John Shefner and Cory Blad, Why Austerity Persists (John Wiley & Sons, 2019)

Abstract

Why Austerity Persists shows that some universally accepted policies used in response to economic crises are ineffective. Rather than increasing economic growth, austerity measures worsen inequality both between and within countries. The authors, Jon Shefner (University of Tennessee) and Cory Blad (Manhattan College), illustrate their argument effectively with case studies in five different regions: Latin America, Africa, Asia and Oceania, the United States, and the European Union.First, the authors explain the evolving definitions of austerity, which have moved beyond “resolving public debt.” In fact, in the 1990s the term implied cutting public expenditures, reducing basic subsidies on survival goods, devaluing currency, and raising prices. In 2004 an international network led by the World Bank and focusing on the global South defined austerity as “stabilization” programs that “imposed strict fiscal and monetary discipline on indebted countries as a condition for receiving short-term balance of payment credits.” This “fiscal and monetary discipline” denoted measures such as trade liberalization, investment deregulation, and privatization of state enterprises. In 2008, the financial crisis shifted focus to the global North and redefined austerity as “voluntary deflation in which the economy adjusts through reduction of wages, prices, and public spending to restore competitiveness, which is best achieved by cutting the state’s budget, debts, and deficits.” The authors, however, characterize austerity as “among the first steps in the neoliberal process of economic and political restructuring to the benefit of the elites.” While the case studies of austerity show similar mechanisms, the “architects of austerity” have varied and have included powerful states, banks, and international financial institutions, as well as pro-austerity actors in academia, government, and business.In the second chapter, Shefner and Blad show that the growing economies of Chile, Mexico, and Ecuador had different economic starting points (thriving middle class, upcoming economic power, relative poverty) and political structures (dictatorship, one-party populism, emerging democracy). However, for various reasons they were unable to repay their debts and fell into economic crises. The debt negotiations in the 1980s and 1990s, led by the United States and backed by the IMF, included neoliberal austerity measures with major social implications, including massive wealth transfer from Latin American to Northern banks, economic benefits for the local elite, and economic hardships for the working- and middle-class. The third chapter considers the efforts of post-apartheid South Africa and Zimbabwe to integrate into the neoliberal market economy. Here, the recommendations of the World Bank and the IMF led to reduced social spending and increased debt repayment. In other words, “global powers found willing allies even in governments founded on reversing racial and class exploitation.” Chapter 4 explains that the Asian financial crisis of 1997 resulted in comparable austerity measures in Thailand, Indonesia, and New Zealand. While external pressures were responsible for the austerity measures in Thailand and Indonesia, in New Zealand the local elite imposed austerity measures that mirror those of other countries in the global North, as explained in the subsequent chapters.In Chapter 5, the focus turns to the United States, the lack of an extensive welfare state, labor, and insufficient updates of production, transportation, and communications infrastructure, in combination with deindustrialization in the global North. Austerity in the United States has been driven by political ideologies promoted by academia, think thanks, and foundations. Yet the loss of industrial jobs, tax cuts, and reduced social spending increased social needs, exacerbated social inequality, and constrained government interventions to address these problems.Chapter 6 examines the Eurozone crisis and the austerity in Greece, Spain, and the United Kingdom. As Greece and Spain fell into deep financial struggles in the 2008 global economic crisis, austerity measures were imposed similar to those in the countries of the global South. However, these crisis-driven demands on Greece and Spain were driven less by the United States and the IMF, and more by Germany, the European Union, the European Central Bank, and credit-ranking institutions. In the United Kingdom, the 2008 crisis prompted self-imposed austerity measures, which hit many working- and middle-class households particularly hard and contributed to the Brexit vote.The final chapter summarizes that austerity consistently failed to create economic growth and equity, and even if it did create some growth, it benefited few and hurt many.Given the COVID-19 pandemic and the new global economic crisis, Why Austerity Persists is an unintentionally timely book that is important to read for policymakers, economists, academics, students, and the public. With the increasing public awareness of various forms of inequality, this book can inform policymakers to make better economic choices by avoiding austerity measures; persuade economists and academics to end the hegemonic ideology of austerity and spread more equitable resolutions for economic crisis management; and educate the public about the injustice they have suffered so that they use their voice to reverse current austerity measures and prevent future ones.