There Is No Alternative to Austerity: Propping Up the Neoliberal State

Neoliberalism requires a market society achieved through a transformation in social society. Initially this meant welfare states must be slammed down by austerity policies in order to turn over to the market potentially lucrative sectors of the social economy – such as health care, education, social security. Public resources must become privatized, the public good must now be produced by private initiative. Neoliberal economic policy can only function with a state that encourages its growth by actively shaping society in its own image, and austerity is the tool to push for that transformation. Neoliberal political systems have been created through financial coercion and are held hostage by financial interests due to the economic ‘necessities’ created by bankruptcies and budget deficits. The drive towards a market society and the social engineering required to maintain that society are further expressions of the de facto authoritarianism of neoliberalism and the neoliberal state.

Austerity is traditionally defined as economic policies surrounding deficit cutting. Pablo Iglesias argues that austerity is when people are forced out of their homes, when social services do not work, when public schools lack resources, when countries do not have sovereignty and become colonies of financial powers. Neoliberalism needs to ensure its own survival by bending civil society, political institutions, and democracy to its will. By giving the market the freedom to determine when wages will be lowered, when jobs will be shed, and when communities will be destroyed, while simultaneously dismantling social welfare programs to increase the market’s authority, a social crisis is produced that requires an expanded police and penal system. To counter opposition, the neoliberal state is maintained through the creation of new political constituencies. Austerity, understood as a social-historical force, is the tool of the neoliberal state to subvert democracy and promote authoritarianism.

Neoliberal ideals suffer from inevitable contradictions that require a state structure to regulate them. The role of law is to ensure the individual’s superiority over the collective in the form of private ownership rights and intellectual property rights (i.e. patents and copyrights). A judicial system is necessary to designate and regulate interaction between private actors and the market. If people were free to make decisions about their lives democratically, surely the first thing they would do is interfere with the property rights of the elite, posing an existential threat to the neoliberal experiment. Whether these popular aspirations take the form of drives towards unionization, progressive taxation, or pushing for social policies that require the redistribution of resources, the minimal state cannot be so minimal that it is unable to respond to and crush the democratic demands of citizens. The neoliberal state exists in theory to guarantee the rights of the individual over the demands of the majority. A system must be put in place that protects against the ‘wrong’ decisions of a public that is supposed to buy, sell, act, and choose freely.1

Austerity is backed by the belief that too much state spending preceded it. Basically, the practise of austerity is being practised so that the neoliberal system can be maintained – supported by the belief that the economy should remain free from intervention of any kind, and that austerity is a natural policy initiative during periods of crisis. In response to the 2008 economic crisis, there was a call for a new Bretton Woods with the idea of an international reserve currency rather than the dollar. Marx noted that during a time of financial crisis, it is the working classes which are financially disciplined. The recent GOP budget is a blueprint for permanent austerity that builds in escalating cuts to social benefits, squeezing resources the federal government needs to help most citizens, while pushing costs for healthcare and other social needs onto already stretched state and local governments.

Some have called neoliberalism no more than “privatized Keynesianism”. Basically, states used specific strategies to stimulate market growth, rather than allow the market to dictate entirely the results of production and social relations. This encouraged banks and credit lenders to extend credit in order to maximize profits and extend a growth bubble (i.e. internet bubble, housing bubble). The state encouraged institutional and individual debt, which, over time became normalized and ingrained into everyday life. What began in 2008 as a crisis known as the ‘credit crunch’ when the finger of irresponsibility was pointed at the banks facilitating large mortgages, has now been transformed into a ‘financial crisis’ where the blame seems to lie directly with the state. Austerity is deemed both a necessity and a way of redirecting the cause of the crisis so that reckless fiscal spending is seen as the root cause. In this manner, they are able to defuse the need for economic reform to a belief that the crisis was a regrettable yet ultimately a cyclical process of capitalism.2

In 2009 the Tea Party emerged as a response to state intervention in the market – organized protests against the financial bailout that soon expanded to protesting excessive federal regulation of small business and taxation. Tea Party supporters believe the myth that States’ rights offset federal encroachments, while in reality the federal government has been the progressive force in US society, passing voting rights and civil rights acts and other laws regulating the worst excesses of the business community. The mixed reactionary populism of the group quickly took on a neoliberal discourse, opposing new welfare reforms being proposed by the Obama administration, later adding health reform. While promoted as a grass roots movement, many activities of the Tea Party are organized by corporate lobby groups like Freedom Work and Americans for Prosperity. The Tea Party is a new political constituency that supports neoliberalism, funded by corporate billionaires like the Koch brothers.

Puerto Rico has been in a decade long economic tailspin. In 2006, Puerto Rico lost its special tax advantage that encouraged US businesses to locate there. The 2007 financial crisis made investors more wary of investments, especially with increasing Puerto Rico debt. The 2009 recession saw a slow recovery of the tourist season. US tax laws created a tax subsidy for off-shore investments which attracted the attention of New York banks and hedge funds. The Government Development Bank didn’t manage to spend the money they borrowed to accomplish much that was useful in the long-term. In 2010 the Tea Party blocked any attempt by the Obama administration to help with debt restructuring. In addition, the New York bankers and hedge fund lenders did not want to take a hair cut, rather, they wanted an intensive program of austerity and use the money saved to pay the debt owed.3

Only the states of New York and California have more debt that Puerto Rico, and Puerto Rico’s population is shrinking. One of the recommendations to save money coming from the lenders is to cut spending on education, even after Puerto Rico closed 100 schools in 2015. (Note the US national per student spending average is $10,667, and then Puerto Rico’s is only $8,400). The Puerto Rican economy has been in a recession, defined as at least two consecutive periods of declining growth, since 2006. Poverty is an issue – 43.5% of its residents live below the poverty line, more than double that of Louisiana and Mississippi. Then hurricane Maria devastated the island. President Trump sent shivers through the municipal bond market by suggesting that Puerto Rico’s $73 billion debt should be wiped away, but administration officials quickly walked back the remarks, saying they weren’t meant to be taken literally.

Neoliberal austerity policies are the biggest bait and switch in history. The 2008 financial crisis, caused by a financial sector lending too much, led to bank bailouts that increased the public-sector debt. This led to an outcry about public debt, rather than financial sector mismanagement. Because of all this spending, they claimed it is now necessary to introduce more austerity. The basic business model was fundamentally flawed and required a huge implicit state subsidy. On the other hand, they found it much easier to imagine that past minor indiscretions by government were the cause of a full-blown debt crisis. It served a two-fold purpose: (1) distraction from the deficiencies of neoliberalism clearly illustrated from the financial crisis, (2) accelerate or enable a more rapid accomplishment of shrinking the state. It is no coincidence that austerity typically involves cuts in spending rather than higher taxes – it supports neoliberal ideology.

Democracy is in decline because economic inequality is on the rise. The bedrock of democracy is citizens’ political equality despite unequal wealth, and high inequality inevitably erodes the barrier between wealth and political influence. Austerity is the end of democracy because without democratic control of the economy there is no democracy. People buy the argument that things are not working any more. They experience directly the growing inequity, the insecurity, the unfairness. Now people want to hear, boldly and clearly, an authentic message about change that will make a difference. We desire an economic democracy – to turn away from austerity measures and instead choose a path of inclusive growth that delivers better outcomes for people, communities, and the environment. When politicians claim that there is no alternative to austerity, they are choosing to prop up neoliberalism, with its ever-rising inequality and insecurity, rather than choosing a path to economic democracy.4

1 Azar, Riad. (2015) Neoliberalism, Austerity, and Authoritarianism Vol: XV-3

2 Worth. Owen. (2013) Resistance in the Age of Austerity: Nationalism. The Failure of the Left and the Return of God. ISBN 978 1 78032 338 1

3 Isquith, Elias. (29 Jul 2015) The 1 per cent declares war on Puerto Rico: The austerity push that unmasks neoliberalism.

4 Guinan, Joe. (8 Feb 2013) Social democracy must radicalise to survive.

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