The Class Logic Behind Austerity Policies In the Euro-Area
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- Published on Sunday, 31 May 2015 22:15
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A Socialist Project e-bulletin .... No. 1124 .... June 1, 2015
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The Class Logic Behind Austerity Policies In the Euro-Area:
Can SYRIZA Put Forward a Progressive Alternative?
John Milios
1. The Nexus of Economic Crisis and Austerity
1.1 Austerity as a cost saving capitalist strategy
After the outbreak of the 2008 global economic crisis, extreme austerity policies prevailed in many parts of the developed capitalist world, especially in the European Union (EU) and the Euro-area (EA). Austerity has been criticized as an irrational policy, which further deteriorates the economic crisis by creating a vicious cycle of falling effective demand, recession and over-indebtedness. However, these criticisms can hardly explain why this ‘irrational’ or ‘wrong’ policy persists, despite its ‘failures’.
In reality, economic crises express themselves not only in a lack of effective demand, but above... all in a reduction of profitability of the capitalist class. Austerity constitutes a strategy for raising capital's profit rate.
Austerity constitutes the cornerstone of neoliberal policies. On the surface, it works as a strategy of reducing entrepreneurial cost. Austerity reduces labour costs of the private sector, increases profit per (labour) unit cost and thus boosts the profit rate. It is complemented by economizing in the use of "material capital" (alas, another demand curtailing strategy!); and also by institutional changes that, on the one hand, enhance capital mobility and competition and, on the other, strengthen the power of managers in the enterprise and share and bondholders in society. As regards fiscal consolidation, austerity gives priority to budget cuts over public revenue, reducing taxes on capital and high incomes, and downsizing the welfare state.