Spending cuts and the threat to democracy

What America should learn from Europe and the Middle East.

The "sequester", which began on 1 March, is the American form of austerity, or cut-backs in government spending during a recession. Austerity, or stingy government in Europe has kept employment extremely depressed compared to what it would have been with government stimulus, as Paul Krugman argues.

On Saturday, there were massive protests throughout Portugal against Scrooge policies by the government, which have so destroyed the country’s economy that 2 per cent of the population has fled abroad for jobs in the past 2 years alone. On Friday, Greek workers staged a huge general strike. In Italy, anti-austerity feeling made grumpy comedian Beppe Grillo and his party the swing vote in the new parliament. Grillo may single-handedly destroy the eurozone. European newspapers rather amusingly demanded that Grillo now "take responsibility" and "tell us what he wants". He is a contrarian comedian. It would be like having Robin Williams or Tracy Morgan as the swing vote in Congress, with the press hounding them for their agricultural policy and asking them about the dangers of deflation. But Grillo's ascendancy, while less alarming than the resurgence of the Greek far right, is a manifestation of the rejection by the Italian public of the long dreary road prescribed by the "troika", (The International Monetary Fund, the European Union, the Central Bank), of further government cut-backs, reductions in minimum wage, high unemployment, no hope.

While for some odd reason the Middle East does not usually get analysed with the same social science tools as Europe, the political crisis in Egypt is related to the Muslim Brotherhood government’s austerity program. The latter, as Samuel Knight argues, is being pursued under pressure from the International Monetary Fund. Secretary of State John Kerry is in Cairo, also urging acceptance of the austerity program. Austerity is estimated to have reduced Egyptians’ real income by 3 per cent in January alone. Tunisia is doing better than Egypt economically, but the parliament, dominated by the religious Right, is also tempted by austerity measures, seeking to trim a point off the budget deficit this year while seeking 4.5 per cent growth. While letting the value of the Tunisian dinar fall would hurt consumers with regard to imported goods, it would make Tunisian textiles and tourism more affordable for those abroad. Tunisia's exports are hurt by European economic problems, and the country would do well to develop more Asian customers (Brazil has had success reorienting exports to the Pacific Rim). Likewise, although Yemen's economy improved in 2012 after a 10 per cent drop in the revolutionary year of 2011, if anything the government budget deficit of 5.5 per cent is not big enough to stimulate the economy properly.

Reducing the state budget at a time of economic contraction is the opposite of what the great economist John Maynard Keynes prescribed. When the economy is in the doldrums, the businesses are skittish about investing their money, and so keep it in the bank. The only force, Keynes argued, that can and will risk putting a lot of money into the economy during a deep recession is the government. Of course, the government has less money at that point, too, since tax receipts are reduced. So it will simply have to spend money it doesn't technically have, i.e. go into deficit and print extra paper money. The extra paper will, obviously, lose some of its value. But that loss can have benefits, too, since it will make the goods produced by the country less expensive abroad, and spur exports.

This argument is straightforward for most countries, and it is mysterious why European and some Middle Eastern governments reject it. It is complicated in the US by the position of the dollar as a reserve currency and by the fall of manufacturing to only 20 per cent of the US economy. The former means that large budget deficits don't necessarily reduce the dollar's value significantly, because the US only holds about a third of the world's dollars and there is a lot of confidence in its value. The latter means that even when the dollar falls against the yen or euro, the jump in exports is limited to a fifth of the economy and domestic services don’t get much of a boost. But actually these peculiarities of the US economy are not arguments for austerity; on the contrary, the reserve dollar allows the US to do stimulus without as much pain as one would otherwise expect.

Instead, the Tea Party has forced the US into an artificial crisis with the "sequester", taking $100bn a year out of the economy for the next ten years, which will cut half a point of economic growth and harm workers, keeping unemployment high – not to mention the harm it likely will do to medical research, higher education, etc. That this austerity is being pursued by the GOP in part in hopes of disillusioning voters with President Obama in his second term is fairly obvious, but it is also in order to protect the 2003 Bush tax cuts for the wealthy, 80 per cent of which have been retained. Sequester, as usual with these things in the US, is actually a tax on the middle classes to benefit the wealthy, since it preserves undeserved tax cuts for the latter by reducing government services for the former.

That austerity does not work economically should be clear. But that it creates populist discontents that are shaking southern Europe and could derail Middle East democratisation is even more alarming. The world needs stimulus, not Scrooge government if it is to pull out of the crisis kicked off by corrupt bankers in 2008.

This is a cross-post from Juan Cole's blog Informed Comment

Barack Obama holds a cabinet meeting at the White House on 4 March. (Photo: Getty.)
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Why did the Tunisian National Dialogue Quartet win this year's Nobel Peace Prize?

Thanks to Tunisia, it is no longer possible to argue that the Middle East and North Africa are inherently undemocratic or prone to violence.

It is a fitting that in a tumultuous year for global peacemaking, the Nobel Peace Prize has been awarded to the little-known Tunisian National Dialogue Quartet, a coalition made up of the union federation UGTT, the employers’ institute, the Tunisian human rights league and the order of lawyers . Over the past few years, the Quartet has been quietly shepherded in democracy to the country that lit the fuse of the Arab Spring. In part thanks to the efforts of this broad cross-section of civil society, Tunisia has stayed the course in transitioning from an authoritarian past to a democratic future, even in the face of terrorist violence and as other revolutions in the region have faltered.

The award comes at a time of escalating sectarian conflicts in Syria, Libya and Yemen. Islamic State’s campaign of terror has uprooted Iraqis and Syrians alike, driving desperate refugees into small boats to battle the waves of the Mediterranean. They join others fleeing to Europe from political and economic crises in Africa and Asia, forming a stream of humanity symbolising failures in leadership in three continents.

Among all this, it is not hard to identify why the Norwegian Nobel Committee awarded the world’s most coveted peace prize to the Tunisian Quartet.

First,Tunisia deserves to be celebrated for its momentous achievements in consolidating democracy. Unlike other countries in the region, it has trodden a path that is slow but solid, adopting a comprehensive and consensus-building approach to decision-making.

In this it provides a rare and extremely important example, not only for the region but also for the world. Thanks to Tunisia, it is no longer possible to argue that the Middle East and North Africa are inherently undemocratic or prone to violence.

Civil society steps up

Second, the role of civil society is fundamental for bringing about sustainable peace. Political leadership is important, but the scale of the challenge in transitional societies means that we cannot simply leave things to political leaders to sort out.

At local level especially, peace feels a lot more real when it comes with tangible improvements to quality of life. Citizens want to see the economy motoring again and to have confidence in the state’s institutions. They want to know that they can sleep soundly and safely, without fear of violence, persecution or poverty. Governments often lack the capacity and credibility to deliver these dividends alone. Civil society must step up to the plate – particularly the associations of trade, justice and human rights of which the Quartet is formed.

And third, the Quartet’s work relies heavily on forming constructive relationships across the political spectrum – from secularists to fundamentalists. It has walked a fine line, keeping disparate groups with diverging interests invested in an inclusive national process of dialogue. It has, in the words of the Norwegian Nobel Committee, laid the “groundwork for a national fraternity”.

Politicians are often the most cynical of creatures, yet the Quartet has managed to build a sense of collective endeavour among them. It has encouraged them to put the country’s best interest ahead of personal or sectarian interests, making this the guiding principle for decision-making.

Other bright spots

The transition in Tunisia is a work in progress and there will be more setbacks and successes. The country was left reeling from two terrorist attacks earlier this year, when 22 people were killed at the Bardo Museum in Tunis, and another 39 people died during an attack on a tourist resort in Sousse. But the message today is clear – Tunisia has made remarkable progress since 2010, despite the odds. This is in large part due to a credible and engaged civil society, a remarkable achievement in a new democracy. The country has forged a path of inclusive national dialogue from which many lessons can be learned.

Elsewhere this year, Myanmar goes to the polls in November – the country’s first free national ballot since 1990. Colombia is closer to lasting peace than ever, ending half a century of war that has taken 220,00 lives and uprooted six million people.

The US restored diplomatic relationships with Cuba, and also struck a landmark agreement with Iran over its nuclear programmes. And the UN has adopted the sustainable development goals, explicitly recognising peaceful and inclusive societies as a development priority for the first time. Behind every step forward there is an individual or institution worthy of the Nobel Peace Prize, but only one can win and the Tunisian National Dialogue Quartet is a worthy laureate.

Laura Payne is a Research Fellow and Director of RISING Global Peace Forum, Coventry University

This article was originally published on The Conversation. Read the original article.


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