The consequences of austerity in Britain are now so apparent that even many of its erstwhile cheerleaders are, at last, sheepishly facing up to them. The last thirteen years of underfunding and neglect have left the NHS, in particular, in a state of near collapse. Accident and emergency departments are overwhelmed, and many patients find themselves waiting in acute distress for ambulances that may take hours to arrive.
Even the Financial Times, the voice par excellence of finance capital, has acknowledged the seriousness of the situation and laid the blame for it at austerity’s door. It highlights the devastating impact of government cuts on health, with Britain’s rate of premature, avoidable deaths now on a par with those caused by the opioid crisis in the United States. Life expectancy has stalled overall and gone sharply into reverse in the poorest areas; austerity policies are estimated to have been culpable for more than 300,000 excess deaths.
At this point, Britain’s social fabric looks to be held together with gaffer tape and, even then, only just. Austerity has left Britain a much unhealthier and unhappier place than it otherwise might have been, not to mention a more callous one. But it is more or less cost-free for the more honest newspapers to finally own up to this, and to the suffering caused by policies that nearly all of them previously endorsed, now that the demise of Corbynism has seen any alternative to austerity booted out of the public square.
Clara E. Mattei’s insightful intellectual history of austerity, The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism, examines its genesis in 1920s Britain and Italy, stripping away the layers of ideology to ask why it has proven so enduring and whose interests it serves. With a new age of austerity in the offing, the book is, regrettably, more timely than its author could have anticipated.
Austerity as Class War
Keynesian and social democratic critics of austerity often frame it as a counterproductive fetish for balanced budgets: cutting government spending in a slump, they argue, weakens aggregate demand and therefore compounds the crisis. Mattei disagrees fundamentally with this critique, which she suggests is short-sighted, insisting that austerity serves very rational purposes for certain interests with an eye on the long-term balance of class forces.
Austerity has, Mattei argues, provided pro-capitalist ideologues with a ‘powerful counteroffensive’ in times of crisis, binding workers and members of other classes ever tighter to the capitalist system, even where this requires ‘profound (if involuntary) sacrifices’ on their part. It has performed this function at least since the interwar period of the twentieth century, when governments found themselves confronted with militant working-class movements, and the prospect of European revolution appeared all too real.
During the First World War, capitalist governments were forced to abandon laissez-faire dogma and drastically increase state control over the economy. Private capital had proven to allocate vital resources inefficiently, chasing easy profits at the expense of the wider war effort. Key industries were nationalised while agricultural production, the distribution of goods, and consumption were also the subject of state intervention. Crucially, the ‘inviolability of private property’ was no longer sacrosanct, and workers could see it.
As countries came off the gold standard, their hands were no longer so tied when it came to fiscal policy. Labour and trade union representatives had more influence than ever before — Labour Party ministers sat in the British war cabinet — and working-class expectations were correspondingly raised; it goes without saying that the experience of seeing millions of their youth fed into the meat grinder by their rulers in pursuit of inter-imperialist squabble also had a powerful radicalising effect of its own.
Warring governments hoped that social peace could be purchased through social reform, the better to prosecute the war effort. But this failed on two counts: first, wartime reforms never quite met the hopes many workers had placed in them, and second, the ‘profoundly political nature of the capitalist economy’ had been exposed. It became clear to workers that wage rates, working conditions, and the distribution and allocation of wealth were the subject of political decisions, and that they were therefore legitimately the subject of political contestation as well.
State intervention in the wartime economy effectively broke the spell of the free market, fuelling industrial and political militancy. The militancy of the 1919–20 biennio rosso in Italy’s industrial belt is much celebrated in European labour history, but in Britain, too, 1919 saw 35 million working days lost (or rather, taken back) through strike action, with an average of 100,000 workers on strike each day. New political demands bubbled up from below, among them workers’ control and the extension of democracy into the economic sphere.
Many members of the intelligentsia and state functionaries assumed that the new dispensation was permanent. But the long-term future of capitalism itself was looking increasingly shaky as popular ferment increased. An important locus of opposition to this emerged within the British Treasury and Italian liberalism, both prescribing a return to fiscal restraint and sound money to shore up the faltering system. Economists — once pegged as the ‘hired prizefighters’ of capital by Marx — took up a vanguard role.
To revive capital accumulation, the hopes of the working class had to be crushed and its militancy curbed. And so it was: by 1921, unemployment in Britain had soared to 11.3 percent, with trade union membership consequently plummeting from 40 percent of the workforce at the end of the First World War to only a quarter by the end of the 1920s. In Italy, workers’ gains in the fields of social insurance, disability insurance, and labour protections were forcibly rolled back at gunpoint by the fascist state after 1922.
While economic growth was curtailed in the immediate term, this was far from irrational from the standpoint of capital. The more important outcome was that workers were, once more, subjugated to the market and the capitalist system. Deflation caused profits to fall in the short run, but in the longer run much greater rewards were held out for capital — in the form of a cowed labour force that was much easier to exploit.
The Moral Economy of Austerity
Mattei stresses that the austerity counteroffensive worked on both the ideological level and the material, bread-and-butter level. While accompanied by repression of working-class organisations in various forms — far more extreme, obviously, in Mussolini’s Italy than in 1920s Britain — the ideology of austerity ‘thwarts critiques of vertical relations of production, justifies capitalism, and counsels public compliance’. The imposition of austerity after the 2008 Financial Crash generated resistance, but the ideology of austerity nevertheless played an important role in ultimately reconciling European electorates to it.
Following the First World War, the capitalist economy itself had to be depoliticised (and demystified) all over again, Mattei argues: the dangerous belief that people could actively, collectively reshape the economy in their own interests had to be snuffed out. Bourgeois economists, while in reality always playing a partisan role, have prided themselves on being purveyors of scientific, hard truths transcending petty class interests. Austerity theory had to be presented in this light if workers were to be made to accept and internalise their own subjugation — and economists had to appear to be above the fray.
One of the main villains in Mattei’s account is Ralph Hawtrey, the leading intellectual architect of the ‘Treasury View’ in the 1920s. In Hawtrey’s opinion, as in that of generations of orthodox, ‘scientific’ economists since, inflation was the ‘primary threat to the market economy’ — and its main cause was overindulgence on the part of the working class. Increased employment and wages, therefore, came to be regarded ‘not as an achievement of economic progress but as a threat to the standard of value’.
We see here how austerity was informed by a moral philosophy, one that held workers in low regard. This individualistic, proto-meritocratic framework — still pervasive today — held that those who found themselves at the top of the pile were there through superior merit and dynamism, and that those at the bottom were there not through misfortune but their own sloth and ineptitude. Only the capitalist class, in this view, could be considered truly productive; the working class, by contrast, had to be continually chivvied lest it fall victim to its inbuilt tendencies towards overindulgence, laziness, and lack of restraint.
Success, or otherwise, in the market economy was therefore a choice, and workers were ‘guilty of a desire to live above their means’. Austerity sought to counter these demands by speaking in the language of ‘economic science’, stressing hard choices and objectivity. Workers had to be convinced that any attempt at an alternative course was sure to be perverse in its outcomes, if not outright disastrous for all concerned. Liberal economists devised an ideal type — the ‘rational saver’ — the fallacy being that anyone could become a rational saver if only they were sufficiently thrifty. But, Mattei reminds us, ‘the only consumers who had the capacity to be virtuous and save were really the bourgeois’.
Only private industrialists, it was argued, had the wherewithal and the capacity to lift capitalist economies out of slump; stimulating demand through redistributing wealth to workers could only produce improvidence and inflation. Austerity thus aimed to legitimise and carry out wholesale wealth transfer to private capital through weakening working-class bargaining power, and intensifying the exploitation of workers by snatching even more wealth out of their pockets — reassuring them all the while that it was simply for their own good, and that to do anything else would inevitably be self-defeating.
However potent austerity’s ideological offensive was, austerity policies nevertheless represented a frontal attack on working-class living standards; hence, persuasion and rhetoric alone could not possibly suffice if the social wage was to be slashed as austerity’s advocates desired. Compulsion was also essential. In Britain, anti-union laws largely sufficed for the purpose, but in Italy — where the threat of revolution was altogether more tangible — Mussolini’s dictatorship would impose austerity without mercy, and in doing so was greeted with a sigh of relief by economic liberals elsewhere.
Partners in Crime
Ishay Landa’s study, The Apprentice’s Sorcerer, highlights the central contradiction between political liberalism and economic liberalism. While political liberalism upholds — at least in theory — plurality; freedom of conscience, association, and expression; and the free play of democratic forces, all of these are inherently at odds with economic liberalism’s fundamental commitment to private property and untrammelled profit. The danger of political liberalism, from the standpoint of capital, is that it may harbour forces hostile to economic liberalism.
As Mattei demonstrates, supporters of austerity have consistently been united across other ideological divides by a tacit recognition that capitalism and democracy, far from being inseparable, can only exist in tension with one another. Friedrich von Hayek was more candid than most, infamously stating that he favoured a ‘liberal’ dictatorship over a ‘democratic government lacking in liberalism’. (Hayek served as adviser to Augusto Pinochet and continued to insist that the Chilean dictatorship, which murdered several thousand people and tortured many more, offered greater ‘personal freedom’ than the democratic socialist Allende government it had drowned in blood.)
What brought together fascists and liberal economists in the 1920s was a shared commitment to economic freedoms — for a particular class of people — over and above political freedoms, and a willingness to abrogate the latter in defence of the former, even if this had to be done at gunpoint. In the early years of Mussolini’s rule, economic liberals — including in the British Treasury — looked admiringly to Italian fascism, seeing in it a bulwark of private property and a useful safeguard against the threat of social revolution.
Liberals often portray fascism as being inherently dirigiste and economically anti-liberal, but this was far from the case in Italy, particularly during the early years of Mussolini’s dictatorship. His finance minister from 1922 to 1925, Alberto de Stefani, was impeccably liberal in economic policy, implementing a programme of budgetary restraint, privatisation and favourable tax treatment for the wealthy; liberal newspapers in Britain welcomed him as a responsible technocrat willing to take unpopular decisions in the national interest.
But de Stefani could afford to take (and was able to impose) unpopular decisions precisely because he had the iron fist of fascism to back him up. Many British liberals, however, saw no apparent contradiction between the authoritarian state and the liberal economy; by contrast, Mattei points out, they saw in Mussolini’s dictatorship ‘an unavoidable and necessary means to govern a turbulent country and achieve sound economic objectives’.
The British government moved quickly to shore up its investments in Italy. Mussolini soon received the ultimate liberal vote of confidence, in the form of the finances needed to consolidate his control. Italy’s war debts were settled and the lira stabilised, providing a clear demonstration of finance capital’s confidence in the regime. For his part, Mussolini was well aware that the continued enforcement of austerity policies was necessary if he was to retain that confidence and prove that Italy remained creditworthy.
Austerity and Italian fascism were two sides of the same coin: austerity required fascism to impose discipline on a previously highly restive working class, while fascism ‘required austerity to solidify its rule’. Britain, less at risk of revolution — and, crucially, then in possession of the world’s largest empire and its immense resources, a safety valve which Italy’s ruling class lacked — could afford to make do with more restrained methods. Rather than resorting to the heavy hand of the fascist state, British liberal economists instead looked to a return to the gold standard and a powerful, technocratic central bank so that both fiscal and monetary policies could be insulated from democratic pressures.
While the means were vastly different, the ruling-class offensives in Britain and Italy shared common ends. By the end of the 1920s, the results were crystal clear: the British working class saw all of its post-war income gains wiped out by 1929, by which time the wage share obtained by Italian workers had been reduced to the level of sixteen years earlier. The major welfare reforms successfully wrested out of the grip of Italian employers and the state were reversed, while the profitability rate in Britain trebled over the course of the decade.
Neoliberalism & Neofascism
One minor criticism of The Capital Order is that its presentation of liberalism can be somewhat monolithic; although a full account would have been beyond the purview of the book, there was much more ferment within liberalism in the period under discussion than Mattei allows for. Liberalism at this time was wracked by internal debates and disagreements, with a rising fraction of liberal opinion — the so-called ‘new liberalism’, or social liberalism — moving towards social democracy and providing much of the intellectual and policy framework that would inform the New Deal and Europe’s post-war welfare states.
From the late 1930s, with liberalism very visibly in crisis, a new generation of liberal intellectuals began to outline a new economic liberalism as a reaction against both earlier forms of laissez-faire liberalism and Keynesianism. As social democracy itself crumbled in the 1970s, the neoliberals filled the vacuum, their prescriptions being adopted — with varying degrees of willingness — by governments around the world. Social democracy too would reconcile itself to the new dispensation; Margaret Thatcher would later crow, with justification, ‘[W]e forced our opponents to change their minds.’
Fascism was locked out of power in most of Europe after the Second World War, sealed off behind an official cordon sanitaire which is only now eroding. It continued, however, to serve the cause of global counter-revolution as part of the anti-communist Cold War bloc. In the Global South, an anti-communist extermination campaign — harrowingly documented in Vincent Bevins’ The Jakarta Method and written out of most other accounts of the triumph of neoliberalism — racked up a seven-figure death toll. Like the earlier generation of economic liberals, supposedly scientific neoliberal economists, Hayek among them, turned a blind eye as US-sponsored fascist death squads and military juntas wiped out communists, socialists, trade unionists, and many other dissidents.
Austerity and fascism remain intertwined, not because fascism is still needed to annihilate mass working-class movements — mostly notable by their absence today — but by creating fertile ground for the extreme right through crushing alternatives and breeding despair, including in Mattei’s native Italy. (Giorgia Meloni’s rise to power in Italy has been received with relative equanimity by centrists, we should note, as she has pledged fealty to EU budgetary constraints and NATO.) Austerity has been enshrined in balanced-budget laws limiting government spending, competition laws curbing state intervention, and through the easy global mobility of capital, which subjects governments to a never-ending referendum on their policies and serves as a powerful deterrent to attempts at social reform.
Mattei emphasises in The Capital Order that the prescriptions for austerity of the 1920s were always intended to be permanent, rather than being merely ‘grim and exceptional’. As she says, governments now instinctively ‘look first to the services they provide their citizens when making cuts’ in times of crisis. This continually funnels even greater riches to the already astronomically wealthy at the expense of the less well-off: with real wages for the majority of British workers having flatlined for two decades, the combined wealth of UK billionaires now stands at £653 billion — surely a very rough estimate, given the tens of trillions squirrelled away in tax havens.
Is capitalism without austerity possible today? Mattei is sceptical, and ventures provocatively that, from a pro-capitalist standpoint, austerity’s presumptions ‘weren’t necessarily wrong’. The arguments marshalled in its favour (for public consumption, at any rate) might have been mendacious, disingenuous, and slathered in sickly, petit-bourgeois moralism, but they were underpinned by ‘an undeniable truth: for capitalism to function, workers had to be disciplined into accepting the two pillars of capital accumulation — the primacy of private property and wage relations’. The implication is that capitalism cannot be patched up or made more humane; instead, it has to be dismantled before it buries us all along with it.
However much real life contradicts the tenets of neoliberal theology, it still retains its grip, even with living standards on a seemingly endless decline for most. Popular movements emerged after the 2008 Financial Crisis, but none proved capable of forcing a rupture. Ralph Miliband made the point that neoliberal hegemony depended much less on active enthusiasm than on demoralised resignation. With the recent upsurge of left populism in Europe and the United States having now exhausted itself, that resignation persists.
But a system that offers no vision for a better future, and which refuses even social democratic palliatives, will always be vulnerable to challenge; and it will breed resistance. The task facing socialists is to act on it; to provide the necessary political leadership and to build the organisations, including political parties, which can channel the inevitable discontent created by an increasingly sclerotic and destructive capitalism into the struggle for social transformation. With the far right clearly growing in confidence and power, the consequences of failure scarcely bear thinking about.