Do we have austerity obligations?

Austerity programs were put in place after European governments bailed out their banks. But are they fair on the everyday citizen? Ben Andreas Harding, CC BY-SA

Governments are reining in spending on welfare, education and health care right across the western world. With the Commission of Audit recommending austerity measures that seemingly point to a tough federal budget, Australia appears not to be exempt from this trend. Federal treasurer Joe Hockey’s pronouncement that the “age of entitlement is over” is but another example of this drive towards more austere budget processes.

While they might be needed for the health of the economic system, are they being pursued in a just manner? We should reflect carefully on the distributive consequences of any such cuts and think about how, if required, they might be implemented in as just a manner as is possible.

The most significant recent examples of austerity programs can be found in Europe. The costs incurred there during the global financial crisis led to massive cuts in welfare spending, increased taxes for average income earners and reductions in wages.

Many European governments feared a complete financial meltdown. They bailed out their banks to the tune of billions. In 2012, British prime minister Gordon Brown paid out 45% of his country’s 2008 GNP to shore up the ailing financial sector.

Governments in Europe then embarked on massive cuts to government spending. Keynesian “pump priming” of the economy lasted less than 12 months.

It is difficult for many Australians – insulated by the mining boom and a relatively well-regulated banking sector – to have a real sense of the savagery of these cuts. Just for some indication, public servants in Ireland took a 30% across-the-board pay cut. In parts of southern Europe, more than half of all youth are unemployed.

Close to six years on, it is worth thinking more carefully about the normative justifications given for these austerity packages. Given the way political discourse is typically framed, these measures were naturally described as necessary, but to achieve what valuable ends?

As Aristotle noted long ago, political life is not only about determining the best means to our ends, it’s also about ascertaining what those ends should be.

Probably the dominant form of justification of those programs in public fora was utilitarian: that is, where the focus is on achieving the greatest good for the greatest number. However, as American political philosopher John Rawls observed, this obsession with increasing the size of the cake to be distributed is consistent with the sacrifice of those at the bottom end of society.

One need not be an egalitarian to worry about such outcomes. Rawls’ concern is to ensure the worst off are made better off if there are inequalities. Perhaps, rather than simply focusing on the overall utility produced, this would be a better benchmark for assessing the justice of austerity programs.

When the austerity programs were introduced in Europe, the governments involved appealed to the national interest, in much the same way that governments do in times of war. In a sense, there is a cruel irony here since the ideals of solidarity associated with military obligations sit uncomfortably with the glorification of the pursuit of self-interest.

This, in turn, characterised the discourse of many of those in the financial sector who were responsible for the crisis.

Cuts to wages and services have led to mass protests across European countries such as Portugal. EPA/Manuel de Almeida

Two fundamental philosophical questions concerning post-global financial crisis austerity packages need to be addressed. The first concerns the concept of political obligation. Why should the citizens of democratic countries pay the costs, in terms of reduced services and higher taxes, for the failings of the financial sector?

If that is the case, do we all have austerity obligations? The average citizen was not responsible for the activities of the financial sector. Despite being totally oblivious to them in many cases, the average citizen now pays the cost.

The standard answer here is what is known as the “TINA” response: there is no alternative. Financial experts warned in 2008 that if national governments did not pick up the bill, the financial system would probably collapse.

Assuming such payments are inevitable, a second question naturally arises: how is the burden to be spread? As it stands in Europe, the cuts to wages, services and increases in taxes have affected the poor to a far greater extent than those in the wealthier classes. Policies should have been implemented that aimed to ensure the burden of austerity did not fall on those who could least cope and who had the least involvement.

This has some relevance for Australia. Clearly, we do not presently face a crisis of the kind that Europe did in 2008. But if cuts are required, we should ensure it is not the poorest who are disproportionately affected.