Austerity in the U.K.
Britain discovers that shrinking
government is a lot harder than expanding it.
By Theodore Dalrymple
In Britain, government spending is
now so high, accounting for more than half of the economy, that it is
increasingly difficult to distinguish the private sector from the public. Many
supposedly private companies are as dependent on government largesse as welfare
recipients are, and much of the money with which the government pays them is
borrowed. The nation’s budget deficit in 2010, in the wake of the financial
crisis, was 10.4 percent of GDP, after being 12.5 percent in 2009; even before
the crisis, the country had managed to balance its budget for only three years
out of the previous 30.
Deficits are like smoking: difficult
to give up. They can be cut only at the cost of genuine hardship, for many
people will have become dependent upon them for their livelihood. Hence
withdrawal symptoms are likely to be severe; and hardship is always politically
hazardous to inflict, even when it is a necessary corrective to previous
excess. This is what Britain faces.
For some politicians, running up
deficits is not a problem but a benefit, since doing so creates a population
permanently in thrall to them for the favors by which it lives. The politicians
are thus like drug dealers, profiting from their clientele’s dependence, yet on
a scale incomparably larger. The Swedish Social Democrats understood long ago
that if more than half of the population became economically dependent on
government, either directly or indirectly, no government of any party could
easily change the arrangement. It was not a crude one-party system that the
Social Democrats sought but a one-policy system, and they almost succeeded.
For countries that operate such a
one-policy system, especially as badly as Britain does, economic reality is apt
to administer nasty shocks from time to time, requiring action. When the new
coalition government, led by David Cameron of the Conservatives and Nick Clegg
of the Liberal Democrats, came into power last year, the economic situation was
cataclysmic. The budget deficit was vast; the country had a large trade
deficit; the population was among the most heavily indebted in the world; and
the savings rate was nil. Room for maneuver was therefore extremely limited.
The previous years of fool’s
gold—asset inflation brought by easy credit—had allowed the Labour government
to expand public spending enormously without damaging apparent prosperity.
Labour’s Gordon Brown, chancellor of the exchequer from 1997 to 2007 and then
prime minister for three years, boasted that he had found the elixir of growth:
his boom, unlike all others in history, would not be followed by bust. During
Brown’s years in office, however, three-quarters of Britain’s new employment
was in the public sector, a fifth of it in the National Health Service alone.
Educational and health-care spending skyrocketed. The economy of many areas of
the country grew so dependent on public expenditure that they became like the
Soviet Union with supermarkets.
Britain was living on borrowed
money, consuming today what it would have to pay for tomorrow, the day after
tomorrow, and the day after that; the national debt increased at a rate
unmatched in peacetime; and when the music stopped, the state found itself
holding unprecedented obligations, with no means of paying them. Without
aggressive reforms, it was clear, Britain would soon have to default on its
debt or debauch its currency. Both alternatives were fraught with dire
consequences.
In the end, the new government chose
to attack the deficit from both ends: by cutting spending and by increasing
taxes. As many commentators noted, this approach risked a reduction of
aggregate demand so great that short-term growth would be impossible and a prolonged
recession, even depression, would be probable. Domestic demand would plummet,
and export-led growth, many feared, would not be able to rescue the economy,
for two reasons: first, Britain’s industry was so debilitated that its
competitiveness in sophisticated markets could not be restored from one day to
the next by, say, a favorable change in the exchange rate; and second, the
country’s traditional export markets were experiencing difficulties of their
own.
But the general economic argument
was not what fueled the fierce intellectual and street protests that in recent
months have opposed the government’s efforts to reduce the deficit—efforts so
far more symbolic than real, for state borrowing requirements have only
increased since the coalition’s arrival in power. Nor were the protests
directed against the tax increases. Since the end of World War II, the British
have grown accustomed to the idea that the money in their pockets is what the
government graciously consents to leave them after it has taken its share. When
(as rarely happens) the chancellor of the exchequer reduces a tax instead of
increasing it, even conservative newspapers say that he has “given money away,”
as if all money came from him in the first place. The wealth is the
government’s and the fullness thereof: where such a belief is prevalent, no tax
increase will seem either illegitimate or oppressive.
What did provoke the furious
opposition was the government’s proposals to reduce spending in such areas as
education and health care, as well as its plan to increase tuition at public
universities. Hundreds of thousands of demonstrators, disproportionately
consisting of public workers and students, gathered on London’s streets. One
demonstrator, Charlie Gilmour, became famous. The adopted son of the lead
guitarist of Pink Floyd, with a personal fortune estimated at $160 million, he
was the very image of the caviar anarchist. Dressed expensively in black and
booted to match, his dark locks flowing poetically behind him, he stomped the
roofs of cars and stormed the Cenotaph, the most important war memorial in the
country. Later, he claimed not to have realized what it was, though he was a
student—of history, no less—at Cambridge, and you would need to be either
illiterate or virtually blind to miss the words our glorious dead inscribed on
it. His contrition and appearance in court in a suit and tie, in an attempt to
avoid a prison sentence, afforded the nation some light relief in these most
difficult times.
The student demonstrators were right
to be angry, but their anger was misdirected. They were merely protesting the
prospect of paying for their education, which would force upon them or their
parents the difficult but important question of whether the university
education that they received was worth the debt that they would incur to pay
for it. How easy it is to proceed to college without having to consider such
sordid matters, or make such difficult calculations, because the state—that is
to say, the taxpayer—subsidizes you!
In fact, British young people have
been subjected to a gross deception, which, if they recognized it, would make
them far angrier than the demonstrators were. The previous government decreed
that 50 percent of British youth should attend university, irrespective of students’
educational attainment or of the economy’s capacity to make use of so many
graduates. In so doing, it doubled state expenditure on education in only eight
years. This centralized planning had a predictable effect: the standard of
university teaching and education fell significantly, as did the value of the
average degree. While the number of graduates expanded, employers complained
that young Britons were increasingly unable to write a simple sentence properly
or do basic arithmetic.
For the students, however, the
connotation of university education lagged behind its denotation: in other
words, though education declined in quality, students felt entitled to the same
advantages that had accrued to graduates back when education was better.
Graduates grumbled about the lowly positions that they had to take after
college, which people who had not gone to college would once have
satisfactorily filled. It was perhaps unsurprising, then, that students,
suddenly asked to fund their delayed maturation for themselves, should explode
in wrath. They saw the reform not as an attempt to align education with the
needs and capacities of the real economy—by making students question the value
of education and by encouraging universities to offer something of real value—but
as a means of restricting access to education to the rich; this despite the
fact that the total loan necessary to obtain a university education, supposedly
an advantage for life, would still be a fraction of an average mortgage.
The biggest demonstration against
the government’s proposals was on March 26. A quarter of a million people took
to the streets—in solidarity with themselves. Many were teachers protesting the
proposed cuts in education spending. Yet after a compulsory education lasting
11 years and costing, on average, $100,000 per pupil, about a fifth of British
students who do not attend college after high school are barely able to read
and write, according to a recent study from Sheffield University. Considering
the disastrous personal consequences of being illiterate in a modern society,
this is a gargantuan scandal, amounting to large-scale theft by the educational
authorities. No anarchist ever smashed a window because of this scandal,
however; and so it is impossible to resist the conclusion that the
demonstration was in defense of unearned salaries, not (as alleged) of actual
services worth defending.
Protesters were also agitating
against proposed cuts to the National Health Service. The cumulative increase
in spending on the NHS from 1997 to 2007 was equal to about a third of the
national debt. After all this spending, Britain remains what it has long been:
by far the most unpleasant country in Western Europe in which to be ill,
especially if one is poor. Not coincidentally, Britain’s health-care system is
still the most centralized, the most Soviet-like, in the Western world. Our
rates of postoperative infection are the highest in Europe, our cancer survival
rates the lowest; the neglect of elderly hospital patients is so common as to
be practically routine. One has the impression that even if we devoted our
entire GDP to the NHS, old people would still be left to dehydrate in the
hospitals.
From 1997 to 2007, the number of
people employed by the NHS rose by a third, with the number of doctors employed
by it doubling and overall remuneration for personnel increasing by 50 percent
per head. Yet it became ever more difficult for patients to see the same doctor
twice, even during a single hospital admission; the standard of medical
training declined, according to 99 percent of surgeons in training, while
senior surgeons admitted that they wouldn’t want their trainees operating on
them; and a government inquiry found that productivity in the NHS—admittedly,
not easy to measure—had declined markedly.
Wherever one looks into the expanded
public sector, one finds the same thing: a tremendous rise in salaries,
pensions, and perquisites for those working in it. In Manchester, for example,
the number of city employees earning more than $85,000 a year rose from 68 to
1,746 between 1997 and 2007. In effect, a large public service nomenklatura was
created, whose purpose, or at least effect, was to establish an immense network
of patronage and reciprocal obligation: a network easy to install but hard to
dislodge, since those charged with removing it would be the very people who
benefited most from it.
One of the Labour government’s gifts
to public employees was overly generous pensions. While Gordon Brown raised
taxes on pensions funded by private savings, he increased pensions for
public-sector workers. In many cases, these government pensions, if they had
not been paid for with current tax receipts and (to a growing extent)
borrowing, would have required funds of millions of dollars to support. In
other words, Brown was Bernard Madoff with powers of taxation. I leave it to
readers to decide whether that makes him better or worse than Madoff.
The press usually defends the public
sector, viewing it as an expression of the general will and a manifestation of
a rationally planned society, manned by selfless workers. It was thus quick to
warn of the direst possible consequences of Cameron and Clegg’s austerity
measures: school overcrowding, unnecessary deaths in hospitals, fewer or no social
services. The streets would run with blood; mass poverty would return.
Unfortunately, it does not follow
from the existence of immense waste in the public sector that budget cuts will
target that waste. After all, most of the excess is in wages, precisely the
element of government spending that those in charge of proposed reductions will
be most anxious to preserve. It is therefore in their interest that any budget
reduction should affect disproportionately the service that it is their purpose
to provide: cases of hardship will then result, the media will take them up,
and the public will blame them on the spending cuts and force the government to
return to the status quo ante. Another advantage of cutting services rather
than waste, from the perspective of the public employee, is that it makes it
appear that the budget was previously a model of economy, already pared to the
bone.
I have seen it all before, whenever
cuts became necessary in the NHS budget, as periodically they did. Wards
closed, but the savings achieved were minimal because labor legislation
required the staff—the major cost of the system—to be retained. Surgical
operations were likewise canceled, though again, the staff was kept on. To
effect any savings in this manner, it was necessary for the system to become
more and more inefficient and unproductive. It was as if the bureaucracy had
reversed the cry of the people at the beginning of Lewis Carroll’s Sylvie and
Bruno, “More bread! Less taxes!,” replacing it with “More taxes! Less bread!”
So it is not surprising that the
Guardian, which one could almost call the public-sector workers’ mouthpiece,
has reported that hospital emergency departments are already feeling the
budgetary pressure and risk being overwhelmed, even before the cuts have been
implemented in full. Meanwhile, one can still find plenty of bureaucratic jobs
advertised in the Health Service Journal, the publication for nonmedical
employees of the NHS. One hospital seeks an Associate Director of Equality,
Diversity, and Human Rights; another is looking for an interim Deputy Director
of Operations and Transformation. Part of the “transformation” in that case
seems to be a reduction in the hospital’s budget, and it is instructive that
the person who will be second in command of that reduction will be paid between
$1,000 and $1,300 per day.
The legacy of Britain’s previous
government, which expanded the public sector incontinently, is thus an almost
Marxian conflict of classes, not between the haves and have-nots (for many of the
people in the public service are now well-heeled indeed) but between those who
pay taxes and those who consume them.
In this conflict, one side is bound
to be more militant and ruthless than the other, since taxes are increased
incrementally—and everyone is already accustomed to them, anyway—but jobs are
lost instantaneously and catastrophically, with the direst personal
consequences. Thus those who oppose tax increases and favor government
retrenchment will seldom behave as aggressively as those who will suffer
personally from budget reductions. Moreover, when, as in Britain, entire areas
have lived on government charity for many years—with millions dependent on it
for virtually every mouthful of food, every scrap of clothing, every moment of
distraction by television—common humanity dictates care in altering the system.
The extreme difficulty of reducing subventions once they have been granted
should serve as a warning against instituting them in the first place, but in
Britain, it appears, it never will. We seem caught in an eternal cycle, in
which a period of government overspending and intervention leads to economic
crisis and hence to a period of austerity, which, once it is over, is replaced
by a new period of government overspending and intervention, promoted by
politicians, half-charlatan and half-self-deluded, who promise the electorate
the sun, moon, and stars.
When our new government came into
power—after a period in opposition during which, fearing unpopularity, it
failed to explain the real fiscal situation to the electorate—there was broad,
if reluctant, acceptance that something unpleasant had to be done; otherwise,
Britain would soon be like Greece without the sunshine. But the acceptance was
on narrow grounds only, and this is worrying because it implies that we are far
from liberating ourselves from the binge-followed-by-austerity cycle. A large
part of the public still views the state as the provider of first resort, which
means that the public will remain what it now is: the servant of its public
servants.
As soon as the crisis is over,
though this may not be for some time, the politicians are likely again to offer
the public security and excitement, wealth and leisure, education and
distraction, capital accumulation without the need to save, health and safety,
happiness and antidepressants, and all the other desiderata of human existence.
The public will believe the politicians because—to adapt slightly the great
dictum of Louis Pasteur—impossible political promises are believed only by the
prepared mind. And our minds have been prepared for a long time, since the time
of the Fabians at least.
