So the IMF today is joining the chorus, just as it did in 1976, to force Britain into wholesale cuts in public expenditure in order to reduce the swollen budget deficit. The whole election scenario over the next 8 months is now becoming dominated by the obsession with public sector cuts. The Tories have made clear they’ll clobber public services and shrink the State. The LibDems as usual have their feet firmly planted in mid air, but they’ve now come down to earth with Clegg’s ‘savage cuts’. The Government is now trumpeting that they have a plan to halve the deficit over 4 years – that means cuts of no less than £80-100bn, roughly one-sixth of total Government expenditure. And now the IMF, which has of course always been an advocate of the increasing privatisation of health services in the UK, is demanding cuts in public healthcare and public pensions. Not for the first time, all the political parties and the international supervisory institutions are united in the wrong policies against the interests of the British people. So what’s the alternative?

There are basically two ways to counter a recession which reduces government revenues because of rising unemployment and increases government expenditure on benefits for the unemployed (the so-called ‘automatic stabilisers’), thus ballooning the budget deficit. One is to tackle the supply side of the equation by cutting back drastically on other government expenditures across the board. The other is to tackle the demand side of the equation by initially spending more, not less, to put in place massive public investment programmes across the economy to get a large (and steadily increasing) proportion of the unemployed back into work. The first was the balanced budget approach followed ruthlessly by the Bank of England under Montague Norman in the infamous 1930s, an economic coup that derailed the Labour Government in 1931. The second is the Keynesian approach adopted by Roosevelt in his 1933 New Deal and increasingly followed by Western Governments after the Second World War, until discarded by theThatcher-Reagan neo-liberal counter-revolution of the 1980s – the capitalist model of market fundamentalism that is now bust.
The second policy is unquestionably right, for several reasons. At the most basic political level, people are asking why should the public sector, which contains many of the poorest workers in the country, have to take any hits at all when the credit crunch crisis has been caused exclusively by the bankers and the super-rich? But there is a deeper and far more profound reason too. If the real economy (as opposed to animal spirits in the City of London) is still sinking as revealed by the continuing rise in joblessness, bankruptcies and repossessions, thus steadily continuing to reduce the overall level of demand throughout the economy, then further massive cuts in public cuts in public expenditure will simply turn a bad recession into a deep slump.
What we need is a huge public investment programme in job creation in housing and infrastructure, manufacturing, energy conservation, skills training, public services (including social care of the elderly), and the greening of industry. That will turn around the budget deficit fqr faster and more effectively than hugely painful cuts in public services. How do we pay for it? Partly, now that the City is back to business as usual in pay and bonuses and colossal profiteering, by clawing back a large part of the £60bn of taxpayers’ money spent on bailing them out. But also, yes, by cutting public expenditure where it is ineffective, wasteful and unnecessary. That’s why we should cut the £100bn Trident renewal programme which even the Chiefs of Staff now admit is irrelevant, and the £10bn+ ID cards which are not ‘fit for purpose’, and the vast Government IT databases which are costing tens of billions of pounds and leak all the time. And why not a real crackdown on all the hyper-rich who squirrel away £25bn a year into tax havens every year? That’s the policy the country wants, and it would put Labour too back in contention to win the election.

Bookmark to: