I Background and Overview

Setting the Scene. The Politics of Austerity and Fiscal Squeeze

Since the 2008 financial crash, 'austerity' has been one of the top two or three issues dominating both practice and analysis of politics and economics in much of the world. Like most highly charged political terms, 'austerity' is rarely defined precisely and means different things to different people. In the past the word was used to mean deprivation or restraints on consumption, for example when governments hold down wages or when the essentials of daily life are scarce, severely rationed, or not available in legal markets.1 More recently, in Europe and North America at least, it has mostly come to denote government policies aimed at restraining public spending, raising taxes, or both.

Austerity in that sense has dominated practice because so much political conflict has been bound up with those issues of taxing and spending. Political drama related to cuts and squeezes across much of the world and especially in the eurozone over the past decade or so has included riots, strikes, demonstrations, epic election and referendum upsets, and (most notably in Greece) cliffhanging negotiations between debtor governments and their international creditors over financial bailouts. 'Austerity' has also dominated debate in ways ranging from abstruse discussions among economists over arcane concepts like 'expansionary fiscal contraction' to the billions of words poured into heated social media disputes about who is to blame for high public debt and deficit, who should pay for the necessary corrective measures, and who should be protected.[1] [2] A search on Scopus (the largest abstract and citation database of peer-reviewed literature, including scientific journals, books, and conference proceedings) using the keywords 'fiscal austerity' reveals a total of 110 publications (roughly 2.2 per year) for the forty-eight years from 1960 to 2008. But for the eight years from 2009 to 2016, the number quadrupled to 414— roughly fifty publications a year, on average.

Austerity poses central questions in politics and economics over how long and how hard it can be practised by democracies without big trouble of one kind or another. A century ago (shortly before the Russian Revolution) a leading British liberal and editor of The Economist, Francis Wrigley Hirst, declared, 'There is a limit to human endurance and the economic misery which a state can inflict on its people' (Hirst 1915: 150 quoted in Daunton 2002: 36). Equivalent sentiments today are more often expressed about the effects of public spending cutbacks than about the burdens of increased taxation that most preoccupied Hirst. But the basic issue has not gone away.

So what does this book contribute to an already crowded, long-standing, and heavily politicized debate? It aims to add three things. One, it puts more recent episodes of 'fiscal squeeze' (a term we will define shortly) into a longer- term context by offering for the first time an analysis of the politics of every fiscal squeeze over the course of a century in the United Kingdom, one of the world's leading and longest-established democracies. The era of fiscal squeeze that set in for many countries after the financial crash of 2008 was far from the first time in history when such policies had been practised, and for the UK at least, by no means the most severe on many measures. So to put the 'austerity politics' of that era into perspective, we need to look back at earlier episodes of fiscal squeeze to see what was different and what was the same, for example, in what triggered the squeezes, how the political process worked, what other policies of austerity or expansion accompanied fiscal squeeze, and what the electoral and political aftermath was.

Of course individual periods of austerity have been carefully explored by economic and political historians (such as Robert Skidelsky's (1967) classic study of the UK's 1929-31 Labour Government) and we draw heavily on the work of such scholars in some of the chapters of this book. In a few cases, more or less explicit comparisons have been drawn between the 2010s and a particular earlier episode, for example, in Barry Eichengreen's (2015) comparison of the handling of the financial crises of the 1930s and the 2010s in the United States. But the century-long timescale explored here allows us to bring out longer-term trends and patterns in how austerity politics work. For example, despite beguiling comparisons with the Great Depression of the 1930s, we show that the post-2010 squeeze in the UK in many ways had more in common with the squeezes of the 1980s and 1990s.

Second, this book focuses on three critical political choices that inevitably arise in any fiscal squeeze. One concerns what emphasis should be laid on tax hikes as against spending cuts (which of course also raises the issue of what kinds of taxes should be raised, on what items or groups, and what kinds of spending should be cut). How do democratic governments decide whether to tax more, spend less, or apply some mixture of the two? Another key political choice concerns whether to impose fiscal squeeze in 'short sharp shocks' that are deep but not prolonged, as against cushioning the blow or spreading the pain in smaller doses over a longer period. And a third issue, central to the politics of claiming credit and avoiding blame, concerns how incumbents in government choose to handle the blame for the losses imposed on voters by fiscal squeeze, for example, by sharing responsibility in emergency all-party coalitions or passing the poisoned chalice of proposing squeeze measures to independent experts or technocrats. As this book shows, political choices on each of those issues were quite variable in the UK over a century. So what accounts for that variation and for changes over time?

Finally, this book looks at what fiscal squeeze episodes leave behind them— in particular their electoral, political, and public policy consequences. For example, since the financial crash of 2008, observable changes in the western countries have included a remarkable growth of food banks run by charities as a supplement or substitute for state welfare and the raising of the age at which future retirement pensions are to be paid. In some cases new forms of decisionmaking have been introduced, such as the use of social media to inform decisions over which potholes to fill in by local authorities too cash-strapped to fix everything. If 'necessity is the mother of invention', as the old proverb has it, what inventions or innovations do fiscal squeezes produce in government or public services? When if ever do such episodes have the effect of dramatically reshaping the state, for example by changing what it does or how it does it, under pressures of 'doing more with less'? How, if at all, do fiscal squeezes change the electoral scene, in the way that political credit and blame plays out afterwards?

Many commentators have argued that there are strong inbuilt political pressures for higher public spending in modern democracies, highlighting the powerful opposition that constituencies created by the development of the welfare state can mobilize against efforts even to restrain the growth of public spending (see, for example, Brittan 1976). Some have claimed that such pressures stem from structural changes, notably urbanization, that accompany modern social development, while others (such as Wildavsky (1980: 231-70)) put them down to a long-term rise in egalitarian attitudes in western countries. And political (and bureaucratic) opponents of austerity are often said to engage in 'shroud-waving' and doom-laden predictions about the effects of cutting public spending to persuade voters to reject such policies. But if there really is something unstoppable about state expansion for any of those reasons, how can the presumed electoral toxicity of fiscal squeezes be minimized or avoided?

As we shall show, the political and electoral consequences of the various fiscal squeezes described in the following chapters are often debatable even many decades later and seem to have been quite varied over this century. We also show that more severe forms of fiscal squeeze tended to be associated with a higher electoral casualty rate in terms of loss of office by incumbent parties at subsequent general elections, but with some notable exceptions. Electoral outcomes after fiscal squeezes ranged from severe election defeats for parties imposing fiscal squeezes to punishments for incumbents who had failed to squeeze and electoral victories for incumbents who had just announced major spending cuts (notably for the Conservative-dominated National Government in 1931, discussed in Chapter Four). But for many of the episodes explored in the chapters that follow, such effects seem to have been less direct, more debatable, and more 'slow-burn'.

To set the scene and frame our study, this chapter starts by explaining what we mean by 'fiscal squeeze' as a type of 'austerity', what different forms fiscal squeeze can take and what its significance is for government and politics. Then we move on to discuss the three key political choices over how to handle fiscal squeeze that were mentioned earlier, as well as the much-debated issue of the electoral and political effects of fiscal squeeze. Following that, we explain how we go about observing and classifying fiscal squeezes in this book, why the UK's experience over a century is instructive for exploring the politics of fiscal squeeze, and how our analysis proceeds in the rest of the book.

  • [1] See, for instance, Morgan (1984: 347), describing the rigours imposed by government foodrationing on British consumers in the late 1940s, such as only one egg per adult per week.
  • [2] Just a few examples of the voluminous literature on this subject over the last few years aret'Hart and Tindall (2009), Mauro (2011), Blyth (2013), Bartels and Bermeo (2013), Streeck andShafer (2013), Alesina and Giavazzi (2013), Ban (2015), and Kickert and Randma-Liiv (2015).
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