Alternatives to austerity

The inevitable "structural reforms" Italy faces won't drag the eurozone's third-largest economy out

Silvio Berlusconi's last few days as Prime Minister find him overseeing the introduction of extraordinary austerity measures, passed through the Italian Parliament yesterday on the back of wheedling promises made to EU leaders. Berlusconi's exit will doubtless come as a blessed relief to many millions of Italians. The clown is to be replaced - without, naturally, recourse to elections - by a European Commissioner, Mario Monti, hastily sworn in as senator-for-life. A new government of technocrats will oversee implementation of austerity, assisted by the IMF officials now taking up residence in Italy's finance ministry. Those austerity measures, in turn, will be backed up by the usual demands for "structural reforms" - deregulation and privatisation chief amongst them.

This will not end the crisis in Italy - and, with that failure, the prospect of a global slump is opened. Austerity across Europe has already driven economies deeper into the mire, Ireland and Greece chief amongst them. The mechanism is widely known: as government spending falls, it drags demand down still further. As demand falls, firms cut wages and make redundancies. A vicious circle kicks in. With Italian consumers and businesses keeping their wallets closed, and no real hope of a recovery in export markets, it is spending by government that could sustain economic activity. Yet the scorched-earth economics of austerity are now being forced onto Italy.

Deregulation and the loosening up of labour markets are the second leg of the EU and IMF plans. The hope is that by freeing capital to operate as it sees fit, it will recover its dynamism. But "structural reforms" have taken place in Italy over the last decade or more. On OECD measures, Italy's product and labour markets are now as deregulated as Germany. In conditions of stagnant demand, the chances of further assaults on employment and consumer protection prompting growth are slim.

Italy's economic malaise runs deeper. The rot set in decades ago. A post-war miracle, with growth rates averaging over 5 per cent from 1951-73, halted with sharp recession in the early 1970s. Growth never truly recovered, and for the last 15 years has averaged less than one per cent a year. Businesses and government acted in concert to casualise labour, promoting labour-intensive export industries at the expense of capital investment. Economic activity became increasingly concentrated in the centre and the north, leaving the south lagging still further. Rising public debt initially helped cover the costs of wider stagnation.

Recent governments have targeted that debt, at the expense of public spending - and those without Berlusconi at the helm most successfully. The burden fell from 120 per cent of GDP in 1996 to around 100 per cent by 2007. But the financial crisis of 2007-8 led to a sharp rebound. A decade of debt reduction was wiped out in two years. The combination of a seriously weak economy and sharply rising indebtedness is what has now panicked markets into pushing Italy's current borrowing costs above 7 per cent.

If there is a hope of recovery in the eurozone's third-largest economy, it cannot come through the standard IMF package of austerity measures and market-led reforms. Nor will it come through the erosion of democracy. Quite the opposite is required: supporting public expenditure to sustain demand; industrial transformation, led by public intervention; and an expansion of democracy against the rule of finance - including, ultimately, a recognition that odious and unpayable sovereign debts need not be honoured.

James Meadway is a senior economist at the New Economics Foundation

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Our union backed Brexit, but that doesn't mean scrapping freedom of movement

We can only improve the lives of our members, like those planning stike action at McDonalds, through solidarity.

The campaign to defend and extend free movement – highlighted by the launch of the Labour Campaign for Free Movement this month – is being seen in some circles as a back door strategy to re-run the EU referendum. If that was truly the case, then I don't think Unions like mine (the BFAWU) would be involved, especially as we campaigned to leave the EU ourselves.

In stark contrast to the rhetoric used by many sections of the Leave campaign, our argument wasn’t driven by fear and paranoia about migrant workers. A good number of the BFAWU’s membership is made up of workers not just from the EU, but from all corners of the world. They make a positive contribution to the industry that we represent. These people make a far larger and important contribution to our society and our communities than the wealthy Brexiteers, who sought to do nothing other than de-humanise them, cheered along by a rabid, right-wing press. 

Those who are calling for end to freedom of movement fail to realise that it’s people, rather than land and borders that makes the world we live in. Division works only in the interest of those that want to hold power, control, influence and wealth. Unfortunately, despite a rich history in terms of where division leads us, a good chunk of the UK population still falls for it. We believe that those who live and work here or in other countries should have their skills recognised and enjoy the same rights as those born in that country, including the democratic right to vote. 

Workers born outside of the UK contribute more than £328 million to the UK economy every day. Our NHS depends on their labour in order to keep it running; the leisure and hospitality industries depend on them in order to function; the food industry (including farming to a degree) is often propped up by their work.

The real architects of our misery and hardship reside in Westminster. It is they who introduced legislation designed to allow bosses to act with impunity and pay poverty wages. The only way we can really improve our lives is not as some would have you believe, by blaming other poor workers from other countries, it is through standing together in solidarity. By organising and combining that we become stronger as our fabulous members are showing through their decision to ballot for strike action in McDonalds.

Our members in McDonalds are both born in the UK and outside the UK, and where the bosses have separated groups of workers by pitting certain nationalities against each other, the workers organised have stood together and fought to win change for all, even organising themed social events to welcome each other in the face of the bosses ‘attempts to create divisions in the workplace.

Our union has held the long term view that we should have a planned economy with an ability to own and control the means of production. Our members saw the EU as a gravy train, working in the interests of wealthy elites and industrial scale tax avoidance. They felt that leaving the EU would give the UK the best opportunity to renationalise our key industries and begin a programme of manufacturing on a scale that would allow us to be self-sufficient and independent while enjoying solid trading relationships with other countries. Obviously, a key component in terms of facilitating this is continued freedom of movement.

Many of our members come from communities that voted to leave the EU. They are a reflection of real life that the movers and shakers in both the Leave and Remain campaigns took for granted. We weren’t surprised by the outcome of the EU referendum; after decades of politicians heaping blame on the EU for everything from the shape of fruit to personal hardship, what else could we possibly expect? However, we cannot allow migrant labour to remain as a political football to give succour to the prejudices of the uninformed. Given the same rights and freedoms as UK citizens, foreign workers have the ability to ensure that the UK actually makes a success of Brexit, one that benefits the many, rather than the few.

Ian Hodon is President of the Bakers and Allied Food Workers Union and founding signatory of the Labour Campaign for Free Movement.