create Anorexic, Weak Economies


The NZ economy personified

Chris Trotter rightly questions the validity of austerity measures as a way of lifting an economy out of recession and he expresses concern at the social costs of this approach. When social services and support are cut the social consequences often last longer than the actual recession. The ongoing costs to the taxpayer to support those whose health, education or employment needs were compromised, will be potentially substantial. Austerity policies also tend to limit the discretionary spending of households, which has a direct and negative impact on the domestic economy and small businesses. 

It is obvious that those leading Government policy at the moment are no students of history, while uncontrolled spending and growing debt are not answers to an economic recession, there are few examples in history to support the sort of austerity measures being implemented either. As Trotter describes in his post, one of the most effective strategies was Roosevelt's "New Deal" which invested in infrastructure, reformed financial systems and lifted the wages and employment conditions of working people. Despite protests from business leaders that the programmes were anti business and growth, the reality proved the opposite.

New Zealand's most popular Prime Minister, Michael Savage, led similar changes in New Zealand. In a time of recession Savage increased benefits, supported a unionized workforce, initiated state control of banking, invested in state housing and nationalized broadcasting. He refused to indulge in recrimination or  divisive politics and did much to reverse discrimination against Maori. The result of this investment and spending wasn't an increase in debt, but economic stimulus. It lifted many New Zealanders out of poverty and increased their spending power which resulted in an immediate growth of the domestic economy.

Our current situation mirrors the problems faced by Savage, we have huge inequities of wealth, a large percentage of families experiencing poverty and living in substandard housing and most banks and financial institutions are owned off shore. It is concerning that National is taking the opposite approach to Savage to deal with these issues. The Government is cutting many benefits and social services, supporting the  de-unionisation and casualisation of our workforce, causing a crisis in housing by shifting responsibility to the private sector, cutting support to public broadcasters and even the Government's banker is Australian owned. The best National can come up with to increase revenue is to sell State Assets.

Austerity measures will only reduce our capacity to respond to any upturn in the world economy. Now that National has allowed the wasting of our construction sector, let over 25% of our young people remain unemployed (and many suicidal), reduced the capacity of our state and regulatory services, under invested in R & D - our ability to respond to any future opportunities will be limited. Our anorexic economy will be too weak to compete and will be left collecting the crumbs dropped from healthier economies that have been better nourished and supported.


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