Thursday, September 17, 2009

The excessive fear-mongering over public debts is unsustainable

The TUC is right to warn against public sector spending cuts (‘Cuts will lead to riots in the streets: TUC Chief’ 14th September =1). Fear-mongering over public debt has reached unsustainable levels.

The government have now given in to Conservative party hype over the level of public debt and announced there will be spending cuts. A great deal is made of the fact that Britain’s national debt now almost equals the country’s output.

Former US Secretary for Labor and economist Robert Reich points out that after every previous recession public investment in economic and social infrastructure has resulted in resumed economic growth which results in increased government revenues, eliminating the public debt. After the Great Depression and World War II the US federal debt equalled 120% of US GDP. A few years later it was gone. Similarly economic growth under Clinton wiped out the budget deficits run up under Reagan and Bush senior (though the scale of those deficits was so great for so long due to tax-cutting and high military spending that the debt continued to increase and the deficit resumed under Bush junior) (2).

Cutting public spending would not revive the economy or boost the private sector. If anything, by making public sector employees unemployed, it would weaken demand, leading to increased unemployment in the private sector too. As more unemployment benefit would have to be paid out and less tax would be collected this would also result in increased public debt. Higher unemployment would also give another boost to extremists and racists like the BNP.

We do need to face reality – the reality that the economic crisis was caused by neo-liberal free market ideology that led to deregulation and to the Clinton administration’s attempt to get private banks to provide social housing to avoid “big government”; and a wild swing from unrealistic euphoria to excessive panic; and that the reality isn’t as bad as the ideologues on the Conservative and Labour front benches claim it is. (3)

Rather than sack more NHS staff when those we have left are already overworked and in some cases made to do jobs they’re neither trained nor paid to do, we could save public money by scrapping the PFIs introduced by Kenneth Clarke when he was Chancellor and expanded by ‘New Labour’ as ‘PPPs’.

Some advocates of public spending cuts may also have a personal interest. To give just one example, Kenneth Clarke received at least £5000 for speaking at an event funded by HG Capital, whose website says they are involved in “public-to-private leveraged buy-outs” in areas including “healthcare”. (4), (5), (6).

Big public spending cuts would mean more profits for private healthcare firms (though not through PFI this time but more customers as NHS waiting times would rise further).

Clarke got another £5000 to £10000 for a speech at an event hosted by Goldman Sachs, an investment bank with a history of owning PFI companies (7), (8).

From Kenneth Clarke’s perspective there is probably nothing wrong with this, as many conservatives have an ideological belief in the private sector’s superiority over the public sector and that what is best for private firms is best for everyone. For those that don’t share this ideology though, taking money from firms making money from privatisation, private health care and PFIs while calling for big public sector spending cuts makes making expenses claims for moat cleaning and duck houses look mild by comparison.

On the Labour benches is former minister Charles Clarke MP, who has called for the extension of “user charges” for public services. (In other words paying twice – once in taxes and again when you use the NHS or public schools or universities). Charles Clarke has a £35,000 to £40,000 a year consultancy with Beachcroft LLP, a law firm whose website boasts of its expertise in negotiating PFI and PPP contracts (9), (10). (To be fair Charles Clarke does not share Kenneth Clarke’s ideology and opposed scrapping the reduced 10p tax rate for lower earners. He has also called for a crackdown on tax avoidance by big companies and for fairer taxes (11))

(It also brings up another question : Is it right for MPs to accept money from the taxpayer and from private companies at the same time? Can they really serve the general interest of the whole country while also accepting money and employment from individual companies?)

There are certainly areas where we could cut public spending. Apart from PFIs/PPPs, there are Export Credit Guarantees for arms sales to dictatorships, which frequently result in the taxpayer effectively paying for arms for these regimes. One was Saddam’s after the Gulf War. There are the massive subsidies that go to nuclear power to make it appear cheaper than the alternatives. There are the subsidies to privatised rail firms who keep all the profits from ticket prices that have risen at far above the rate of inflation. However it’s doubtful whether the right wing of the Labour party can be trusted to cut these rather than vital public sector jobs and the Conservative party’s record and current ideology suggests it definitely can’t be.

(1) = Guardian 14 May 2009 ‘David Cameron's plans to reduce budget deficit could spark strikes and riots, says TUC’,

(2) = Robert Reich’s blog 25 Aug 2009 ‘Don't Succumb to Deficit Hysteria’

(3) = NYT 16 Sep 2009 ‘Fannie Mae Eases Credit To Aid Mortgage Lending’,

(4) = House of Commons Register of Members’ Interests 02 Sep 2009,

(5) = HgCapital website – About HgCapital/History,

(6) = Hg Capital website – Sectors – Healthcare,

(7) = House of Commons Register of Members’ Interests 02 Sep 2009,

(8) Independent 23 Apr 2000 ‘Would-be landlords close in on Inland Revenue’,

(9) = House of Commons Register of Members’ Interests 02 Sep 2009,

(10) = Beachcroft website, Health and Public Sector,

(11) = Guardian 10 Sep 2009 ‘Clarke attacks Brown's 'misleading and incredible' election claims’,