Fakeconomics and austerity: how did it happen?

keep-calm-and-join-a-trade-union“The enforcement of fiscal austerity qualifies as the single most important public policy consequence of the abandonment of economics in favour of fakeconomics. Acceptance of austerity by the public in almost every major advanced country is even more perversely impressive than the austerity itself. Anyone born after 1960 must find it hard to believe that once, long ago it seems, the belief in balanced budgets did not drive public finances, nor did governments agonize over and quake in breathless anticipation of the “verdict of financial markets” on their policy decisions.

The overthrow of rigor and common sense in what we once called the economics profession did not cause this seismic shift in the ideology of public policy. We can trace the chronology of causality quite clearly, especially in Britain and the US. The cause lies in the secular decline in trade union influence and the parallel rise in the power of capital. Aneurin (“Nye”) Bevan, tireless Welsh campaigner for the rights of working people, stated the danger succinctly. Unless the working majority organizes to prevent it, “it is an axiom, enforced by the experience of the ages, that they who rule industrially will rule politically.” In the twenty-first century we can replace “industrially” with “financially.”

John F. Weeks (2014), Economics of the 1%

I agree with much of this quote from Weeks’ passionately written popular text. At the same time, one has to recognize that, in comparing the history of union power and influence across Europe, stronger trade unions have had different impacts on political and economic outcomes and the policy responses to them. In the UK, union strength, along with weak management and the lack of a successful industrial policy, eventually led to the rise of Margaret Thatcher and their subsequent decline, which surely contributed to the sharp rise in inequality which took place in the 1980s and after.

In Germany and the countries of Scandinavia, unions have traditionally been relatively strong, but this did not seem to harm economic performance, as they were perhaps less militant and used to cooperating with management and the government in the process of economic restructuring. This inevitably involves jobs being lost in some sectors and jobs being created in others. If this process can be managed successfully, social conflict is less likely, and the disruption created by uneven economic development can be minimized. In short, unions there seem more part of the capitalist system, rather than seeking to replace it.

So stronger unions can be a positive force in society, securing the rights of workers, and helping wages rise with productivity as development takes place. This may be more difficult in times of recession, but these times may also be opportunities for unions to demonstrate their necessity to the achievement of social justice during periods of more severe disruption.

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