tag:theconversation.com,2011:/global/topics/fiscal-austerity-9290/articlesFiscal austerity – The Conversation2021-09-16T14:20:11Ztag:theconversation.com,2011:article/1674092021-09-16T14:20:11Z2021-09-16T14:20:11ZMaking economic policy in South Africa in hard times: the role of human rights<figure><img src="https://images.theconversation.com/files/419798/original/file-20210907-20-1vtm54n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Residents of Masiphumelele informal settlement in Cape Town gather to collect food parcels provided by One South Africa Movement representative. </span> <span class="attribution"><span class="source">EFE-EPA/Nic Bothma</span></span></figcaption></figure><p>The role that human rights should play in South Africa’s economic policy has been the subject of <a href="https://www.dailymaverick.co.za/article/2020-10-20-threading-the-budget-through-the-eye-of-the-constitutional-needle/">intense controversy and debate</a> over the past year. This, after the finance ministry announced spending cuts in its <a href="http://www.treasury.gov.za/documents/mtbps/2020/mtbps/FullMTBPS.pdf">Medium-Term Budget Policy Statement</a> while the COVID-19 pandemic was ravaging lives and livelihoods.</p>
<p>The statement sets out government’s policy framework for the upcoming budget and its macro-economic plans and goals for the next three years.</p>
<p>The plan is to slash government expenditure over three financial years, from 2021, by R300 billion (about US$21 billion). This will severely affect budgets for education, healthcare, land reform and <a href="https://www.businesslive.co.za/bd/opinion/columnists/2020-10-28-carol-paton-tito-mboweni-budget-lights-fires-of-discontent/">other social services</a>. </p>
<p>The government said the cuts were needed to prevent a “debt spiral” – borrowing money to meet its commitments. Because South Africa has a <a href="http://www.worldgovernmentbonds.com/credit-rating/south-africa/">sub-investment grade rating</a>, it must pay higher interest on new debt. In addition, <a href="http://www.statssa.gov.za/?p=14074">GDP had declined by 7% in 2020</a> due to the impact of COVID-19 on the already struggling economy.</p>
<p>Economists and civil society <a href="https://www.iej.org.za/submission-by-the-budget-justice-coalition-in-response-to-2020-medium-term-budget/">criticised</a> the plan. They argued that it undermined access to socio-economic rights for many disadvantaged groups. Instead, government should explore other options for mobilising resources.</p>
<p><a href="https://www.sahrc.org.za/index.php/sahrc-media/news/item/1262-15-basic-human-rights-you-should-know">Socio-economic rights</a> are set out in the bill of rights. They include access to land and housing, healthcare, food and water, social security and education.</p>
<h2>The doctrine of non-retrogression</h2>
<p>This controversy raises the question of what role human rights should play in economic policy, particularly in challenging economic times. What should guide the weighing of the costs and benefits of different spending priorities? </p>
<p>It is becoming increasingly clear that policymakers can no longer ignore the country’s obligations in terms of <a href="https://www.ohchr.org/en/professionalinterest/pages/internationallaw.aspx">international</a>, <a href="https://www.achpr.org/legalinstruments/detail?id=49">regional</a> and <a href="https://www.gov.za/documents/constitution/chapter-2-bill-rights">national</a> human rights law. </p>
<p>My <a href="https://www.tandfonline.com/doi/full/10.1080/02587203.2021.1972331">new article</a> in the <a href="https://www.wits.ac.za/sajhr/">South African Journal on Human Rights</a> explores the relevance of the doctrine of “<a href="https://academic.oup.com/hrlr/article-abstract/19/3/467/5618868">non-retrogression</a>” to economic policy decisions that imperil socio-economic rights.</p>
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Read more:
<a href="https://theconversation.com/why-human-rights-should-guide-responses-to-the-global-pandemic-147225">Why human rights should guide responses to the global pandemic</a>
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<p>Global human rights bodies developed the doctrine as a tool to evaluate policies which result in a deterioration in the enjoyment of these rights. The doctrine requires states to justify such policies according to certain criteria. </p>
<h2>Austerity measures and human rights</h2>
<p>In my article, I explore the key features of the doctrine of non-retrogression. I look at whether it can be applied to fiscal consolidation and whether it has been applied in any South African court decisions.</p>
<p>The main finding is that the doctrine forms part of the country’s jurisprudence on socio-economic rights. It should thus guide economic policy and budgetary decisions, to ensure they reflect human rights principles and priorities. </p>
<p>That would help government defend its decisions before international human rights bodies or in domestic courts. </p>
<p>In 2018 the <a href="https://www.ohchr.org/en/hrbodies/cescr/pages/cescrindex.aspx">United Nations Committee on Economic Social and Culture Rights</a> criticised the economic policy decisions of the South African government. This committee monitors compliance by states with their obligations under <a href="https://www.ohchr.org/en/professionalinterest/pages/cescr.aspx">the International Covenant on Economic, Social and Cultural Rights</a>. The committee <a href="https://tbinternet.ohchr.org/_layouts/15/treatybodyexternal/Download.aspx?symbolno=E%2fC.12%2fZAF%2fCO%2f1&Lang=en">said</a> the country’s “austerity measures” had cut budgets in health, education and other public services. It expressed concern that the cuts would worsen inequalities and reverse gains made.</p>
<p>The UN body cited its non-retrogression doctrine and recommended that both the executive and legislature take human rights into account when deciding the budget. </p>
<p>It refined key elements of this doctrine in response to the austerity measures adopted during the global financial crisis of <a href="https://link.springer.com/chapter/10.1007/978-3-319-47021-4_39">2008-2009</a>. Since then, states have had to show that certain <a href="https://tbinternet.ohchr.org/_layouts/15/treatybodyexternal/Download.aspx?symbolno=E%2fC.12%2f2016%2f1&Lang=en">criteria</a> have been met. </p>
<p>They must show that:</p>
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<li><p>retrogressive measures are adopted only as a last resort</p></li>
<li><p>alternatives were comprehensively examined</p></li>
<li><p>those who are disadvantaged and vulnerable will not be adversely affected</p></li>
<li><p>social protection programmes are in place so that people’s essential basic needs are not compromised </p></li>
<li><p>there was genuine public participation in relevant decisions.</p></li>
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<h2>Courts and the doctrine of non-retrogression</h2>
<p>This retrogressive measures doctrine is receiving increased attention in South African courts. For example, the North Gauteng High Court relied on it in its <a href="http://www.saflii.org/cgi-bin/disp.pl?file=za/cases/ZAGPPHC/2020/306.html&query=Equal%20Education%20v%20Minister%20of%20Basic%20Education">judgment</a> on the suspension of the <a href="https://www.gov.za/faq/education/what-national-school-nutrition-programme-nsnp">National School Nutrition Programme</a> during the lockdown last year. The court said the suspension violated children’s right to basic education and basic nutrition. It ordered the government to develop a plan to ensure that every learner received a daily school meal – regardless of whether they were attending school or studying from home.</p>
<p>The doctrine was also cited in <a href="http://www.saflii.org/za/cases/ZAGPPHC/2020/794.pdf">another judgment</a> in which the court found that the withdrawal of government subsidies for providers of early childhood education was unconstitutional.</p>
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Read more:
<a href="https://theconversation.com/successes-of-african-human-rights-court-undermined-by-resistance-from-states-166454">Successes of African Human Rights Court undermined by resistance from states</a>
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<p>The Constitutional Court has <a href="http://www.saflii.org/za/cases/ZACC/2000/19.pdf#page=30">previously ruled</a> that courts must take the availability of resources into account in judging whether government has taken reasonable measures to meet its socio-economic rights duties. <a href="http://www.saflii.org/cgi-bin/disp.pl?file=za/cases/ZACC/2004/20.html&query=Rail%20Commuter%20Action%20Group%20v%20Metrorail">It has also said</a> that the government must show that its resource allocation decisions considered human rights.</p>
<p>For example, <a href="http://www.saflii.org/cgi-bin/disp.pl?file=za/cases/ZACC/2011/40.html&query=City%20of%20Johannesburg%20v%20Blue%20Moonlight%20Properties">the court has said</a> that organs of state cannot rely on the excuse that they have failed to plan and budget appropriately for the fulfilment of their constitutional duties. </p>
<p>Courts should ideally not intervene directly in matters of economic policy and spending priorities. It is primarily the responsibility of the executive and legislature to ensure that budgetary decisions take human rights into account. But, when they fail to do so, courts have a constitutional responsibility to protect these constitutional rights.</p>
<h2>Public participation</h2>
<p>How should the executive and legislature ensure that human rights are taken into account in economic policy decisions?</p>
<p>One way is to conduct human rights impact assessments before undertaking economic reforms, as <a href="https://www.ohchr.org/Documents/Issues/IEDebt/GuidePrinciples_EN.pdf">recommended by the UN</a>. Another is creating a policy framework for thorough public participation in economic policy and budgetary decisions.</p>
<p>Public participation is vital as it can highlight the impact of policies on vulnerable and disadvantaged groups. It can also suggest ways of avoiding or mitigating such impacts.</p>
<p>The <a href="https://www.internationalbudget.org/open-budget-survey/country-results/2019/south-africa">2019 Open Budget survey</a> ranked South Africa highly in terms of the transparency of its budget process, but lowest in terms of public participation. <a href="https://www.dailymaverick.co.za/article/2021-05-25-the-farce-of-public-participation-in-budgetary-processes-and-how-to-fix-it/">Civil society organisations</a> have complained that the budgetary process is inaccessible to poor communities. They say it does not provide meaningful opportunities for engagement.</p>
<p>Without resources, human rights are no more than words on paper. South Africa needs a proper policy and legislative framework for ensuring that human rights principles guide economic decision-making, particularly in hard times.</p><img src="https://counter.theconversation.com/content/167409/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sandra Liebenberg previously received funding from the National Research Foundation and was former member and Vice-Chair of the UN Committee on Economic, Social and Cultural Rights.</span></em></p>It is becoming increasingly clear that South Africa’s policymakers can no longer ignore the country’s obligations in terms of international, regional and national human rights law.Sandra Liebenberg, Distinguished Professor and H F Oppenheimer Chair in Human Rights Law, Stellenbosch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/922232018-02-21T16:55:44Z2018-02-21T16:55:44ZNo more mercy for bad behaviour at South Africa’s state owned companies<figure><img src="https://images.theconversation.com/files/207312/original/file-20180221-132680-xnoxi4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's Finance Minister Malusi Gigaba arrives to deliver his budget address.</span> <span class="attribution"><span class="source">Reuters/Mike Hutchings</span></span></figcaption></figure><p><em>South Africa’s <a href="http://www.treasury.gov.za/documents/national%20budget/2018/">2018 national budget</a> was presented amid growing concern about the financial sustainability of key state owned enterprises such as the power utility Eskom and South African Airways. Sibonelo Radebe asked Misheck Mutize and Sean Gossel to set out what the budget means for them.</em></p>
<p><strong>What is your general impression of the budget speech?</strong></p>
<p>Coming on the back of the <a href="https://theconversation.com/why-ramaphosas-moment-of-hope-is-built-on-a-fragile-foundation-92043">state of the nation address</a> presented by the new President Cyril Ramaphosa, the 2018 national budget has renewed hope about the future of the country’s economy. Combined with the pledge by Ramaphosa to root out the ills bedevilling state owned enterprises, there is optimism that South Africa’s economy is turning the corner.</p>
<p>There were signs of the rebound from the numbers presented by the minister – even though there’s still huge weakness in the economy. Last year’s economic growth projection has been revised, up from 0.7% to 1% and growth in 2018 is projected at 1.5% rising to 2.1% 2020. Of course the country needs much more robust growth than this. The hope is that things will improve with the interventions promised by the new president.</p>
<p>It was a tough budget, especially for the poor. But the tax hikes and other measures are necessary given the need to narrow a R42 billion revenue shortfall, which was widened by the need for a funding solution for fee free higher education. </p>
<p>Overall the budget presented a solid step towards arresting the fiscal deficit and stabilising government debt. Fiscal prudence is painful. But it’s necessary to save the country from further downgrades, and from sliding deeper into debt. </p>
<p><strong>What do you think about the treatment of state owned enterprises?</strong></p>
<p>Finance minister Malusi Gigaba underscored the commitment to dealing with patronage, corruption and incompetence in state owned enterprises. (This is rather <a href="https://www.news24.com/SouthAfrica/News/is-gigaba-mr-state-capture-20170528-2">ironic</a> as he has been fingered as one of the architects of state capture as the opposition vocally pointed out before the speech got underway). Nevertheless, this must be commended. The looting and mismanagement has caused a great deal of damage to the economy as well as business confidence.</p>
<p>The message is that there will be no mercy for misbehaviour in this space. Time has also run out for those who justified mediocrity in parastatals. Gigaba’s statement that state-owned companies are expected to fund their own operations must also be welcomed. Although similar calls have been made in the past, this time there may be political will.</p>
<p>This means that the government’s limited resources can now be allocated to other more important things. Hopefully the emphasis will shift towards finding long-term solutions to the country’s ills. </p>
<p><strong>What must happen to get state owned enterprises right?</strong></p>
<p>It is refreshing that the new president has indicated his commitment to appointing qualified and experienced people to lead state owned enterprises. This is a welcome substitute for the disastrous policy of cadre deployment – the practice of appointing people to state owned enterprises largely for their political connections.</p>
<p>But it’s also time the government actively reconsidered its interest in state owned enterprises. The cost of maintaining ownership has become too high. Over the past 24 years state owned monopolies have been the site of gross inefficiencies and high social costs which in turn have hampered the economy’s performance. The time is ripe for the government to begin unpacking monoliths such as Eskom, Transnet and the Passenger Rail Agency of South Africa in preparation for partial privatisation or public listings on the stock exchange. </p>
<p>The options would be to either partially privatise the entities, or to open up the space for private players to buy equity stakes. Government might in fact be considering these options given Gigaba’s comment that: </p>
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<p>In the coming year, government may be required to provide financial support to several state owned enterprises which could be done through a combination of disposing of non-core assets, strategic equity partners, or direct capital injections.</p>
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<p>It is good that the minister mentioned these refinancing options. But there’s still talk of government support and guarantees for several state owned enterprises. </p>
<p><strong>What general advice would you give to the new administration following this budget?</strong></p>
<p>As the government goes about meeting the spending cuts it announced (by R85.7 billion) over the next three years and increasing revenue by R36 billion this year, it urgently needs to wean state owned enterprises from the fiscus. Opening the public sector to participation by private players would be the optimal way to go about this. </p>
<p>Allowing these enterprises to continue operating as monopolies in key sectors will simply allow inefficiencies and market distortions to continue. We would argue that the unions and politicians that have campaigned against privatisation have exaggerated the negative impact on the poor. <a href="https://hbr.org/1991/11/does-privatization-serve-the-public-interest">Evidence</a> from other countries suggests that introducing private ownership doesn’t necessarily lead to massive job losses nor expensive services. </p>
<p>The new administration should depoliticise the issue and face the reality that state owned enterprises need an immediate and realistic response to save both the economy and the fiscus. Without that, the government will not be able to wean them from guarantees and bailouts, and their failure will be eminent.</p>
<p>We would also urge the government to follow up on the promise to hold corrupt public servants to account and to ensure tender processes aren’t abused by closing loopholes in public procurement.</p><img src="https://counter.theconversation.com/content/92223/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sean Gossel receives funding from the University of Cape Town.</span></em></p><p class="fine-print"><em><span>Misheck Mutize does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>South Africa’s 2018 national budget makes it clear that the slumber and corruption that has hampered state owned enterprises must come to an end.Sean Gossel, Senior Lecturer, UCT Graduate School of Business, University of Cape TownMisheck Mutize, Lecturer of Finance and Doctor of Philosophy Candidate, Graduate School of Business (GSB), University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/807852017-07-31T21:30:57Z2017-07-31T21:30:57ZIs Congress’ plan to save Puerto Rico working?<figure><img src="https://images.theconversation.com/files/180397/original/file-20170731-22126-nju9vc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Puerto Ricans are increasingly fed up with austerity. </span> <span class="attribution"><span class="source">AP Photo/Danica Coto</span></span></figcaption></figure><p>A year ago, Congress <a href="https://www.congress.gov/bill/114th-congress/house-bill/5278/text">cobbled together a plan</a> to try to save Puerto Rico from its US$123 billion debt and pension crisis without costing American taxpayers a penny. </p>
<p>The law, signed by former President Barack Obama on June 30, 2016, effectively steered Puerto Rico into bankruptcy-like proceedings in federal court to prevent a massive default, while saddling the commmonwealth with an oversight board to ensure it put its fiscal house in order.</p>
<p>Though the vote was bipartisan, critics called it a “Band-Aid” that would do little to solve Puerto Rico’s core problems: unsustainable debt that has kept the country mired in recession for almost a dozen years. As Democratic Sen. Bob Menendez, the plan’s fiercest foe, put it: </p>
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<p>“Mark my words: if we don’t seize this opportunity to address this crisis in a meaningful way, we’ll be right back here in a year from now picking up the pieces.”</p>
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<p>So a year later, have his words proven prescient? Or has the law – known by the acronym PROMESA – lived up to <a href="https://juntasupervision.pr.gov/index.php/en/home/">its promise</a> to “create the necessary foundation for economic growth and to restore opportunity to the people of Puerto Rico”?</p>
<p>The <a href="https://juntasupervision.pr.gov/index.php/en/home/">Financial Oversight and Management Board</a> that Congress established to manage Puerto Rico’s finances released its first progress report on July 31. At Hunter College’s Center for Puerto Rican Studies, we’ve also been <a href="https://centropr.hunter.cuny.edu/education/puerto-rico-crisis-timeline">keeping score</a>, as well as tracking the <a href="https://centropr.hunter.cuny.edu/events-news/events/conferences/puerto-ricopuerto-ricans/diaspora-summit/unfolding-humanitarian">human side of the crisis</a>. </p>
<h2>Out of options</h2>
<p>Before Congress passed the <a href="https://www.congress.gov/bill/114th-congress/house-bill/5278/text">Puerto Rico Oversight, Management and Economic Stability Act</a> (PROMESA), the Caribbean island – located about 1,000 miles southeast of Miami – had run out of options. </p>
<p>The end of a <a href="https://www.law.cornell.edu/uscode/text/26/936">federal tax exemption</a> for U.S. companies to build factories in Puerto Rico <a href="https://taxfoundation.org/tax-policy-helped-create-puerto-rico-s-fiscal-crisis/">precipitated the crisis</a>, while the global financial meltdown in 2008 made it a <a href="https://theconversation.com/puerto-ricos-long-fall-from-shining-star-to-the-greece-of-the-caribbean-43097">whole lot worse</a>. Shut out of the credit markets after its debt <a href="http://www.reuters.com/article/munis-puertorico-ratings-idUSL2N0LC1F820140207">was downgraded</a> to “junk,” a government default loomed.</p>
<p>While U.S. municipalities can declare bankruptcy via <a href="http://www.investopedia.com/terms/c/chapter9.asp">Chapter 9</a>, <a href="https://www.bloomberg.com/view/articles/2015-07-08/puerto-rico-s-colonial-power-struggle">Congress in 1984 excluded Puerto Rico</a> from seeking its relief for reasons that still <a href="https://www.bloomberg.com/view/articles/2015-12-03/bankruptcy-was-option-for-puerto-rico-before-congress-goof">elude most analysts</a>, including me.</p>
<p>But with PROMESA, Puerto Rico got the breathing room for debt restructuring it so desperately needed. To judge the law’s effectiveness, however, we must determine how far it’s come in resolving the commonwealth’s three key problems: too much debt, a budget that bleeds red and – most importantly – jump-starting a battered economy. </p>
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<h2>A mountain of debt</h2>
<p>One of the primary goals of PROMESA was to steer negotiations with creditors and eventually lead to a restructuring of $74 billion in <a href="http://www.aafaf.pr.gov/assets/planfiscal13demarzo2017.pdf">crushing debt</a> and $49 billion in <a href="http://www.reuters.com/article/us-puertorico-debt-budget-idUSKBN18R3C8">unfunded pension obligations</a>. </p>
<p>In May, Puerto Rico formally <a href="https://www.nytimes.com/2017/05/03/business/dealbook/puerto-rico-debt.html?_r=0">filed for bankruptcy</a> under the special court process PROMESA created, the first time a U.S. state or territory has done so. This will allow the island to significantly reduce how much it must pay its creditors – such as mutual funds, hedge funds and individual Puerto Ricans and Americans – and retirees to whom it owes pensions. Ultimately, a New York federal judge will determine who gets what. </p>
<p>Puerto Rico will also have to <a href="http://www.reuters.com/article/us-puertorico-debt-lawsuit-idUSKBN17Y0G3">fend off several lawsuits</a> filed by creditors and bond insurers, some of which allege the debt-cutting plans violate the U.S. Constitution.</p>
<p>The seven-member Financial Oversight and Management Board should be commended for being sensible toward the need to restructure the island’s unsustainable debt levels. That process, so far, is working as intended but is far from conclusive.</p>
<h2>Balancing the budget</h2>
<p>That brings us to fiscal policy and the budget. </p>
<p>In October 2016, the Financial Oversight and Management Board <a href="http://www.reuters.com/article/us-puertorico-oversight-deficit-idUSKBN1491ZB">revealed</a> that Puerto Rico faced a $67.5 billion budget gap through 2026. In March, it <a href="https://www.nytimes.com/2017/03/13/business/puerto-rico-debt-crisis-oversight-board.html">approved a plan</a> submitted by Gov. Ricardo Rosselló to narrow the gap by about $40 billion over a decade by, among other things, cutting health care, reducing certain pension benefits by 10 percent and putting government employees on furlough.</p>
<p>Simply put, punishing austerity seems unavoidable, particularly as the population continues to decline, which makes the fiscal problem worse by reducing tax revenue. About 500,000 people <a href="https://centropr.hunter.cuny.edu/sites/default/files/PDF_Publications/State%20of%20Puerto%20Ricans-promo%202017.pdf">have left the island</a> since the crisis began, according to my center’s research.</p>
<p>That’s because <a href="http://www.pbs.org/newshour/bb/amid-new-austerity-measures-push-puerto-rico-restructure-debt/">austerity is already sinking deep</a> into the lives of Puerto Ricans. Funding to schools, hospitals and other essential services <a href="https://www.forbes.com/sites/debtwire/2017/03/22/puerto-rico-oversight-board-appears-doomed-to-recycle-failed-austerity-schemes/#1fa0656d2479">has been severely cut</a>, more than 150 schools have closed and teachers, doctors and scientists are part of the island’s exodus heading for the mainland. </p>
<p>The plan also calls for a sharp drop in debt payments to creditors – to about 25 cents on the dollar – until the bankruptcy court rules on final amounts. Yet, despite progress on debt restructuring, the Financial Oversight and Management Board has become the face of austerity. Public opinion, at times hopeful, has given way to a <a href="https://www.thenation.com/article/students-are-now-leading-the-resistance-to-austerity-in-puerto-rico/">growing chorus</a> of voices against austerity, protests and other forms of resistance to the undemocratic nature of the Financial Oversight and Management Board. </p>
<h2>The bigger challenge: Growing the economy</h2>
<p>Unfortunately, the fiscal plan’s austerity will make it harder to achieve the most important goal: sustainable economic growth. </p>
<p>Puerto Rico has endured a <a href="http://www.gdb-pur.com/economy/statistical-appendix.html">debilitating economic recession since 2006</a>, the year the tax incentive for U.S. companies ended, driving <a href="https://data.bls.gov/timeseries/LASST720000000000003">unemployment as high as 17 percent</a> (it’s currently 10 percent) and poverty to <a href="https://www.census.gov/programs-surveys/acs/library/keywords/prcs.All.html">about 46 percent</a>. It is estimated that up to <a href="http://www.univision.com/puerto-rico/wlii/noticias/pobreza/el-84-de-los-ninos-en-puerto-rico-vive-en-la-extrema-pobreza">84 percent of children live in poverty areas</a>. </p>
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<p>The austerity in the plan, based on the government’s own projections, is <a href="https://www.nytimes.com/2017/03/13/business/puerto-rico-debt-crisis-oversight-board.html">expected to reduce economic growth</a> of <a href="http://www.aafaf.pr.gov/assets/planfiscal13demarzo2017.pdf">2 to 3 percentage points annually</a> over the next five years. </p>
<p>With numbers like these, one would think that Congress would be hard at work devising urgent economic development measures to rapidly boost growth. Unfortunately, this has not happened. Congress has yet to act on a report prepared by a <a href="https://www.finance.senate.gov/imo/media/doc/Bipartisan%20Congressional%20Task%20Force%20on%20Economic%20Growth%20in%20Puerto%20Rico%20Releases%20Final%20Report.pdf">bipartisan task force</a> it set up as part of PROMESA, which laid out several key recommendations, such as shoring up Medicaid, extending the earned income tax credit to the island and supporting business development. The Financial Oversight and Management Board, in its report, <a href="https://juntasupervision.pr.gov/wp-content/uploads/wpfd/50/597eb4ede89ad.pdf">also encouraged Congress</a> to do more to stimulate Puerto Rico’s economy. </p>
<p>As for the Financial Oversight and Management Board and Puerto Rico’s government, not a single major economic development project has been presented to the board, even though PROMESA explicitly gives it power to <a href="https://www.congress.gov/bill/114th-congress/house-bill/4900/text#toc-HED24BE2EF47B4B8FAD4E70068F621883">fast-track “critical infrastructure” projects</a> that create jobs and jump-start the economy. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/180394/original/file-20170731-22136-rys30p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/180394/original/file-20170731-22136-rys30p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/180394/original/file-20170731-22136-rys30p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/180394/original/file-20170731-22136-rys30p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/180394/original/file-20170731-22136-rys30p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/180394/original/file-20170731-22136-rys30p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/180394/original/file-20170731-22136-rys30p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Puerto Rico Gov. Ricardo Rossello celebrates the results of a referendum on statehood in June.</span>
<span class="attribution"><span class="source">AP Photo/Carlos Giusti</span></span>
</figcaption>
</figure>
<h2>Growing into a state?</h2>
<p>The issue is now getting tangled up in Puerto Rico’s separate (and controversial) <a href="http://www.pbs.org/newshour/bb/congress-steps-puerto-rico-reignites-statehood-debate/">bid for statehood</a>. </p>
<p>In a <a href="http://www.cnn.com/2017/06/09/us/puerto-rico-statehood-vote-2017/index.html">recent referendum</a> plagued by poor turnout, Puerto Ricans voted to become the 51st state, which some argue is necessary to resolve its fiscal woes because it’ll lead to a lot of benefits. The General Accounting Office estimated that parity in federal programs will add up to <a href="http://thehill.com/blogs/congress-blog/civil-rights/203131-with-gao-report-momentum-builds-for-puerto-rican-statehood">$10 billion in transfers to the island</a>. But <a href="http://thehill.com/latino/340568-puerto-rico-faces-off-with-bondholders-over-statehood">bondholders and others are objecting</a> to Congress’ consideration of statehood until the debt crisis is over. </p>
<p>They’re right about one thing: The likelihood that Congress would consider granting statehood to a bankrupt state or as a solution to the economic challenge via some kind of bailout is slim to say the least. For advocates of statehood, as it is for advocates of other political status options, the surest way to advance their cause is a revival of Puerto Rico’s economy. </p>
<p>Restructuring the debt and balancing the budget are important steps in that direction, but austerity alone will not solve the problem, just as <a href="https://www.theguardian.com/business/2016/may/27/austerity-policies-do-more-harm-than-good-imf-study-concludes">it hasn’t in Greece</a>. Puerto Rico cannot simply cut its way to solvency. It needs growth.</p>
<p>And to that end, Puerto Rico’s government could begin planning economic initiatives with the private sector, while Congress could act on the task force report, modest steps that could help the island get back on its feet. The <a href="https://centropr.hunter.cuny.edu/research-education/research/data-center/research-briefs/health-insurance-coverage-among-puerto">data clearly show</a> that it will only become a lot more expensive and politically sensitive. </p>
<p>In fact, solving the economic and fiscal crisis, while mitigating the impact of austerity on the most vulnerable populations, might be the most certain pathway to (finally) solving the political status question.</p><img src="https://counter.theconversation.com/content/80785/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Edwin Meléndez does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A year after Congress passed its plan to fix Puerto Rico’s US$123 billion debt and pension crisis, little has changed for the lives of Puerto Ricans.Edwin Meléndez, Professor of Urban Affairs and Planning and Director of the Center for Puerto Rican Studies, Hunter CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/765962017-05-03T06:27:24Z2017-05-03T06:27:24ZWill a president Macron be able to reform the eurozone?<figure><img src="https://images.theconversation.com/files/167398/original/file-20170501-17313-mttqq5.jpg?ixlib=rb-1.1.0&rect=3%2C0%2C2241%2C1465&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Macron at a rally in Chatellerault, France, April 28, 2017.</span> <span class="attribution"><a class="source" href="http://pictures.reuters.com/archive/FRANCE-ELECTION-MACRON-RC18E0C95830.html ">Regis Duvignau/Reuters</a></span></figcaption></figure><p>European financial markets are already betting on the victory of centrist French presidential candidate Emmanuel Macron in the country’s May 7 second-round election. </p>
<p>Are investors right to believe that the eurozone – the monetary union of countries that have incorporated the euro as their national currency – will gain new momentum with Macron in the Élysée Palace?</p>
<p>After all, Macron, who is strongly pro-European Union, has affirmed several times over the past year that “<a href="https://www.theguardian.com/world/2017/jan/11/euro-will-fail-in-10-years-without-reform-emmanuel-macron">the Euro will fail in ten years without reform</a>”, adding he would promote more and better eurozone governance.</p>
<h2>The importance of the parliamentary elections</h2>
<p>Ultimately, the political stance of the new French president vis-a-vis Europe will be heavily influenced by parliamentary elections in June, which will also determine the prime minister. </p>
<p>According to polls, some <a href="http://www.cnbc.com/2017/03/16/frances-le-pen-still-has-a-40-chance-of-victory-ubs.html?view=story&%24DEVICE%24=native-android-mobile">40% of the French voters</a> today take an anti-European stance. </p>
<p>Macron’s rival, the National Front’s Marine Le Pen, advocates unconditional rejection of Europe and the euro - even if she appears <a href="http://www.reuters.com/article/us-france-election-eu-le-pen-idUSKBN17V0PF">to have softened</a> her stance on the common currency.</p>
<p>On the campaign trail, left-wing candidate Jean Luc Mélenchon and his supporters were also quite lukewarm towards the single currency even if they seemed at least willing to <a href="http://www.bbc.com/news/world-europe-39627681">renegotiate</a> in favour a different Europe. </p>
<p>If both the far-right and the far-left do well in the parliamentary elections in June, Macron, if elected, would face the task of imposing his views. Will he be able to initiate substantial reform of the euro area? </p>
<p>In the past, he has repeatedly advocated fiscal unity, and during his short term as economy minister he <a href="https://www.ft.com/content/6d327720-62c5-11e5-a28b-50226830d644">said</a> that “he would like to set up a common eurozone treasury with a single finance minister.”</p>
<p>Macron would have to deal with the strong anti-European nationalistic backlash and the “<a href="https://www.project-syndicate.org/commentary/macron-germany-france-relations-by-harold-james-2017-04">Germanophobia</a>” of Le Pen and Mélenchon’s supporters. </p>
<p>Whether he can achieve his vision will depend also on his ability to win support across Europe. His idea of a fiscal union may meet resistance there, especially when it comes to <a href="https://www.imf.org/external/pubs/ft/sdn/2013/sdn1309tn.pdf">cross-border risk sharing</a>, which Germany and other northern countries fear will leave them footing the bill. </p>
<h2>An asymmetric monetary union</h2>
<p>The current situation is informed by what happened to the eurozone as a result of its 2010 crisis. To deal with the sovereign debt crises of Greece and several other member countries, the EU arranged financial “rescue packages” conditioned on <a href="https://www.theguardian.com/commentisfree/2012/jul/03/austerity-europe-grand-vision-unity">austerity measures</a> and policy reforms. </p>
<p>Unintentionally, these actions changed the character of the eurozone – and ultimately also that of Europe – from a <a href="http://bruegel.org/2015/05/europes-integration-overdrive/">union of equals</a> to an asymmetric currency area dominated by creditor-debtor relationships. </p>
<p>The creditor nations were perceived as imposing economic hardship on cash-strapped states, even as the former were contemplating transferring their own taxpayers’ money to reform-resisting neighbours. </p>
<p>The euro crisis quickly developed into a European <a href="https://theconversation.com/balancing-stability-and-sovereignty-will-prove-challenging-for-the-eurozone-9581">political crisis</a>. Today, debtor countries lament their loss of sovereignty and, in healthier nations, support for “European solutions” has rapidly diminished.</p>
<p>The crisis revealed that the eurozone is an incomplete monetary union and, as such, vulnerable to shocks that hit member countries differently. </p>
<p><a href="http://voxeu.org/article/new-voxeu-ebook-how-fix-eurozone">Most economists agree</a> on what could fix this problem: a central bank that can effectively backstop financial crises; a banking union with the three core elements of single supervision, a single resolution mechanism and single deposit insurance; and a fiscal union to facilitate risk sharing. </p>
<p>With respect to the central bank, the European Central Bank, is now doing “<a href="https://www.bloomberg.com/quicktake/europes-qe-quandary">what it takes</a>” as it pledged in 2012 , but the European banking union is still incomplete. This is largely because of resistance to a single deposit insurance, especially in Germany, which sees this guarantee as a form of debt mutualisation. </p>
<p>As long as European banks remain in peril, it’s <a href="http://uk.reuters.com/article/uk-eu-deposits-germany-idUKKCN0RB23X20150911">German insurance contributions</a> that would be transferred to cover bankruptcies of foreign banks.</p>
<p>Augmenting the banking union with a fiscal backstop will be a major task in the coming years, but it may be feasible provided Europe’s economic recovery continues and the banking sector undertakes sufficient restructuring measures.</p>
<p>This brings me to the crucial point: the fiscal union – the idea of a common European treasury, which could ultimately organise fiscal transfers between member countries. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"856210058585284610"}"></div></p>
<p>Macron is very much in line on this with what <a href="http://voxeu.org/content/how-fix-europe-s-monetary-union-views-leading-economists">most economists</a> would - at least theoretically - recommend for making the incomplete monetary union work. But unfortunately, the political appetite for “more Europe” is at best marginal and good intentions could quickly fail in light of harsh political reality.</p>
<p>Still, one should not make the best the enemy of the good when feasible solutions are within reach. An alternative to the fiscal union is to <a href="http://blogs.lse.ac.uk/europpblog/2016/08/31/renationalising-fiscal-policy-euroscepticism/">give back control over national fiscal policies</a> to the countries themselves and abandon various fiscal pacts altogether. </p>
<p>None of them has ever really worked in practice as the <a href="http://www.cesifo-group.de/ifoHome/presse/Pressemitteilungen/Pressemitteilungen-Archiv/2016/Q2/pm-20160523_EU-Staaten-Defizit.html">widespread violation of the EU deficit criteria shows</a>. So it would better to let national governments decide on their budgets and give them back decisions on how to spend taxes. </p>
<p>After all, this is what is being voted on in European elections in general and the French election in particular. And the change would also answer the concerns of those who feel - for right or wrong reasons – that their national sovereignty is being impaired.</p>
<h2>The four conditions for a stable Eurozone</h2>
<p>But does that not mean that the euro area would remain vulnerable? Not necessarily. </p>
<p>As argued by <a href="http://voxeu.org/article/minimal-conditions-survival-euro">leading economists Professor Barry Eichengreen (Berkely) and Charles Wyplosz (Geneva)</a>, four minimum conditions should be met to guarantee the stability of the monetary union in case of a return to national decision making on fiscal matters. </p>
<p>First, a central bank backstopping financial crises and, second, a full banking union. Both these conditions would form a good base for insuring against asymmetric shocks. <a href="http://www.ecb.europa.eu/press/key/date/2014/html/sp141127_1.en.html">A full banking union</a> in particular, would allow private risk sharing through better integrated financial markets, which could cushion the effects of such shocks.</p>
<p>Third, giving back control to national governments also implies giving back responsibility. In other words, a strict no-bailout rule is needed and may even be more effective for imposing more budget discipline. </p>
<p>Finally, giving back control to nations requires reducing debt overhang. This may be the hardest part, as “moral concerns” in some countries may oppose <a href="http://voxeu.org/article/padre-plan-politically-acceptable-debt-restructuring-eurozone">workable debt restructuring schemes</a> – but it would not be impossible either.</p>
<p>Re-nationalising fiscal policy could therefore offer a politically feasible alternative to a full fiscal union as a way of stabilising the euro area. It should be noted, though, that this neither implies not engaging in <a href="http://blogs.lse.ac.uk/europpblog/2014/10/28/the-case-for-using-public-investment-to-boost-growth-in-the-eurozone-is-overwhelming/">joint European infrastructure projects</a> nor abstaining from assistance programs for individual countries. </p>
<p>Such initiatives may, in fact, be easier to implement once unpopular and ineffective fiscal rules are a thing of the past.</p>
<p>A president Macron might thus wish to rethink his earlier view on a fiscal union. </p>
<p>Reforming the euro area is a real possibility. The ultimate issue is not whether we need more or less Europe but rebalancing eurozone governance in a direction that is both politically palatable and provides much-needed stability for the European monetary union.</p><img src="https://counter.theconversation.com/content/76596/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Harald Sander receives funding from European Union's Erasmus+ Programme (Jean Monnet Chair Action) </span></em></p>Centrist candidate Emmanuel Macron’s plan to reform the eurozone if elected is easier made than implemented.Harald Sander, Professor of Economics at Maastricht School of Management and Jean Monnet Chair, Technical University of CologneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/716632017-01-27T07:33:55Z2017-01-27T07:33:55ZFacing unemployment, austerity and scandal, Brazil struggles to keep it together<p>As if 134 deaths in a two-week rash of <a href="http://www.npr.org/sections/thetwo-way/2017/01/06/508512559/dozens-of-inmates-killed-in-another-brazilian-prison-riot">prison riots</a> were not dramatic enough for Brazil, on <a href="https://theintercept.com/2017/01/20/small-plane-crash-that-killed-brazils-key-corruption-judge-demands-investigation-and-protection-from-temer/">January 19 a plane crash </a> killed Teori Zavascki, the Supreme Court justice overseeing a high-profile nation-wide corruption case known as <a href="http://edition.cnn.com/2002/BUSINESS/06/24/brazil.crisis/index.html">Operation Carwash</a>, which has incriminated the upper echelons of national politics. </p>
<p>Brazil, as the saying goes, is not for amateurs. That’s long been true of South America’s <a href="https://www.cia.gov/library/publications/the-world-factbook/geos/print_br.html">most populous nation and biggest economy</a>, which has seen many ups and downs since toppling its military dictatorship in 1985 – including prior <a href="https://nacla.org/article/brazil-impeachment">impeachments</a> and <a href="http://edition.cnn.com/2002/BUSINESS/06/24/brazil.crisis/index.html">debt crisis</a>.</p>
<p>But, as Brazilians are now coming to realise, things can always get worse. Today the country of 200 million has one of the world’s <a href="http://homicide.igarape.org.br">highest homicide rate</a> and is contending with a storm of competing and colluding crises: economic, political, and social. </p>
<h2>The great recession</h2>
<p>Brazil is facing a severe economic crisis. After the <a href="http://www.economist.com/blogs/economist-explains/2015/03/economist-explains-8">slowdown in China</a> and sharp <a href="https://www.ft.com/content/459ef70a-4a43-11e5-b558-8a9722977189">drop in commodity prices</a>, various Latin American nations have seen the end of the past decade’s short – but bright – period of higher <a href="https://www.theguardian.com/global-development-professionals-network/2014/aug/27/inequality-latin-america-undp">economic growth and inequality reduction</a>. </p>
<p>But Brazil’s decline has been particularly steep. Gross domestic product (GDP) shrunk by <a href="http://www.wsj.com/articles/brazil-economy-shrinks-in-fourth-quarter-1457008738">3.8% in 2015</a> and over <a href="http://agenciabrasil.ebc.com.br/en/economia/noticia/2016-08/brazil-government-increased-gdp-growth-forecast-16-2017">3% in 2016</a>, while unemployment rose from 8.8 million to <a href="http://money.cnn.com/2016/10/04/news/economy/brazil-economy-jobs-crisis/">12 million in one year</a>.</p>
<p>Elements of the crisis pre-date president Dilma Rousseff’s truncated second term (2015-2016). But the sharp fiscal consolidation program she began implementing in 2015 helped turn an economic slowdown into the deepest recession in a century. Rousseff became a believer in <a href="http://www.reuters.com/article/us-brazil-economy-fiscal-idUSKBN0NS04Z20150507">expansionary fiscal austerity</a>, reducing public investment by more than 30% in 2015 and slashing <a href="http://repositorio.ipea.gov.br/bitstream/11058/6873/1/TD_2215.PDF">federal spending</a>.</p>
<p>This tactic caused both the fiscal system and the broader national economy to deteriorate. As GDP contracted, so did federal tax revenues, dropping <a href="http://g1.globo.com/economia/noticia/2016/01/com-atividade-fraca-arrecadacao-tem-pior-desempenho-em-5-anos-em-2015.html">5.6% in 2015</a>.</p>
<p>Millions <a href="http://www.forbes.com/sites/kenrapoza/2016/12/29/brazil-record-unemployment-rate-rises-by-33-rio-de-janeiro-hangs-like-a-loose-tooth/#6b553dfb2160">lost their jobs</a>, returning the unemployment rate nearly to its pre-boom levels. And Rousseff’s popularity fell, reaching a record low of <a href="http://www.wsj.com/articles/brazil-presidents-approval-rating-hits-record-low-1434890135">9% in June 2015</a>.</p>
<p>Which leads us to the next issue: president Rousseff’s controversial impeachment, and the turmoil surrounding it.</p>
<h2>Political chaos</h2>
<p>The Operation Carwash probe, which was launched in 2015, did not directly implicate Rousseff. But it uncovered corruption among members of her Workers’ Party, along with lawmakers from most of the country’s <a href="http://meucongressonacional.com/lavajato/partidos">numerous political parties</a>. These swirling scandals inflated a generalised <a href="http://www.ibope.com.br/pt-br/noticias/Paginas/Instituicees-politicas-perdem-ainda-mais-a-confianca-dos-brasileiros.aspx">distrust in Brazil’s political system</a>. </p>
<p>The door was then open for her ouster, which took eight months to be realised. When the senate finally voted 61-20 in August 2016 <a href="https://www.nytimes.com/2016/09/01/world/americas/brazil-dilma-rousseff-impeached-removed-president.html?_r=0">to impeach Rousseff</a> for breaking budgetary rules, many believed economic stability would return.</p>
<p>Instead, Brazil’s economy contracted by another 3.2% in 2016, according to the <a href="http://agenciabrasil.ebc.com.br/en/economia/noticia/2016-08/brazil-government-increased-gdp-growth-forecast-16-2017">latest estimates</a>, frustrating hopes for a quick recovery. Many states are now in a calamitous financial situation. </p>
<p>The vast majority of the country’s economic elites supported Rousseff’s ouster. But many millions marched in support of her, and they are <a href="https://www.theguardian.com/world/2016/mar/13/brazil-anti-government-protests-dilma-rousseff-rio-de-janeiro">deeply unsatisfied with the leadership</a> of new president Michel Temer. </p>
<p>This polarising scenario has plunged Brazilian institutions into deep chaos.</p>
<p>President Temer’s close ally and former minister of planning, Romero Jucá, was <a href="http://www.bbc.com/news/world-latin-america-36365781">caught on tape</a> conspiring to obstruct Operation Carwash. This revelation all but confirmed that the impeachment process was an attempt by corrupt lawmakers to stop investigations into their illegal activities. </p>
<p>No wonder the plane crash that killed Justice Zavascki – just a few days before a crucial next step in the Supreme Court case – is <a href="http://time.com/4642972/brazil-teori-zavascki-brazil-corruption/">raising so much suspicion</a>.</p>
<p>Six ministers from Temer administration have resigned amid corruption charges, and investigations have implicated other major figures in the president’s Brazilian Democratic Party Movement (PMDB). </p>
<p>Former congressional president Eduardo Cunha, who led the push to impeach Rousseff based on tenuous allegations of a minor crime, was arrested for taking US$5 million in bribes from a company that won <a href="http://www.bbc.com/news/world-latin-america-37709537">contracts with the state-run Petrobras</a> oil company. The senate president also nearly <a href="https://www.theguardian.com/world/2016/dec/08/brazils-top-court-overturns-ban-on-senate-head-renan-calheiros">stepped down</a>. </p>
<p>Meanwhile, polls from <a href="http://www.reuters.com/article/us-brazil-politics-poll-idUSKCN1241M3">October 2016</a> show that just 14% of Brazilians approve of Temer’s government. </p>
<h2>Unpopular reforms</h2>
<p>Despite its unpopularity, congress has mustered the required three-fifths majority to approve a series of fiscal reforms. </p>
<p>In December it passed what is arguably the <a href="http://www.vox.com/world/2016/12/15/13957284/brazil-spending-cap-austerity">harshest austerity measure</a> in the world: freezing the federal budget at its 2016 level for the next two decades. The cap means that funding for education, health care, pensions, infrastructure and other government programmes will remain relatively constant (except for inflation), in real terms, until 2036. </p>
<p>In failing to account for any growth in Brazil’s population or economy, the spending cap may <a href="http://www.telesurtv.net/english/news/Brazil-Is-About-to-Institutionalize-Neoliberalism-For-2-Decades-20161006-0023.html">destroy</a>, in slow motion, the country’s incipient welfare state. Brazil’s public health-care system, already precarious, will be too underfunded to adequately serve its ageing population – a disaster particularly <a href="http://www.aljazeera.com/news/2016/12/brazil-austerity-move-slammed-disaster-poor-161217185527208.html">for the poor</a>.</p>
<p>An alternative way to cut the fiscal deficit would be taxing the incomes of the very rich, 65% of which is exempt under Brazil’s <a href="http://g1.globo.com/economia/noticia/2016/10/concentracao-de-renda-cresce-e-brasileiros-mais-ricos-superam-74-mil.html">unfair system</a>. But this is not even up for discussion. </p>
<p>So, next up, the government has announced a draconian <a href="http://news.xinhuanet.com/english/2016-12/07/c_135887869.htm">reform of the pension system</a> and <a href="http://www.reuters.com/article/us-brazil-labor-idUSKBN1582UI?il=0">deregulation of labour laws</a>.</p>
<h2>Future prospects</h2>
<p>Today, Temer’s fragile government is essentially surviving based on the dramatic setbacks to the Supreme Court’s corruption probe and its tough fiscal reforms, which are popular among economic elites. </p>
<p>Not surprisingly, both are also serving to deepen <a href="http://www.forbes.com/sites/kenrapoza/2016/12/16/brazil-temer-economy-petrobras-lavajato/#52d2346467ac">widespread distrust</a> of the government. It is unclear whether Temer will make it to December 31 2018, when Rousseff’s term would normally have ended. </p>
<p>It’s likely that only the next Brazilian presidential election can end the current turbulence and restore trust in the nation’s institutions. </p>
<p>But if the results of recent mayoral elections are any indication, things don’t look good for the left. In Rio de Janeiro, fed-up voters chose a <a href="https://theconversation.com/rio-de-janeiros-new-evangelical-mayor-could-threaten-the-citys-famed-diversity-68138">conservative evangelical pastor</a>, while São Paulo put in power a <a href="https://theconversation.com/sao-paulos-drug-policies-are-working-will-the-new-mayor-kill-them-67129">conservative wealthy businessman</a>. </p>
<p>And things could yet get worse. According to <a href="https://www.ft.com/content/f9ee01ca-ce49-11e6-864f-20dcb35cede2">recent presidential polling</a>, public support for Congressman Jair Bolsonaro, who openly longs for the “good old days” of Brazil’s military dictatorship, is climbing.</p><img src="https://counter.theconversation.com/content/71663/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Laura Carvalho does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Things keep getting worse for South America’s most populous nation and biggest economy. What is going on, Brazil?Laura Carvalho, Professor of Economics, Universidade de São Paulo (USP)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/692432016-11-22T20:01:03Z2016-11-22T20:01:03ZSouth Africa is skating on thin ice as rating agencies weigh their options<figure><img src="https://images.theconversation.com/files/147008/original/image-20161122-11000-1vlrf0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's Finance Minister Pravin Gordhan is fighting to stave off a downgrade by ratings agencies.</span> <span class="attribution"><span class="source">Siphiwe Sibeko/Reuters</span></span></figcaption></figure><p>Rating agencies are shortly expected to announce their decision on whether to retain South Africa’s sovereign credit rating, or to downgrade it. The current rank <a href="https://www.moodys.com/page/search.aspx?cy=global&kw=south+africa&searchfrom=GS&spk=qs&tb=1">assigned by Moody’s</a> is two notches above sub-investment grade (with a negative outlook). Fellow agencies Fitch and Standard and Poor’s both rank South Africa just one notch above “junk” status.</p>
<p>The country was able to avoid the downgrade to “junk status” in both May and June. But the scheduled reviews have reignited fears of a possible downgrade, a decision that would set the stage either for South Africa’s economic revival, or its demise.</p>
<p>Despite minor differences, all three agencies weigh up a number of ubiquitous and <a href="http://faculty.nps.edu/relooney/3040_2.pdf">well-defined criteria</a> when assigning a rank to a country’s sovereign debt. In the current review of South Africa they will be scrutinising growth prospects, the fiscal balance and its external debt levels particularly closely. </p>
<p>In their earlier reviews the rating agencies warned that South Africa’s annual growth rate would need to increase to at least 1% or it would risk <a href="http://www.moneyweb.co.za/news/economy/south-africa-can-avoid-credit-downgrades-gordhan/">falling to “junk” status by year-end</a>. Finance Minister Pravin Gordhan recently reiterated the warning. </p>
<p>Unfortunately, South Africa’s annual growth prospect has been revised down from <a href="http://www.treasury.gov.za/documents/mtbps/2016/mtbps/MTBPS%202016%20Full%20Document.pdf">0.9% to 0.5% </a>. The outlook for 2017 is more positive in that the growth rate is expected to increase to approximately 1.3%.</p>
<p>But to achieve positive growth in the coming year the government has no choice but to introduce much needed and widely advocated structural reforms. These are being spearheaded by Gordhan. He has also been leading ongoing negotiations between the National Treasury and rating agencies in a bid to ward off a downgrade. </p>
<p>The negotiations have resulted in a number of tangible measures being set. These include a more sustainable supply of energy, greater efficiency at state owned enterprises, market reforms that can lead to greater competition and labour market reforms. </p>
<p>But a number of structural factors still stand in way of meaningful progress. </p>
<h2>The hurdles</h2>
<p>The most notable is the skills mismatch which has led to a labour market that is rigid and inaccessible to many. Reforms will therefore have to be centred on more flexibility in wage contracts and more effective collective bargaining structures. Also key will be the creation of more jobs in the private sector, particularly among small to medium enterprises. They are viewed as being more labour intensive and can therefore absorb a higher share of the unskilled labour. </p>
<p>Success on these fronts will depend on a commitment from both large business as well as trade unions.</p>
<p>The fiscal balance is also an area of concern. Here the National Treasury must commit to reducing the consolidated budget deficit to at least 3% of GDP. And it must make a commitment to maintain this for the next two financial years. In addition, the debt-to-GDP ratio must stabilise to below 48%. Achieving this is going to prove challenging for two main reasons. </p>
<p>Firstly, poor performing state owned enterprises, for example, the power utility Eskom and South African Airways, are putting an undue burden on the state’s resources. Calls to privatise these entities have so far gone unanswered. </p>
<p>Equally important are the burgeoning public wage bill as well as exceedingly high wasteful expenditure. The most recent report released by the country’s Auditor General pointed to <a href="http://mg.co.za/article/2016-11-16-government-state-owned-entities-topple-billions-in-irregular-expenditure">shocking levels of wasteful expenditure</a> by municipalities totalling almost R50 billion in the 2016 financial year. Much of it has been attributed to blatant deviations from procurement guidelines. </p>
<p>How the National Treasury responds will certainly test its commitment to short-term cost cutting measures. It will also point to how it aims to achieve growth within a more prudent fiscal framework.</p>
<h2>Institutional strength</h2>
<p>An equally important criteria that ratings agencies assess is the country’s institutional strength. This considers whether a country’s institutional structures can support its ability and willingness to repay its debt. The government’s capacity to conduct sound economic policies that foster economic growth and prosperity are also considered.</p>
<p>Political tensions within the ANC will have a negative influence on the rating. Trumped-up charges levelled against <a href="http://ewn.co.za/2016/10/11/Finance-Minister-Pravin-Gordhan-issued-with-summons-for-fraud">Gordhan</a> combined with President Jacob Zuma’s attempts to delay the release of a report on state <a href="http://ewn.co.za/2016/10/27/jacob-zuma-seeks-to-postpone-court-hearing-into-state-capture-report">capture</a>, have not inspired confidence. There were silver linings in the fact that the country’s National Prosecuting Authority decided to drop the charges against <a href="http://www.bbc.com/news/world-africa-37822600">Gordhan</a> while a court ruled that report on state capture should be <a href="http://www.iol.co.za/business/markets/currencies/rand-rises-after-go-ahead-for-statecapturereport-2086288">released</a>.</p>
<p>But the continued deafening silence from Zuma as well as his ministers is bound to be noticed. The clear lack of leadership and the desire of some to hold onto power, adds political risk for which the country is likely to be judged harshly. </p>
<h2>The effect of a downgrade</h2>
<p>Asset markets have already priced in a possible downgrade. But a negative decision will still have major ramifications for South Africa. </p>
<p>A downgrade to speculative grade would imply that South African investments are considered to be high risk. Potential investors will demand a higher premium to take on the higher risk. In the worst case scenario the country will no longer be able to secure any credit. </p>
<p>The immediate response to a potential downgrade is that the country may experience short-term losses in the value of currency and the bond market. It may also experience an exodus of capital. But according to <a href="http://www.iol.co.za/business/news/sa-banks-able-to-deal-with-downgrade-2088635">the governor of the reserve bank</a>, banks are adequately capitalised and hence these developments are not expected to permanently effect the functioning of the domestic financial market. </p>
<p>In addition, the country’s resilience may come in the form of strong policy frameworks, a flexible exchange rate, relatively healthy corporate balance sheets and a large share of external debt being rand denominated. A better than expected commodity cycle could also help. These factors, combined with the Reserve Bank’s goal of keeping inflation in check (which offers some confidence in the stability of the country’s institutions) may just be South Africa’s saving grace.</p><img src="https://counter.theconversation.com/content/69243/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>South Africa has made some progress in fixing problems identified by ratings agencies. But there are a number of outstanding issues that might mean the country is given ‘junk’ status.Fatima Bhoola, Lecturer in Economics, University of the WitwatersrandNimisha Naik, Lecturer in Economics, Macroeconomics and Mathematical Economics, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/543502016-02-09T04:32:34Z2016-02-09T04:32:34ZDeepening inequality is the high price students will pay for free education<figure><img src="https://images.theconversation.com/files/110599/original/image-20160208-2634-dny9vw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Students have been steadfast in their demands of universities and the South African government. But what might the unintended consequences be?</span> <span class="attribution"><span class="source">Nic Bothma/EPA</span></span></figcaption></figure><p>University students have scored some massive victories since <a href="https://theconversation.com/student-protests-give-south-africans-a-glimpse-into-hidden-lives-49959">“fees must fall”</a> entered South Africa’s lexicon. They have secured <a href="http://www.dhetnews.co.za/statement-on-2016-funding-allocation/">more government funding</a> for fees. They have forced universities to address a <a href="https://theconversation.com/fee-protests-point-to-a-much-deeper-problem-at-south-african-universities-49456">complex range</a> of <a href="https://www.enca.com/south-africa/pretoria-university-workers-celebrate-victory">institutional inequalities</a>.</p>
<p>This #FeesMustFall movement has become a force for social change centred around access to and free tertiary education. It demands deep transformation in all sectors of the higher education landscape and, in essence, encompasses broader societal issues of social justice and equality. </p>
<p>The gains students have made don’t just hold the government and <a href="https://theconversation.com/south-african-students-and-universities-may-now-be-trapped-in-a-cycle-of-conflict-49687">university management</a> accountable. They also speak to the “will of the people”, the public good, and robust democratic processes in South Africa.</p>
<p>But herein lies the problem: transformation, or social change, has a dynamic of its own. This makes it an unpredictable, uncontrollable and unknowable force – one with often unintended consequences.</p>
<h2>The law of unintended consequences</h2>
<p>Psychology professor Robert Kurzban likes to tell the story of <a href="http://edge.org/response-detail/10309">what happened</a> when bubonic plague reached an Australian neighbourhood, The Rocks, in 1900. Rats carry the fleas that transmit the plague to humans. Local authorities offered a reward to residents for every rat killed. The unintended consequence? People tempted by this bounty actually started breeding rats.</p>
<p>This illustrates that when people effect social change by intervening in complex, dynamic systems with many parts, especially economies, it disrupts the complex web of interrelationships. This has unforeseen and unforeseeable consequences that are not anticipated by politicians or popular opinion.</p>
<p>So what’s the unintended consequence of the #FeesMustFall movement’s victories? Quite simply, the substantial resources universities must direct at fee shortfalls in both the immediate and long term will become increasingly problematic for government and the ailing South African economy. </p>
<h2>The psychology of scarcity</h2>
<p>These resource struggles are going to impose critical limitations on universities’ academic projects. Efforts will be concentrated on maintenance, and even survival, rather than growth and advancement. </p>
<p>Universities started the 2016 academic year talking about <a href="http://www.bdlive.co.za/opinion/2016/01/14/sas-universities-need-funding-hike-of-about-r30bn-a-year-to-survive">scarcity</a>. The <a href="https://www.wits.ac.za/news/latest-news/in-their-own-words/2016/2016-01/reimagining-the-south-african-university-and-critically-analysing-the-struggle-for-its-realisation.html">dominant discourse</a>
centres on budget constraints, post freezes, arrested projects, salary containment, affordability reviews – that is, whether courses are viable and sustainable – <a href="http://www.universitiessa.ac.za/sites/www.universitiessa.ac.za/files/2009%20-%20HESA%20Report%20on%20Third%20Stream%20Report_July%2009_0.pdf">third-stream income</a> and rising university debt.</p>
<p>The <a href="http://scholar.harvard.edu/sendhil/scarcity">“scarcity mindset”</a> is a significant area of behavioural research in economics, psychology and public policy. It highlights the adverse impact of scarce resources like time and money on mental states and social and physical environments. Scarcity is all-consuming. It imposes cognitive deficits and activates destructive emotional states of anxiety and fear.</p>
<p>It also narrows the worldviews of individuals and institutions, creating a myopic concentration on immediate gains. There’s no room in this tunnel vision for creative problem solving, innovative planning and deliberate decision-making.</p>
<p>Universities are spaces where the freedom of critical enquiry, expression and debate are fundamental principles. In <a href="http://www.telegraph.co.uk/education/universityeducation/12094277/Cecil-Rhodes-Oxford-University-students-must-confront-views-they-find-objectionable-says-new-head.html">the words</a> of Oxford University’s Chancellor Lord Patten of Barnes, nobody wants them to become:</p>
<blockquote>
<p>… a drab, bland, suburb of the soul where the diet is intellectual porridge.</p>
</blockquote>
<h2>Free education or quality education?</h2>
<p>Now South Africa’s universities are tightening their belts at a time when they actually need <em>more</em> resources to address the <a href="https://theconversation.com/how-south-africa-can-disrupt-its-deeply-rooted-educational-inequality-48531">extensive</a> teaching and learning challenges of a <a href="https://theconversation.com/factcheck-is-south-africa-the-most-unequal-society-in-the-world-48334">deeply divided</a> society. </p>
<p>Universities ought to be involved in a range of innovative, professional teaching, learning and research activities. They can do important work in areas like curriculum design, educational technologies, sustainable infrastructure, internationalisation and technical support.</p>
<p>They are also expected to produce global, critical thinkers. These graduates can contribute to a knowledge society, drive the economy and enhance democratic citizenship. Universities that narrow their focus to make ends meet and have only scarce resources cannot fulfil these important roles.</p>
<p>Scarcity means that some academic goals will have to be sacrificed at the expense of others. Universities, which are already dealing with a multiplicity of competing needs and demands, will now be under pressure to choose how and where they allocate scarce resources. </p>
<p>Educationalists have <a href="http://hsf.org.za/resource-centre/focus/focus-76-the-idea-of-a-university/the-challenges-of-undergraduate-education-looking-back-and-ahead-elizabeth-de-kadt/view">warned</a> that these relentless, growing pressures may lead to a “quality collapse”. These are the unforeseen consequences of the #FeesMustFall movement’s demands and gains.</p>
<h2>Collateral damage – the trade-off</h2>
<p>Students actually risk becoming collateral damage if this climate of scarcity forces a trade off between quality education or free education. They’ll be the unintended targets of discriminatory and exclusionary practices amid a crisis in higher education.</p>
<p>Graduates without the requisite knowledge, skills and values will not have access to the competitive “world of work”. And this will further entrench inequality and injustice in South Africa.</p><img src="https://counter.theconversation.com/content/54350/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lyn Snodgrass does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Social change has its own dynamic. This makes it an unpredictable, uncontrollable and unknowable force – one with often unintended consequences.Lyn Snodgrass, Associate Professor and Head of Department of Political and Conflict Studies, Nelson Mandela UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/528712016-01-11T06:21:06Z2016-01-11T06:21:06ZHard Evidence: this is the Age of Dissent – and there’s much more to come<p>The year 2011 is widely viewed as the peak of protest and dissent in the wake of the 2008 financial crisis and the austerity agenda that followed it. It was the year of the Arab Spring, Occupy, UK Uncut, <em>indignados</em>, urban riots and anti-austerity and tuition fee protests – and in which Time magazine famously named “The Protester” <a href="http://content.time.com/time/person-of-the-year/2011/">as its person of the year</a>. </p>
<p>Yet in the UK, protests continue to occur at a rate rarely seen prior to the global economic crisis in 2008. Indeed, 2015 seems to have confirmed the suggestion, made at the beginning of the year, that 2011 was “<a href="https://roarmag.org/essays/protests-2014-global-uprisings/">really only just the beginning</a>”. </p>
<p>In fact, we appear to be facing a longer-term age of contestation, perhaps prompted by the experience of low growth, and the <a href="http://www.tandfonline.com/doi/abs/10.1080/08935696.2013.843250">hardening of attitudes</a> by mainstream politicians despite growing popular demands.</p>
<h2>Raising the protest banner</h2>
<p>As part of a <a href="http://www.palgrave-journals.com/bp/journal/v9/n1/abs/bp201326a.html">research project looking at protest events in the post-2008 context</a>, I have recorded a catalogue of UK-based protest events reported in major British national newspapers, spanning back to the late 1970s. And it suggests that 2015 actually had the highest level of visible dissent in the UK since before the 1980s.</p>
<p>In updating the dataset of protest events, and building on <a href="http://www.palgrave-journals.com/bp/journal/v9/n1/abs/bp201326a.html">earlier estimates made on the basis of data covering the period up until 2012</a>, we can see that the frequency of protests peaked in 2010-2011 and subsided slightly in 2012 – perhaps as a result of despondency after some of the big anti-austerity movements, such as the tuition fee protests, were ignored and/or <a href="http://www.defendtherighttoprotest.org/files/pdf/dtrtp_victory_for_alfie_and_zak.pdf">heavily repressed</a>. But from 2013 onwards dissent has returned to levels witnessed during earlier stages of the anti-austerity movement, and continued to rise through to a new high in 2015.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/107533/original/image-20160107-14020-mrfc2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/107533/original/image-20160107-14020-mrfc2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/107533/original/image-20160107-14020-mrfc2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=350&fit=crop&dpr=1 600w, https://images.theconversation.com/files/107533/original/image-20160107-14020-mrfc2z.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=350&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/107533/original/image-20160107-14020-mrfc2z.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=350&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/107533/original/image-20160107-14020-mrfc2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=440&fit=crop&dpr=1 754w, https://images.theconversation.com/files/107533/original/image-20160107-14020-mrfc2z.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=440&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/107533/original/image-20160107-14020-mrfc2z.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=440&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Average number of protest events per year, 1980s-2015.</span>
</figcaption>
</figure>
<p>We can also use this dataset to assess changes to the types of protester involved. As the figure below shows, dissent in the 1980s was overwhelmingly conducted by workers and organised labour. In contrast, the protests during the heyday of the anti-austerity protests in 2010-11 were conducted predominantly by three main groups: workers, students, and those anti-cuts activists identifying explicitly with the anti-austerity movement, such as <a href="https://twitter.com/UKuncut">UK Uncut</a>.</p>
<p>What was noteworthy about the dissent and protest which took place in 2015, however, was its considerably more pluralist nature which involved seven key groups of protesters dominating protest politics. While workers and environmentalists conducted around one-third of all protest events in 2015, another five groups – housing activists, students, pro-minority groups (including those supporting refugees and asylum seekers), anti-cuts activists and right-wing groups – each contributed between 6% and 10% of the total protest activity for the year.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/107532/original/image-20160107-14027-10i7zai.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/107532/original/image-20160107-14027-10i7zai.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/107532/original/image-20160107-14027-10i7zai.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=293&fit=crop&dpr=1 600w, https://images.theconversation.com/files/107532/original/image-20160107-14027-10i7zai.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=293&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/107532/original/image-20160107-14027-10i7zai.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=293&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/107532/original/image-20160107-14027-10i7zai.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=368&fit=crop&dpr=1 754w, https://images.theconversation.com/files/107532/original/image-20160107-14027-10i7zai.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=368&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/107532/original/image-20160107-14027-10i7zai.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=368&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Share of protest events, by protester type.</span>
</figcaption>
</figure>
<p>We can also use the catalogue of protest events to identify changing patterns of protest. Thus, the figure below shows trends for the seven most popular forms of dissent between the 1980s and 2015. In the 1980s, strikes and wildcat strikes made up 50 per cent of protest events, a figure which shrank to 17.5 per cent in 2010-11 and remained at around that level in 2015 (22%). </p>
<p>The big change in 2015, however, was the rise in the “other” category – that is, protest events that did not fit within the most common forms of protest. This was largely explained by the relatively large number of “stunts” carried out by protesters in 2015 – reflecting growing innovation among contemporary protesters (itself possibly explained by the increased need to stand out in order to attract media and public attention). </p>
<p>This includes the <a href="http://www.theguardian.com/environment/2015/jun/01/seven-activists-arrested-during-protests-against-fossil-fuels-across-the-uk">baring of the bottoms</a> of the 12 Reclaim the Power protesters outside the Department of Energy and Climate Change, adopting the slogan, “wind not gas!” at the beginning of June. It also included <a href="http://www.theguardian.com/fashion/2015/sep/11/vivienne-westwood-tank-protest-fracking-david-cameron-chadlington">Vivienne Westwood’s driving a tank</a> to David Cameron’s home to protest against fracking in September and the public <a href="http://www.theguardian.com/uk-news/2015/dec/08/forces-veterans-protest-downing-street-against-british-airstrikes-syria">discarding of medals by veteran soldiers</a> protesting against the government’s decision to begin the bombing of Syria in December. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/107509/original/image-20160107-13986-1s244vf.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/107509/original/image-20160107-13986-1s244vf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/107509/original/image-20160107-13986-1s244vf.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=337&fit=crop&dpr=1 600w, https://images.theconversation.com/files/107509/original/image-20160107-13986-1s244vf.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=337&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/107509/original/image-20160107-13986-1s244vf.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=337&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/107509/original/image-20160107-13986-1s244vf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=423&fit=crop&dpr=1 754w, https://images.theconversation.com/files/107509/original/image-20160107-13986-1s244vf.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=423&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/107509/original/image-20160107-13986-1s244vf.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=423&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Share of protest events, by form of protest.</span>
</figcaption>
</figure>
<h2>So what’s the gripe?</h2>
<p>Given that 2015 had the highest frequency of reported protest events in the UK since the 1970s, we might also identify what these protests were about. </p>
<p>In terms of strike actions, the transport sector witnessed some of the biggest strikes, with Unite overseeing <a href="http://www.bbc.co.uk/news/uk-england-london-31139088">strike action by bus drivers</a> in a dispute with London bus companies over the standardisation of pay, and <a href="http://www.theguardian.com/uk-news/live/2015/jul/09/tube-strike-london-underground-live-updates">RMT tube workers taking strike action</a> over the introduction of all-night tube services. </p>
<p>2015 also saw the beginning of a novel form of quasi-strike action by solicitors and barristers in their move to <a href="http://www.theguardian.com/law/2015/jul/15/barristers-vote-to-join-solicitors-legal-aid-protest">cease taking on new cases</a> in protest at the government’s cuts to legal aid. There was also an escalation of the dispute led by PCS union members at the National Gallery over privatisation, leading to an <a href="http://www.pcs.org.uk/en/news_and_events/pcs_comment/pcs_comment.cfm/first-day-of-national-gallery-all-out-strike-stronger-than-ever">all-out strike</a> which began in August and which was only <a href="http://www.pcs.org.uk/en/national-gallery/latest-news.cfm#thanks">resolved in October</a> after negotiations led to a deal on pay and conditions, as well as the reinstatement of one of the sacked trade union reps involved in the dispute. </p>
<p>The housing crisis also prompted a large increase in 2015 of housing-related protests, including the <a href="http://www.theguardian.com/society/2015/mar/19/sleepover-protest-led-by-russell-brand-draws-150-to-sweets-way-estate">occupation of Sweets Way Estate in March</a>, the <a href="http://www.theguardian.com/society/2015/apr/14/focus-e15-housing-activist-arrested-on-suspicion-of-squatting">occupation in April</a> by members of the Focus E15 housing campaign group of a flat from which resident Jasmin Stone had earlier been evicted and the occupation of empty properties by groups such as <a href="http://www.theguardian.com/society/2015/oct/18/former-manchester-united-star-occupiers-of-hotel-winter-ryan-giggs-gary-neville">Manchester Angels</a> and <a href="http://www.telegraph.co.uk/news/uknews/12073854/Squatters-occupy-Royal-Mint-site-to-protest-against-homelessness.html">Camden Mothership</a> protesting against homelessness (as well as trying to find opportunities for housing). </p>
<p>Some of the biggest demonstrations of the year continued to focus on the government’s austerity measures, including the 100,000 attendees at the <a href="http://www.theguardian.com/world/live/2015/jun/20/anti-austerity-demonstrations-live">People’s Assembly Against Austerity</a> in June and 50,000 people protesting <a href="http://www.theguardian.com/politics/2015/oct/04/anti-austerity-protestors-march-manchester-demonstration-conservative-party-conference">outside the Conservative Party Conference in October</a>. September also saw <a href="http://www.theguardian.com/uk-news/2015/sep/12/london-rally-solidarity-with-refugees">30,000 demonstrators calling for the government to do more to help refugees</a>, and in November <a href="http://www.theguardian.com/environment/2015/nov/29/protesters-gather-around-the-world-for-a-strong-climate-change-deal">50,000 environmentalists demonstrated</a> in support of stronger government action to be agreed at the Paris summit.</p>
<h2>But did it change the world?</h2>
<p>Finally, while some commentators have begun (again) to <a href="http://www.thetimes.co.uk/tto/opinion/columnists/article4614615.ece">proclaim the futility of protest</a>, some important concessions were also won as a result of the 2015 protests, <a href="http://ser.oxfordjournals.org/content/13/1/5">confirming recent research</a> which suggests that only direct action protest consistently produces desired results in times of stagnant economic growth. </p>
<p>Sports Direct <a href="http://www.ft.com/cms/s/0/6a2f74f6-af96-11e5-b955-1a1d298b6250.html">recently agreed</a> to pay all staff above the national minimum wage, following protests which included <a href="http://www.theguardian.com/business/2015/sep/09/sports-direct-investors-revolt-against-chairman-and-pay-policy">Unite members dressing up as Dickensian workers</a> to protest the pay and conditions suffered by employees of the company outside its AGM. </p>
<p>The tube workers’ strike resulted in the <a href="http://www.cityam.com/226602/transport-for-london-to-cut-out-unions-and-go-direct-to-workers-over-night-tube">apparently indefinite delay</a> of the implementation of all-night opening.</p>
<p>After more than 60,000 people signed a <a href="https://secure.avaaz.org/en/uk_protest_loc/?pv=76&rc=fb">petition</a> in February against what was perceived to be an attempt to charge for the right to protest, the <a href="http://www.theguardian.com/environment/2015/feb/26/met-backs-down-on-refusal-to-police-climate-and-womens-marches">Metropolitan police backed down</a> in its attempt to make two organisations – Campaign Against Climate Change and the Million Women Rise campaign – pay the policing costs necessary for them to be able to hold demonstrations. </p>
<p>Direct action protests by milk farmers also resulted in a number of concessions from supermarkets, including Asda agreeing to a <a href="http://www.bbc.co.uk/news/uk-33915371">minimum payment per litre for milk</a>. And the <a href="http://anticuts.com/2015/10/16/victory-for-the-ucl-rent-strike-students-win-nearly-100k-compensation/">students staging a rent strike at UCL won nearly £100,000 in compensation</a> – or £1,368 per head – following a successful campaign against the university which also led to it <a href="http://www.theguardian.com/education/2015/jun/11/university-college-london-students-withhold-rent-over-building-works">backing down over its threat</a> to prevent students from graduating unless they ended the strike.</p>
<p>While the frequency of reported protest events in the UK rose in 2015 to its highest level since the end of the 1970s, 2016 looks set to bring still more discord. The ongoing <a href="http://england.shelter.org.uk/campaigns_/why_we_campaign/the_housing_crisis/what_is_the_housing_crisis">housing crisis</a>, the <a href="http://oneprofession.bma.org.uk/">industrial dispute over junior doctor’s contracts</a>, and the apparent willingness of Jeremy Corbyn to use his position as Labour Party leader to fuel further mobilisation and dissent (for instance, by <a href="http://www.independent.co.uk/news/uk/politics/jeremy-corbyn-urges-dft-to-stop-rail-fare-rises-as-he-highlights-the-absurdity-of-foreign-a6795406.html">recently attending the passenger protest against rising rail prices</a>), suggest that 2016 will be a year in which protests, in the ongoing context of prolonged economic stagnation, continue to gather pace.</p><img src="https://counter.theconversation.com/content/52871/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David J. Bailey receives funding from the ESRC as part of a seminar series on the post-crisis landscape, including on democracy and political participation since 2008.</span></em></p>There were more protests in Britain last year than at any time since the 1970s.David J. Bailey, Lecturer in Politics, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/405782015-04-21T14:24:23Z2015-04-21T14:24:23ZFact Check: has austerity held back economic growth?<figure><img src="https://images.theconversation.com/files/78780/original/image-20150421-9008-l0dfh1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Too much of a squeeze?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/teegardin/6097066382/sizes/l">keenteegardin/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><blockquote>
<p>In the last five years, austerity has undermined our public services, lowered the living standards of working people, pushed more children into poverty and held back economic growth.</p>
</blockquote>
<p><strong>Nicola Sturgeon, Scottish first minister and Scottish National Party leader <a href="http://www.heraldscotland.com/politics/scottish-politics/in-full-nicola-sturgeons-snp-manifesto-launch-speech.1429531266">at the party’s manifesto</a> launch.</strong></p>
<p>It is easiest to start at the end. Conventional macroeconomics would agree that fiscal austerity and cuts to government spending did hold back growth. The Office for Budget Responsibility <a href="http://budgetresponsibility.org.uk/forecast-evaluation-report-october-2014/">estimate</a> that austerity reduced growth by 1% in each of the financial years 2010-11 and 2011-12. In the graph below, the orange bars show the impacts on growth of austerity expected in 2010 and the blue bar how they have changed. Others <a href="http://mainlymacro.blogspot.co.uk/2015/02/the-size-of-recent-macro-policy-failure.html">have higher estimates</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/78753/original/image-20150421-9017-tl5ze9.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/78753/original/image-20150421-9017-tl5ze9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/78753/original/image-20150421-9017-tl5ze9.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=316&fit=crop&dpr=1 600w, https://images.theconversation.com/files/78753/original/image-20150421-9017-tl5ze9.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=316&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/78753/original/image-20150421-9017-tl5ze9.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=316&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/78753/original/image-20150421-9017-tl5ze9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=397&fit=crop&dpr=1 754w, https://images.theconversation.com/files/78753/original/image-20150421-9017-tl5ze9.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=397&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/78753/original/image-20150421-9017-tl5ze9.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=397&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Implied impacts of discretionary fiscal policy on GDP growth.</span>
<span class="attribution"><a class="source" href="http://budgetresponsibility.org.uk/wordpress/docs/Forecast_evaluation_report_2014_dn4H.pdf">OBR</a></span>
</figcaption>
</figure>
<p>The key point here is that because short-term interest rates had fallen as far as the Monetary Policy Committee of the Bank of England thought they could go (0.5%), monetary policy was not able to offset the impact of fiscal contraction – cuts to government spending, or austerity. Instead, monetary policy had to resort to Quantitative Easing: creating money to buy long term assets in order to put downward pressure on long term interest rates. Quantitative Easing probably had some effect on the growth rate, but almost certainly not enough to counter the impact of fiscal austerity.</p>
<p>Lower growth caused by fiscal austerity would normally mean one of two things: higher unemployment or lower living standards. An unusual feature of the past five years is <a href="http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/october-2014/sty-labour-market-statistics.html">how quickly unemployment has fallen</a>, even though GDP growth has not been strong. As a result, the main impact of lower growth – including that caused by fiscal austerity – has been on living standards.</p>
<p>Fiscal austerity has involved reduced public spending in many areas, including welfare payments. The general consensus among economists such as those <a href="http://www.ifs.org.uk/publications/7584">at the Institute for Fiscal Studies</a> is that fiscal consolidation has hit two groups more than most: the rich and the poor. It is therefore reasonable to say austerity in itself has increased child poverty. As living standards have fallen generally, then relative levels of poverty in general – which measure the poverty gap – have not increased over the last few years, although absolute levels of poverty have. However, Sturgeon is careful in her statement to talk about the impact of fiscal austerity.</p>
<p>The assertion that fiscal austerity has “undermined our public services” comes close to being a tautology. To suggest otherwise you would have to argue that spending less on public services has only increased the efficiency with which they were delivered.</p>
<h2>Verdict</h2>
<p>Nicola Sturgeon’s statement on the economic impact of austerity on the UK is correct, with no qualifications.</p>
<h2>Review</h2>
<p>I don’t have any major disagreements with the author’s analysis. There are two particular provisos that may be worth raising. The first is that the stagnation in standards of living under the coalition period (and from before that) partly reflects the UK’s very poor productivity performance at this time. It could be argued that this largely reflects austerity: had demand been higher, companies would have been able to sell more which would probably have resulted in higher productivity. For example, if a factory is idle, workers are under-employed or not able to get jobs in relatively high productivity sectors because of lack of demand. Alternatively the author may simply be arguing the austerity isn’t the only problem here, but it is one problem and so Sturgeon is correct.</p>
<p>Second, Sturgeon’s comment about child poverty might be worthy of some specific reference to what has happened to it. It is not my particular area of expertise, but the previous decline in child poverty appears to have been reversed around 2011, although <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/325416/households-below-average-income-1994-1995-2012-2013.pdf">has remained flat since</a>, and this may be worth noting. </p>
<div class="callout">The Conversation is fact checking political statements in the lead-up to the May UK general election. Statements are checked by an academic with expertise in the area. A second academic expert reviews an anonymous copy of the article.<br><br><a href="https://theconversation.com/factchecks/new">Click here to request a check</a>. Please include the statement you would like us to check, the date it was made, and a link if possible. You can also email factcheck@theconversation.com </div><img src="https://counter.theconversation.com/content/40578/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The SNP’s Nicola Sturgeon says austerity has held the economy back. Is she right?Simon Wren-Lewis, Professor of Economics, and Fellow of Merton College, University of OxfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/402152015-04-16T13:44:46Z2015-04-16T13:44:46ZManifesto Check: Tory defence policy talks tough but cuts deep<p><em>Welcome to The Conversation’s Manifesto Check, where academics from across the UK subject each party’s manifesto to unbiased, expert scrutiny.</em></p>
<p>While the hallmark of <a href="http://b.3cdn.net/labouruk/e1d45da42456423b8c_vwm6brbvb.pdf">Labour’s defence manifesto</a> was <a href="https://theconversation.com/manifesto-check-labour-leaves-the-door-open-to-downscale-trident-40110">brevity</a>, the same cannot be said of the <a href="https://s3-eu-west-1.amazonaws.com/manifesto2015/ConservativeManifesto2015.pdf">Conservative manifesto</a>’s line on defence. Although it contains its fair share of rhetoric as well, the manifesto devotes considerably more space to these issues than its Labour equivalent. </p>
<p>This may not be that surprising given the primacy the Conservatives have traditionally given to these matters, and their disdain for Labour’s record. The party never misses an opportunity to remind the voting public that Labour’s Great Recession (often emphasised with capital letters) weakened Britain on the world stage – and the 2015 manifesto is a case in point. </p>
<h2>Fighting talk</h2>
<p>The section on defence veers between rhetoric and actual policy, and reads more like a mini-National Security Strategy or Spending Review than a template for five years of government. It notes the “£38 billion black hole in the defence budget” left by the Brown government, and that Labour left a gap of “12 years without conducting a Strategic Defence Review”. </p>
<p>This is somewhat uncharitable. The £38 billion figure (more an overspend or deficit than a “black hole”) is <a href="https://fullfact.org/factchecks/defence_spending_38_billion_black_hole-2572">debatable</a>, and while the “12 year gap” is not, long periods between major reviews are historically <a href="http://www.parliament.uk/briefing-papers/SN05714.pdf">not uncommon</a>. </p>
<p>And while it’s hard to quantify claims such as “we have strengthened Britain’s place in the world”, many commentators have recently questioned this one in particular. </p>
<p>The Financial Times, hardly a citadel of the left, has <a href="http://www.ft.com/cms/s/0/0947ebf8-c7f4-11e4-8210-00144feab7de.html#axzz3XN82NnR2">noted</a> that “the principal markers of Mr Cameron’s foreign and defence policies have been drift and retreat.” The Economist <a href="http://www.economist.com/news/special-report/21647789-no-party-promising-renewed-engagement-world-keeping-up-appearances">decried</a> the Foreign Office as “underfunded and demoralised”. When it comes to defence spending in particular, even the other partner in the so-called Special Relationship has signalled that it is “<a href="http://www.bbc.co.uk/news/uk-31688929">very concerned</a>” with the impact of recent cuts. </p>
<p>The government’s claim to have “balanced the defence budget” is <a href="http://www.bbc.co.uk/news/uk-politics-18054731">not new</a>, but as RUSI reported in an <a href="https://www.rusi.org/downloads/assets/201502-BP-MoD-Emerging-Budgetary-Challenge.pdf">analysis</a> of defence spending, it also “relies on the assumption that the equipment budget will grow at 1% above inflation every year, and that the rest of the budget is maintained at real 2015/16 levels.”</p>
<p>This has <a href="http://www.independent.co.uk/news/uk/politics/government-reveals-it-has-balanced-the-defence-budget--but-at-what-cost-to-britain-7746790.html">come at a cost to the British Armed Forces</a>. RUSI <a href="https://www.rusi.org/downloads/assets/201502-BP-MoD-Emerging-Budgetary-Challenge.pdf">found</a> that the bulk of real-terms cuts in spending has been “felt in the personnel budget”. </p>
<h2>Skeleton crew?</h2>
<p>There has been some worry about the size of the British Army after the next spending review. To pay for large capital expenditure equipment costs if you are not willing to increase the defence budget, you have to shrink the force. </p>
<p>That the army will be cut from 100,000 soldiers to 82,000 by 2020 <a href="http://www.army.mod.uk/documents/general/Army2020_Report_v2.pdf">has been known for some time</a>, but there have been recent warnings that it could be reduced to <a href="http://www.telegraph.co.uk/news/uknews/defence/11449136/British-Army-could-be-cut-to-just-50000-over-next-four-years-report-warns.html">as few as 50,000 soldiers</a>. So it is striking that the Tory manifesto commits not to reduce the army to below 82,000 soldiers.</p>
<p>Although the manifesto claims that a Conservative government will “maintain our world class Armed Forces”, there is no specific pledge to ring-fence defence spending; the MoD will most likely not be <a href="http://www.ft.com/cms/s/0/534b4a2c-6ba0-11e2-a700-00144feab49a.html#axzz3XN82NnR2">spared the axe</a>. </p>
<p>This is further exacerbated by the fact that the <a href="http://www.bbc.co.uk/news/uk-10812825">cost of Trident</a> and a large portion of the operational budget <a href="http://www.publications.parliament.uk/pa/cm201415/cmselect/cmdfence/469/46904.htm">comes out of the regular defence budget</a>.</p>
<h2>Spend, spend, spend (or don’t)</h2>
<p>The manifesto recognises that currently “we are meeting NATO’s two targets” of spending <a href="http://www.nato.int/cps/ic/natohq/official_texts_112964.htm">2% of GDP on defence, and 20% of that on major equipment costs</a>. Never mind the fact that this marker is only achieved by <a href="http://www.ft.com/cms/s/0/08e9e07a-c746-11e4-8e1f-00144feab7de.html?siteedition=uk#axzz3XN82NnR2">folding some intelligence costs into the MoD budget</a> – there is also no commitment in the manifesto to maintaining the 2% commitment in the future. </p>
<p>When it comes to procurement costs, the manifesto is quite specific, committing to “invest at least £160 billion … over the next decade” on six Type 45 Destroyers, seven Astute submarines, and an undisclosed number of Joint Strike Fighters, Scouts, Type 26 frigates and Apache helicopters. It also commits to put both the new Aircraft Carriers into service so that “we have one available for use at all times”. </p>
<p>But it is not clear how the defence budget will make sure these behemoths are value for money once they’re in service. Budget shortfalls could severely limit both the number of aircraft deployed to the carriers and the duration of their deployments.</p>
<p>It is no surprise that the Conservatives have pledged to “retain the Trident continuous at sea nuclear deterrent” and “four Successor Ballistic Missile Submarines”, both <a href="http://www.defensenews.com/story/defense/2015/04/09/conservatives-say-4-boats-planned-for-nuclear-deterrent-fleet/25514811/">announced</a> prior to the release of the manifesto. But as the RUSI report above <a href="https://www.rusi.org/downloads/assets/201502-BP-MoD-Emerging-Budgetary-Challenge.pdf">notes</a>, this would require serious trade-offs: replacing the Trident submarines is “due to take the largest share of the forward procurement programme” and “if economies have to be made, air, maritime and land systems could all be vulnerable”.</p>
<p>It is difficult to see how a Conservative government could stick to all of these major equipment expenditures, maintain manpower levels and keep the possibility of military operations open without a defence spend of 2% GDP over the next parliament. And given the party’s dogged pledge to eliminate the deficit, it’s hard to imagine it spending that much.</p>
<p>If the Conservatives get the chance to put this defence plan into policy, something will have to give. Ultimately, it looks like there would be be a tremendous gap between the ambition of the National Security Strategy and a Conservative government’s ability to fulfil it.</p><img src="https://counter.theconversation.com/content/40215/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Simon J Smith receives funding from the Economic and Social Research Council (ESRC), but this article does not reflect the views of the research councils. </span></em></p>The Conservatives can’t quite figure out how to both cut defence spending and procure new kit the UK can actually use.Simon J Smith, Research Associate, Department of Politics, Languages & International Studies, University of BathLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/401722015-04-14T16:03:59Z2015-04-14T16:03:59ZPledge-filled manifestos can’t solve chronic image problems<p>Both Labour and the Conservatives have now launched their 2015 manifestos – and both have used them to play to their strengths and tackle their biggest image problems head on.</p>
<p>Ed Milband presented his party as a force for fiscal responsibility, promising that Labour’s manifesto contained no unfunded pledges and that a Miliband-led government would eliminate the UK’s budget deficit during the next parliament. Then David Cameron tried to present the Conservatives as the party of increased NHS funding. </p>
<p>But the problem facing each party is the same: how credible will these attempts to change images be, coming so late in the day?</p>
<h2>About face</h2>
<p>Labour’s sudden and unapologetic conversion to fiscal conservatism is designed to show it can be trusted to manage the public finances – and inevitably, the credibility of its proposals is being questioned.</p>
<p>It would have been an easier sell if Labour had been consistently arguing for restraint over the past five years. Instead, it’s spent its years in opposition generally <a href="http://www.theguardian.com/politics/2012/jan/05/labour-party-spending-cuts-credible">opposing the coalition’s cuts</a> as a matter of course, making its commitment to fiscal rectitude just as the election approaches feel like a late conversion indeed.</p>
<p>Miliband’s Labour hasn’t always had a clear strategy for the deficit. His <a href="http://www.bbc.co.uk/news/uk-politics-29339581">failure to mention it</a> in his 2014 party conference speech was just one sign of a rather muddled approach to the problem; after the 2010 election, the party’s initial strategy was to talk about the necessity of cuts in general while opposing some of the most high-profile cuts introduced by the coalition, particularly when it came to <a href="http://www.bbc.co.uk/news/uk-politics-24230686">welfare</a>. Often, there seemed to be an almost instinctive opposition to cuts, particularly within the trade unions, but also within the party.</p>
<p>Labour argued that austerity was deepening the recession, and that the government should instead be promoting economic growth. The implication was that extra borrowing might be necessary to secure lift-off for the economy. </p>
<p>At first, there appeared to be plenty of support for this position. The coalition’s economic policies were <a href="http://www.theguardian.com/commentisfree/2013/apr/17/imf-criticism-uk-austerity-things-bad">criticised by the IMF</a> in 2013, with its chief economist warning the UK government that if it cut spending too quickly and too deeply, it would be “playing with fire”. </p>
<p>But the return to growth settled this argument. In 2014, the UK was the fastest-growing G7 economy, and its performance was <a href="http://www.theguardian.com/business/2014/oct/24/uk-economic-growth-slows">praised by the IMF</a>. In response, Labour changed tack, focusing on the “<a href="http://www.theguardian.com/business/economics-blog/2014/nov/19/cost-of-living-crisis-earnings-labour-miliband">cost of living crisis</a>” facing ordinary people who don’t yet feel the recovery.</p>
<h2>Own up</h2>
<p>Labour’s approach was not always in step with public opinion. YouGov’s tracker polls on the cuts show voters have consistently accepted their necessity, and now believe their effect on the economy has been at least broadly positive.</p>
<p>Early on, more voters viewed the coalition as cutting too deep and too fast than thought positively of them. <a href="https://d25d2506sfb94s.cloudfront.net/cumulus_uploads/document/4oeqyufe47/YG-Archives-Pol-Trackers-Government%20Cuts-070415.pdf">That has now reversed</a>. The YouGov data shows that voters believe the cuts have been carried out unfairly, but even that proportion has diminished.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/77895/original/image-20150414-24648-1i6qpt5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/77895/original/image-20150414-24648-1i6qpt5.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=339&fit=crop&dpr=1 600w, https://images.theconversation.com/files/77895/original/image-20150414-24648-1i6qpt5.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=339&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/77895/original/image-20150414-24648-1i6qpt5.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=339&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/77895/original/image-20150414-24648-1i6qpt5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=426&fit=crop&dpr=1 754w, https://images.theconversation.com/files/77895/original/image-20150414-24648-1i6qpt5.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=426&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/77895/original/image-20150414-24648-1i6qpt5.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=426&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Who is the best party on each issue? 2010-15.</span>
<span class="attribution"><a class="source" href="http://www.yougov.co.uk">YouGov</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Signing up to fiscal responsibility is intended to neutralise fears that a Labour government would spend and borrow too much money. Fairly or unfairly, the Brown era in particular is now remembered in many quarters as <a href="http://www.telegraph.co.uk/news/politics/labour/8569367/Labour-spending-Gordon-Brown-and-Ed-Balls-ignored-warnings-and-wasted-billions.html">irresponsibly spendthrift</a>, and Labour needed to acknowledge its mistakes. But Miliband hasn’t dealt with this image problem, never openly conceding that the last Labour government simply spent too much.</p>
<p>In many ways, that is understandable: the financial crisis was after all a global one, and many voters who distrust Labour might nevertheless support the idea of pumping extra money into public services. But the failure to deal with this perception allowed it to become entrenched – leaving Labour to play catch-up in the final weeks of the election campaign, with big questions of credibility still hovering over it.</p>
<h2>Someone’s got to pay</h2>
<p>The Conservatives, meanwhile, have similar problems. The party’s manifesto includes a number of totemic policies: an extension of the right-to-buy scheme for housing association tenants, increasing the inheritance tax threshold for family homes to £1m, and the promise of a referendum on EU membership by 2017.</p>
<p>But the Tory manifesto also contains pledges clearly targeted at some of its biggest image problems. Two in particular stand out: a promise to double the number of free hours of childcare for working parents of three- and four-year-olds to 30 hours per week, and a pledge to increase spending on the NHS by £8 billion per year. </p>
<p>The Conservatives have been accused of <a href="http://www.independent.co.uk/news/uk/politics/generalelection/general-election-2015-chancellor-george-osborne-ducks-questions-as-to-where-8bn-nhs-fund-will-come-from-if-tories-are-reelected-10170622.html">not explaining how they will pay</a> for these and other pledges. This may be a simple gamble: since the Tories are more trusted than Labour on the economy, they may be betting that they can afford to be fairly vague on where the money will come from.</p>
<p>The problem for the Conservatives, as with Labour’s conversion to fiscal responsibility, is that they are trying to achieve in weeks what they have struggled to achieve in years.</p>
<h2>Trust gap</h2>
<p>YouGov’s <a href="https://d25d2506sfb94s.cloudfront.net/cumulus_uploads/document/p897bk8f84/YG-Archives-Pol-Trackers-Issues(1)-Best-Party-on-Issue-130415.pdf">latest tracker poll on policy issues</a> shows the Tories trailing Labour by 16 percentage points on which party is best able to manage the NHS. That is a problem because the issue is highly salient: it is the third most important issue to voters, narrowly behind the economy and immigration.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/77932/original/image-20150414-24627-qhv7su.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/77932/original/image-20150414-24627-qhv7su.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=292&fit=crop&dpr=1 600w, https://images.theconversation.com/files/77932/original/image-20150414-24627-qhv7su.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=292&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/77932/original/image-20150414-24627-qhv7su.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=292&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/77932/original/image-20150414-24627-qhv7su.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=367&fit=crop&dpr=1 754w, https://images.theconversation.com/files/77932/original/image-20150414-24627-qhv7su.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=367&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/77932/original/image-20150414-24627-qhv7su.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=367&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Voters’ Perceptions of Parties’ Relative Competence on the NHS, 2010-15.</span>
<span class="attribution"><a class="source" href="http://www.yougov.co.uk">YouGov</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The Conservatives’ weakness on health goes back to one of the most damaging perceptions about the party: that it represents the well-off rather than ordinary people. </p>
<p>YouGov’s tracker polls on party images ask respondents which party is best captured by the statement that “it seems to appeal to one section of society rather than to the whole country”. The Tories have been <a href="https://d25d2506sfb94s.cloudfront.net/cumulus_uploads/document/jwdcibdlyj/YG-Archives-Pol-Trackers-Party%20Images-090415.pdf">at or around the 50% level</a> for the last five years, with Labour on only about 20%.</p>
<p>This arguably represents the partial failure of Conservative modernisation under Cameron. In particular, it is why <a href="https://theconversation.com/battle-for-the-north-west-of-england-looks-like-it-will-end-in-an-electoral-stalemate-38503">the Tories continue to struggle in the North of England</a>, where they could be supplanted by UKIP as Labour’s principal opposition in many constituencies.</p>
<p>Despite the exuberant claims at their manifesto launches, both Labour and the Conservatives will be hard pressed to neutralise their weaknesses before polling day. These are entrenched problems that will require years of work to fix. Images and reputations cannot be changed for the better overnight, although they can certainly be damaged quickly – and that is one of the main reasons why neither main party looks set to win a majority in May.</p><img src="https://counter.theconversation.com/content/40172/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tom Quinn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Both major parties have tried to address their key weaknesses head on – but it’s too late to change voters’ perceptions.Tom Quinn, Senior Lecturer, Department of Government, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/359382015-01-16T06:17:16Z2015-01-16T06:17:16ZGreece’s choice: vote for Germany or suffer the consequences<p>A joke that is often told among European leftists these days portrays the current situation between Germany and Greece quite accurately. An officer at the passport control at Athens airport asks a tourist: “What is your nationality?” He replies: “German.”</p>
<p>The officer then asks: “Occupation?”</p>
<p>Whereupon the tourist replies: “No, only visiting.”</p>
<p>The German tourist stands for the ambiguous position that the government in Berlin takes towards Greece: today the Germans might be just visiting, but Berlin’s intervention in Greece’s domestic politics might well have permanent effects.</p>
<h2>Your money or your life</h2>
<p>Only weeks before legislative elections in Athens, German politicians and press are confronting Greek voters with a choice that can more or less be rendered as “your money or your life”: vote for the status quo, or risk being kicked out of the eurozone. </p>
<p>Syriza, which is <a href="http://www.reuters.com/article/2015/01/07/us-greece-election-polls-idUSKBN0KG1OP20150107">performing well</a> in pre-election polls, demands a cancellation of a big part of the country’s crushing debts. In the run-up to the election, Der Spiegel <a href="http://www.spiegel.de/international/europe/merkel-and-germany-open-to-possible-greek-euro-zone-exit-a-1011277.html#ref=plista">reported</a> that Angela Merkel was ready to accept the exit of Greece from the eurozone if a new Greek government would not hold tight to austerity measures; a German government official was quoted saying that “resourceful lawyers will find a way” to kick Greece out.</p>
<p>Greece was confronted with another non-choice three years ago. Former Greek prime minister George Papandreou suggested <a href="http://www.spiegel.de/international/europe/caretaker-government-in-athens-greece-backs-away-from-referendum-plans-a-795746.html">holding a referendum</a> on the EU bailout package. Merkel and former French prime minister Nicolas Sarkozy reacted promptly and threatened to suspend their financial warrents for Greece. The humiliated Papandreou could not keep his promise to hold a referendum in the face of their opposition, and his tenure was soon over.</p>
<p>But Syriza’s leaders have made it absolutely clear they have no intention of leaving the euro. Their promises <a href="http://www.spiegel.de/politik/deutschland/augstein-kolumne-griechenland-und-seine-schulden-a-1010909.html">focus on the domestic realm</a>: improving the health care for those that suffered most in the crisis, introducing a minimum wage, and raising taxes on the rich. </p>
<p>Meanwhile, the party’s demand for <a href="https://theconversation.com/a-syriza-election-win-would-be-a-serious-setback-for-greece-35576">debt cancellation</a> worries the German political elite less than it would have a couple of years ago. This time, rather than being bailed out, Greece could simply be asked to leave.</p>
<h2>Double standard</h2>
<p>A glance at history immediately clarifies the real difference between “good” and “bad” debts. The first countries to break the Maastricht Treaty, which bound all European signatories to keep their annual deficits below 3% of GDP, were Germany and France. At that stage in the early 2000s, and for those countries, rigid financial discipline was deemed narrow-minded. </p>
<p>As Der Spiegel <a href="http://www.spiegel.de/international/europe/the-ticking-euro-bomb-how-the-euro-zone-ignored-its-own-rules-a-790333.html">recounts</a>, the Franco-German behaviour at the time was resolute: “Determined not to submit to sanctions, [they] managed to secure a majority in the EU’s Council of Economic and Finance Ministers to cancel the European Commission’s sanction procedure.”</p>
<p>Conversely, Greek political scientist Yannis Stavrakakis <a href="https://www.academia.edu/8727834/Debt_Society_Greece_and_the_future_of_Post-democracy">remembers</a> how his country became “overnight” the “sick man of Europe, a <em>bête noire</em> to be ridiculed, condemned and disciplined in the most severe way”. As he sees it, debt is being used as a tool in today’s Euro crisis “to threaten, subject, and control” countries that do not want to adhere to austerity politics made in Germany. </p>
<p>There are some voices in Germany taking a more circumspect line. The government’s chief economist, Marcel Fratzscher, recently <a href="http://greece.greekreporter.com/2015/01/10/diw-berlin-50-of-the-greek-debt-should-be-written-off/">floated</a> the idea that Germany “should probably reduce Greece’s public debt to half, which means €120 billion should be written off”. But he also acknowledged that this would harm Germany, and is highly unlikely ever to happen.</p>
<p>On January 25, the Greeks will decide who is going to become their next president, but the German government has already decided who it shouldn’t be. How sad that Germany’s contemporary politics are putting in jeopardy the very European democracy that they once helped build.</p><img src="https://counter.theconversation.com/content/35938/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jasper Finkeldey receives funding from the Economic and Social Research Council (ESRC).</span></em></p>A joke that is often told among European leftists these days portrays the current situation between Germany and Greece quite accurately. An officer at the passport control at Athens airport asks a tourist…Jasper Finkeldey, PhD student, Centre for Work, Organization, and Society, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/358242014-12-30T12:27:39Z2014-12-30T12:27:39ZJanuary poll puts Syriza in driving seat – and Greece on course for economic turmoil<p>Greece is <a href="http://www.bbc.co.uk/news/world-europe-30623421">set for a January 25 election</a> after the national parliament failed to elect a new president and already there is an air of crisis in a country that after five years of instability and austerity measures has just posted its first primary budget surplus in six years of recession.</p>
<p>The most likely beneficiary of this development is Syriza, a populist left-wing party led by Alexis Tsipras that has been topping the polls – basically by saying yes to any public demand that may bring in more votes. Tsipras’ economic plan is a hasty and ill-thought-out Keynesian program which aims at stimulating aggregate demand by increasing social welfare spending, public sector job creation and wage increases.</p>
<p>But Syriza represents the interests of the privileged classes of public employees, tax-evading professionals and state-nourished enterprises, the biggest losers over the past five years of fiscal consolidation and economic rationalisation. For them, a Syriza win is a promise to return to the good old pre-crisis days. It is no accident that almost all the people responsible for Syriza’s economic program are public employees and university professors, who were hired by the same system of nepotism which they themselves are currently criticising.</p>
<p>But is this possible? The answer is not now. Keynesian policies can be effective when an economy is entering a recession, as Greece did in 2010, but without a sovereign debt overhang. For massively indebted countries, finding loans at affordable borrowing rates is a Herculean task. Fiscal expansion is therefore out of the question. Syriza, like <a href="http://www.bbc.co.uk/news/world-europe-15551196">George Papandreou</a> before the election of 2009, say they can fully finance their economic program without specifying who is going to pay or from whom they will borrow money. Even worse, they do not know how much money their promises would cost.</p>
<p>My <a href="http://www.atiner.gr/papers/CBC2014-1324.pdf">conservative estimate would be a huge €30 billion</a> – which amounts to more tha 15% of GDP in just one year. The arithmetic is very simple. There are at least 2m people whose income depends on public finance. On average, during the crisis, they each lost €10,000. In order to fund a return to pre-crisis salaries, therefore, Syriza would need €20 billion.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/68089/original/image-20141230-8211-17nva85.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/68089/original/image-20141230-8211-17nva85.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/68089/original/image-20141230-8211-17nva85.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=458&fit=crop&dpr=1 600w, https://images.theconversation.com/files/68089/original/image-20141230-8211-17nva85.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=458&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/68089/original/image-20141230-8211-17nva85.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=458&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/68089/original/image-20141230-8211-17nva85.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=576&fit=crop&dpr=1 754w, https://images.theconversation.com/files/68089/original/image-20141230-8211-17nva85.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=576&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/68089/original/image-20141230-8211-17nva85.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=576&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Syriza is expected to win the January 25 election.</span>
<span class="attribution"><a class="source" href="http://metapolls.net/2014/12/16/greek-parliamentary-election-15-december-2014-mrb/#.VKKIxl4guA">Metapolls</a></span>
</figcaption>
</figure>
<p>On top of this, if Syriza proceeds with its other promises of <a href="https://theconversation.com/a-syriza-election-win-would-be-a-serious-setback-for-greece-35576">re-nationalising privatised companies</a> such as airlines, telecommunications, ports etc, then the cost becomes even higher. This might add another €10 billion. This adds up to €30 billion, an amount equal to the Greek public deficit of 2009. In 2014, Greece is expected to have a <a href="http://www.wsj.com/articles/greece-expects-primary-budget-surplus-for-2015-1416567297">primary public budget surplus</a> after five years of successful fiscal consolidation. Syriza’s economic program would undermine this achievement.</p>
<h2>Scylla and Charybdis</h2>
<p>Is there any way of financing such a massive economic program of government spending? Borrowing is not an option. The other “solution” is a Grexit – return to a national currency and start printing inflationary money as has been done <a href="http://www.inflation.eu/inflation-rates/greece/historic-inflation/cpi-inflation-greece.aspx">many times in the past</a>. This would be a catastrophe for the Greek standards of living as measured in euro. Countries like Russia know very well what the markets can do to a national currency. In a few days, Greeks may lose half of their purchasing power. The great majority of Greeks know this and they <a href="http://www.bbc.co.uk/news/world-europe-18185662">want to stay in the Eurozone</a>.</p>
<p>Syriza faces a dilemma similar to the one Odysseus was facing between <a href="http://www.litcharts.com/lit/the-odyssey/book-12">Scylla and Charybdis</a> (between a rock and a hard place). Either they continue to follow austerity measures – and lose many votes – or quit the euro and destroy Greece. Odysseus did the right thing and chose Scylla. He lost a few of his men but saved his ship. I believe that Syriza has no choice but to opt for Scylla – continuing austerity measures at the cost of some popularity. This, of course, assumes that the party can win the election on January 25, which, by itself, is another Herculean task, as the trends in the recent polls have shown.</p><img src="https://counter.theconversation.com/content/35824/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gregory T. Papanikos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Greece is set for a January 25 election after the national parliament failed to elect a new president and already there is an air of crisis in a country that after five years of instability and austerity…Gregory T. Papanikos, Honorary Professor, Department of Economics, University of StirlingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/309382014-08-27T12:01:57Z2014-08-27T12:01:57ZHollande’s presidency has been a disaster since day one – and things can only get worse<p>After the sudden <a href="http://www.theguardian.com/world/2014/aug/25/french-government-resigns-francois-hollande-manuel-valls">dissolution</a> of his government, French president François Hollande is edging ever a bit closer to the political abyss. </p>
<p>His prime minister, Manuel Valls, has just formed a new cabinet, which excludes three major socialist “rebels”: Arnaud Montebourg (economy), Benoît Hamon (education) and Aurélie Filippetti (culture). While various key figures, including former presidential candidate Segolène Royal, retain their posts, the net result is that the government’s political centre of gravity has shifted noticeably to the right.</p>
<p>Montebourg and Hamon were not only influential cabinet ministers; they had also made a Faustian bargain with Valls five months ago. In the aftermath of the spring’s <a href="http://www.realclearworld.com/2014/03/31/devastating_losses_for_frances_socialists_157104.html">calamitous local elections</a>, both men <a href="http://mobile.english.rfi.fr/economy/20140402-vallss-new-french-government-whos-it-and-why">gave their political backing</a> to the new prime minister. </p>
<p>The dissolved government was an unholy alliance. The departed ministers come from the party’s soft left, whereas the former interior minister has long cultivated an <a href="http://www.independent.co.uk/voices/comment/the-arrival-of-prime-minister-manuel-valls-has-set-a-new-french-revolution-in-train-9259725.html">uncompromising right-wing profile</a>. Clearly Montebourg and Hamon hoped that going all-in with Valls would force Hollande to change his stand on Europe, and on the controversial “<a href="http://www.policy-network.net/pno_detail.aspx?ID=4577&title=Hollandes-%E2%80%98Responsibility-Pact-bleak-supply-side-shock-or-bold-reformist-move">Responsibility Pact</a>”.</p>
<p>A growing number of Socialist party faithful are openly decrying the austerity drive imposed by the European Central Bank, under the surveillance of Angela Merkel. They complain that it undermines people’s purchasing power, increases France’s public deficit, and has led to the rise of the extreme right. </p>
<p>As Montebourg <a href="http://www.theguardian.com/world/2014/aug/25/francois-hollande-socialist-dissidents-reshuffle-france">put it</a> in his farewell speech at the Economy ministry, austerity policies have “continued to mire the eurozone in recession and soon, deflation”.</p>
<p>He had a point.</p>
<h2>Going nowhere fast</h2>
<p>Despite all the pro-business and pro-market measures, the French economy has been in poor shape since 2012. According to INSEE’s economic forecast, the French economy <a href="http://online.wsj.com/articles/french-statistics-bureau-insee-projects-2014-gdp-growth-of-0-7-1403640368">will grow 0.7% this year</a>, significantly below the government’s 1% forecast, while unemployment is set to rise to 10.2% by 2015.</p>
<p>Hollande’s Responsibility Pact was announced in January 2014. It aims to lower corporations’ <a href="http://www.ft.com/intl/cms/s/0/242d5920-898f-11e3-abc4-00144feab7de.html">labour costs</a> in return for boosting recruitment, part of a swathe of measures to reduce unemployment. This effort represents a €41 billion cut to the levies firms pay on labour. </p>
<p>The French employers’ union, the MEDEF, has categorically <a href="http://online.wsj.com/news/articles/SB10001424052702304026804579410693633030288">refused to pledge</a> it would create jobs in return. At the same time, Hollande has announced he would <a href="http://bigstory.ap.org/article/french-cut-50-billion-euros-public-spending">cut €50 billion from public spending by 2017</a> in a bid to rebuild confidence in the French economy.</p>
<p>Austerity measures are obviously unpopular. They have already left lower-salaried workers with less purchasing power, and there have been drastic cuts in public spending and public services. Tax cuts have drained the state’s revenue stream, so public debt has increased from 85.8% of GDP in 2011 to 93.5% in 2013. In reality, austerity has increased public debt and has been totally unhelpful to tackle the deficit.</p>
<h2>Feeble warriors</h2>
<p>The first Valls government was labelled a government of “<a href="http://www.rtl.fr/actu/politique/remaniement-ministeriel-les-guerriers-de-manuel-valls-seront-avant-tout-hollandais-7770882516">guerriers</a>” (warriors), an attempt to burnish the new team with a macho patina of unity and resoluteness. These were only words: it only took 147 days for the government to implode, one of the shortest periods in power for any French cabinet since de Gaulle founded the Fifth Republic in 1958.</p>
<p>And despite having an absolute majority in the National Assembly, the Socialist government remains weak. There is no political majority to back its economic policies; austerity is not only rejected by the left (Left Front and EELV - the Green party), but it is also increasingly criticised by various factions within Hollande’s notionally <a href="http://www.news24.com/World/News/Hollande-to-install-govt-with-centre-left-agenda-20140826">centre-left</a> Socialist party. </p>
<p>Tellingly, most socialist “rebels” are not hard leftists; they are moderate social democrats, who are genuinely unconvinced that austerity is going to help restart the economy. They are also deeply disturbed about the political impact of Hollande’s policies after the party’s recent crushing defeats. </p>
<p>What’s more, there is every sign the situation is getting worse. Going by opinion polls, if there were a presidential election today, neither Hollande nor Valls would qualify for the second round. To make matters even worse for the Socialists, a disillusioned and angry popular electorate is abstaining en masse – and some, of course, have been voting for Marine le Pen’s far-right <a href="https://theconversation.com/the-french-front-national-is-still-an-extreme-right-wing-party-20983">Front National</a>.</p>
<p>But all this was entirely predictable. After all, Hollande’s government has been in perpetual crisis almost since he took office.</p>
<h2>Dashed hopes</h2>
<p>To be elected president of the French republic, Hollande pledged <a href="http://www.thedailybeast.com/articles/2012/05/07/francois-hollande-france-s-anti-sarkozy-president.html">a break with five years of Sarkozyism</a>. He promised to govern for the many who have been suffering from the economic recession; he was also committed, he said, to a more transparent and more collective style of leadership. None of this has been evident in his term so far.</p>
<p>With the so-called “rebels” removed from the government, the situation looks bleak – especially for those campaigning against austerity. </p>
<p>In an act of defiance, Valls has nominated <a href="http://www.thetoc.gr/eng/news/article/who-is-emmanuel-macron-frances-new-economy-minister">Emmanuel Macron</a> to the economy ministry. Before becoming Hollande’s deputy secretary general at the Élysée Palace, Macron used to work in the Rothschild Bank. He is a staunch partisan of austerity and of the pursuit of free-market policies.</p>
<p>In a stubborn bid for survival, Hollande (via Valls) has yet again dismissed his critics rather than engaging them. The president is not for turning, and neither are his opponents from his own party – but with no economic improvement in sight, the political crisis he faces can only get worse.</p><img src="https://counter.theconversation.com/content/30938/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Philippe Marlière does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>After the sudden dissolution of his government, French president François Hollande is edging ever a bit closer to the political abyss. His prime minister, Manuel Valls, has just formed a new cabinet, which…Philippe Marlière, Professor in French and European Politics, UCLLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/239812014-03-10T19:52:03Z2014-03-10T19:52:03Z‘Crowding out’ and the fallacy of fiscal austerity<figure><img src="https://images.theconversation.com/files/43130/original/38svjnx7-1393985853.jpg?ixlib=rb-1.1.0&rect=11%2C173%2C982%2C811&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The "crowding out" theory underpinning arguments to slash government spending should be viewed with scepticism. </span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p>In the lead-up to the federal government’s budget in May, we’ve been told to expect deep cuts in government spending. Such a policy is said to contribute to a short run decline in Australia’s economic activity, but will lead in the longer term to a greater sustained expansion as the private sector grows and blooms like flowers in spring. </p>
<p>This argument is a fallacy - grounded in a false economic theory. I’ll explain why.</p>
<p>The fiscal austerity argument is essentially based on “crowding-out”, which contends that expanding the size of government will in the long run crowd out the private sector. So shrinking government through fiscal consolidation will release resources enabling the private sector to expand. </p>
<p>The fundamental basis for this argument is that competitive market forces push the economy toward a state in which resources, capital and labour, are fully employed - referred to as “full employment”.</p>
<p>In economic theory, this long run tendency to full employment is essentially based on the “substitution principle”; that the demand for labour and capital will each functionally increase as their respective prices decline in relation to each other. </p>
<p>The theory can be illustrated this way. Suppose the economy is in a downturn and there is unemployment. The competition for jobs would then drive down the real wage of workers in general, and because the cost of employing people has fallen, it will be more profitable for firms to employ a more labour-intensive technique of production. So they substitute labour for capital, increasing the demand for labour. </p>
<p>However, if there is unemployment, then it means there is not a sufficient demand for products in the economy. So for the economy to adjust there requires also to be a reduction in interest rates to generate private investment spending and stoke aggregate (or total) demand, to get the full-employment caravan back on the road. </p>
<p>This investment response also relies on the substitution principle. Lower interest rates make borrowing cheaper and make it more profitable for firms to employ a more capital-intensive technique, brought about by higher expenditure on capital equipment.</p>
<p>A significant group of economic writers have objected to this tendency to full employment traditionally on the grounds that even in conditions of unemployment, wages will not decline as is required by the theory. </p>
<p>But there is a much more substantive scientific objection to this theory of a tendency to full employment. </p>
<p>Some 50 years ago, leading theorists in economic science, predominantly from Cambridge University and the Massachusetts Institute of Technology joined in what is called the “<a href="http://cameroneconomics.com/ccc.pdf">capital debates</a>”. These debates were controversial because they demonstrated some serious logical inconsistencies in the traditional theory of production and distribution. They essentially revolved around the problem of measuring the total stock of capital of an economy as a homogeneous quantity when it consists of heterogeneous capital goods (that is, different kinds of machines, equipment).</p>
<p>What the capital debates established is that the substitution principle, which underlies the theory of adjustment to full-employment, is only valid in an economy which produces one type of commodity. So, for an economy - such as Australia - which produces a multitude of different goods (most of which are used as inputs for producing other goods) using a variety of different production methods, the substitution principle is not valid, completely undermining the theory. </p>
<p>What this result means is that in general, if real wages do decline due to unemployment, it is as probable that the demand for labour will decline as it will increase, as firms find more capital-intensive techniques are more profitable than labour-intensive ones. So demand for labour declines, substituted by capital. </p>
<p>Similarly, a reduction in the interest rate can make a more labour-intensive technique more profitable for firms to employ than a more capital-intensive technique, causing a reduction in investment spending rather than an increase as supposed by the theory. </p>
<p>The consequence is that there is no predictable relationship between real wages and the demand for labour and the rate of interest on capital and the volume of investment expenditure. Hence, the economic theory which supposes that competitive forces cause a long run tendency to full-employment output is in general not valid.</p>
<p>Deprived of this theory, crowding-out has little merit - and fiscal consolidation leading to private sector growth, has little theoretical support. As I said at the beginning, it is a fallacy.</p>
<p>It can of course be argued that a fiscal policy which changes the composition of government expenditure and the tax mix could in the long run induce stronger growth - but that would rely on contestable assumptions about how in general the private sector responds in terms of capital spending, consumption and technical innovation to increase productivity. It could not rely on a theory that competition operates as a tendency to a full-employment economy.</p>
<p>In fact, by increasing the rate of labour unemployment and unutilised capital equipment in the short term, fiscal consolidation runs the risk of contributing to slower longer term growth. </p>
<p>Higher unemployment tends to undermine consumer confidence and spending, while firms with greater unused productive capacity are likely to downsize their investment expenditure so that the overall growth in private investment is slowed. </p>
<p>Hence, the most useful thing governments can do to promote stronger trend growth is to use fiscal policy to prevent significant downturns in their economy which undermines the confidence to spend. </p>
<p>Recent historical evidence appears to support our contention. According to the statistical data of the International Monetary Fund, in the years since the UK’s Conservative-Liberal coalition government chose to implement an austerity fiscal policy in 2010, a year in which the economy recovered from the depressing effects of the global financial crisis, the annual growth rate has declined with the average below 1%. </p>
<p>More spectacularly, in the several years since the European sovereign debtor countries of Spain, Portugal, Italy and Greece each implemented fiscal austerity, their economies have contracted with no signs yet of any sustained recovery. </p>
<p>If it is indeed the objective of policymakers to wind back public debt as a proportion of GDP, then the best policy is one which promotes sustained economic growth and a healthy growth in tax revenue, and that will not be achieved by fiscal austerity.</p><img src="https://counter.theconversation.com/content/23981/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthew Smith does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In the lead-up to the federal government’s budget in May, we’ve been told to expect deep cuts in government spending. Such a policy is said to contribute to a short run decline in Australia’s economic…Matthew Smith, Senior Lecturer in Economics, University of SydneyLicensed as Creative Commons – attribution, no derivatives.