Chapter 9 Economic Policy: Austerity

This post by Sean Kippin introduces chapter 9 of Politics and Policy Making in the UK by Paul Cairney and Sean Kippin. Key terms to remember include:

• Deficit: the amount to borrow when annual government spending is higher than income.
• Debt: the overall amount of government borrowing (from multiple deficits).
• Recession: a sustained drop in economic activity. Often defined as a reduction in gross domestic product (GDP) over two successive financial quarters.

From 1979 a ‘post-war consensus’ to pursue ‘Keynesian’ policies gave way to a ‘neoliberal’ approach which emphasised state withdrawal and market forces. This reduced the state’s control of its own economic policy, and left it subject to international forces. The response of successive UK governments to the financial crisis (which began in 2008) demonstrates how policymakers define and attempt to solve problems, the barriers they face when trying to enact their agendas, and the profound social consequences of their decisions.

Defining and solving the crisis

The global financial crisis of 2007-8 included the collapse of major banks in countries such as the US and UK. The UK was particularly vulnerable since its economy depends disproportionately on a large financial sector. The UK government sought to reinject financial sector ‘liquidity’ (access to cash or the means to convert assets to cash), since a failure to do so would risk economic collapse and terrifying social consequences. Its action took the form of enormous ‘bailouts’ to failing banks, including taking part-ownership of some. Such measures were controversial, as they seemed to let the banks off the hook for their risky lending practices and lack of prudence in managing their customers’ finances.

This immediate banking crisis created an economic crisis marked by recession and low growth. The response was to use mildly Keynesian economic policies to engage in counter-cyclical public spending to trigger economic growth, in the form of a ‘fiscal stimulus’. The combination of high spending and low growth generated attention to the issue of higher debts and deficits, with the Conservative Party benefiting from the issue politically and emerging as the largest party in the House of Commons following the 2010 General Election (then forming a Coalition government with the Liberal Democrats). Crucially, it gave them an opportunity to pursue longstanding neoliberal ideological goals.

The Coalition placed responsibility for crisis at the former Labour government’s door by claiming that they had ‘spent too much and ‘failed to fix the roof while the sun was shining’. This new problem definition was influential, reinforced by the unfolding Eurozone crisis, and triggered a shift to austerity whereby the Coalition pledged to eliminate the fiscal deficit within a single, five year parliamentary term. The Coalition related these issues to broader debates about the appropriate size and role of the state, the need for public sector reform, and the balance between tax rises and spending cuts which are socially just and economically viable.

Is UK economic policy within the Government’s control?

Economic policy has a strong international dimension, due to the centrality of international markets, the effects of currency fluctuations, and the interdependencies of globalised economic and financial systems. The UK government also handed power to an independent Bank of England from 1997 onwards, which sets interest rates and controls other elements of monetary policy (Chapter 4). The devolved executives also oversee important economic functions.

Conservative and Labour UK governments have supported neoliberal policies such as deregulation. Many have argued that such a hands-off approach helps to explain the severity of a global economic crisis as experienced in the UK.

While the outcomes of economic policy may be out of reach of UK governments, they have more influence over crisis narratives. For example, the Coalition government used a persuasive narrative to justify austerity, consisting of the following components:

1. Excessive debt is dangerous.
2. Britain is broke.
3. Austerity is a necessary evil.
4. Big government is bad government.
5. Welfare is like a drug, and government action should not encourage dependence.
6. Reform government to reward strivers and punish skivers.
7. We need to fix Labour’s mess quickly.

While the narrative was successful, UK policies were less so. Indeed, these policy choices were highly contested in relation to the following issues. First, UK debt levels were high, but affordable due to low interest rates. Second, the notion that the country had ‘run out of money’ was misleading and based on an inaccurate ‘domestic household‘ analogy. Third, despite the claims of the Coalition’s leading figures, there were alternatives to its approach. Fourth, a key element of austerity – that state intervention ‘crowded out’ the private sector and thus economic growth – is rather controversial. Fifth, it drew upon misleading claims about ‘welfare dependency‘ and a false distinction between in and out of work poverty.

Did the Government deliver austerity? And what were the consequences of its efforts?

The substance of the government’s austerity drive was spending cuts, tax changes, public sector reforms, and even a hike in English university fees (despite Liberal Democrat promises to the contrary).

The government cut spending heavily in some areas, such as local government and welfare, but not in others, such as money spent on old age pensioners and the NHS. It was more successful in projecting austerity than achieving its fundamental goals. Austerity harmed economic growth, and triggered a recession. Recession prompted a relaxation of spending cuts and even an intervention from the IMF. Public spending rose during this period, but fell as a proportion of GDP:

Other reforms, such as Big Society,  and gimmicks like the ‘one in, two out’ rule for regulation didn’t amount to much.

The social consequences of austerity were severe, and felt unequally

• Women received a ‘triple whammy‘ of cuts to benefits, and increase in employment, and the retrenchment of vital public services
• Austerity measures were ‘disproportionately detrimental to members of racial and ethnic minority communities‘ 
• Older people were (relatively) protected from austerity, such as in the form of the pension ‘triple lock’, while younger people were hit hard by changes to tuition fees, housing benefit, and the Educational Maintenance Allowance
• The Department for Communities and Local Government was the hardest hit by cuts, which translated into particularly severe local budget cuts to large urban centres in the North of England, while ‘middle England’ received less harsh cuts, exacerbating existing regional inequalities. 

In other words, the Coalition’s response to the economic crisis included policies which created social harms, backed by a top-down uncompromising language. If so, can we envisage more inclusive means of policymaking? Many ideas have been proposed:

–  Constitutional reform, such as through greater devolution or electoral reform might help to include a greater breadth of perspectives in policymaking.

–  ‘Co-production’ with service users and other citizens

–  Deliberative democracy, to assemble a representative body of people engaged in a finding common ground and reaching decisions, could foster participation in and legitimacy for policy decisions

–  Community wealth building to use ‘anchor institutions’ and member owned businesses to ensure wealth generated locally is kept there  

Many of these agendas have been proposed and rejected. Others show less potential for transformation than their advocates might suggest. Some may some appealing, but lose support should they propose too-radical change.

Conclusion

This story of post-crisis economic policy connects strongly to the Westminster story. Politicians responded to crises by projecting strong control of the situation and of acting decisively to make hard decisions on banking, then economic crisis, then debts and deficits. However, it also confirms elements of the complex government story: policies did not have their desired effects, often leading to a course change. Public sector reforms demonstrate the usual mixture of eye-catching presentation and low impact. Austerity was ultimately more useful as a dramatic government story than a way of controlling economic policy and achieving goals on debts and deficits. A government can appear to deliver on its promises, but not getting what it wants, while causing damage along the way.

Chapter 8 Environmental Policy: Climate Change and Sustainability

This post introduces chapter 8 of Politics and Policy Making in the UK by Paul Cairney and Sean Kippin.

This chapter describes climate change as the ultimate ‘wicked’ problem, so let’s make sure we know what that means.Think of references to ‘wicked’ as Rittel and Webber’s rejection of ‘rationalist’ understandings of policy problems. Rather, wicked problems:

• Defy simple definition and understanding. Indeed, the definition and alleged cause is contested.
• The cause of this problem may actually be a symptom of another problem, or too complex to be compared to problems addressed successfully in the past.
• It is impossible to know if all solutions have been identified, or if a problem is solved.
• Trial and error is difficult, since errors have major social consequences

You might think – reasonably – that all policy problems discussed in this book are ‘wicked’, but are they ‘super wicked’?! Levin et al identify 4 additional properties that sum up super wicked problems like climate change:

1. ‘Time is running out.’ The problem becomes more acute when solutions are not found.
2. ‘Those seeking to end the problem are also causing it.’ Countries like the UK help to lead the climate change agenda, but are major contributors of emissions.
3. ‘No central authority.’ There are global policy agreements to tackle climate change, but each government is responsible for its own implementation.
4. ‘Policies discount the future irrationally.’ Actors place too little value on policies with long-term benefits and too much on short- term costs.

Climate change also sums up complex government themes (Chapter 3), since it is an existential crisis that has not been addressed adequately by current policies, and it exemplifies the gap between what is required to address the problem and what actually happens.

The requirement is for continuously high policy-maker attention, and for governments to collaborate: with each other, to connect domestic and global policy agendas; within government, to join up policy across many sectors; and, with non-governmental actors, to harness stakeholder ideas and connect government policy to the behaviour of businesses.

Yet, governments are slow to pay (fleeting) attention. They make useful references to energy, transport, and food system transformation, and frequent references to collaborative or integrated policymaking inside and outside of government, but with limited effects.

How can we explore these issues with our 3 lenses?

Policy analysis: how to address the policy problem

We use 5-step policy analysis to understand the problem through the eyes of policymakers:

• Step 1. How could governments define climate change as a policy problem? We see contestation to give the problem a name and assign authority to organisations (like the IPCC) to describe its size, urgency, and cause.
• Step 2. Identifying feasible solutions. While the IPCC focuses mostly on technical feasibility, the UNFCCC focuses on limited political feasibility. For example, maybe the Paris Agreement represents a profoundly useful ‘Legally binding international treaty on climate change’, or maybe it allows countries to signal commitments without follow-through.
• Steps 3 and 4: Using values and goals to compare solutions, and predicting the outcomes of solutions. For example, the Stern Review produced a cost benefit case to demonstrate that, in the long run, it would be better for global GDP to address climate change effectively.
• Step 5: Making recommendations. Policy analysis texts advise that recommendations should be simple and punchy to make the problem seem solvable and the solution seem feasible.  Yet, environmental defies simple analysis, and a list of technically and politically feasible solutions is generally absent from international agreements.

Policy studies: What exactly is UK environmental policy?

Environmental policy can relate to (1) natural resources (water, air, forestry, land, coast), waste and pollution, climate change, and ecosystems, and (2) relate strongly to policies on energy, transport, food/ agriculture. This spread raises immediate issues:

1. It is difficult to map policymaking if everything is so connected and multi-level (EU, UK, devolved, local) and multi-sectoral (energy, transport, food, climate, environment).
2. It is difficult to coordinate policymaking, such as to establish a unit without enough power or ‘mainstream’ a climate policy aim across sectors with other bigger priorities.

How did the UK and devolved governments respond to climate change?

We describe limited then sporadic policymaker attention, followed by high EU activity from the 1980s, and some UK measures from the late 1990s to use taxes and regulations to address climate change. There was a brief but strong ‘competitive consensus’ from 2006, in which the governing party (led by Tony Blair) and opposition party (David Cameron) competed to establish their green credentials. This dynamic reinforced the motive and opportunity of Labour ministers to propose rapid and radical changes to policy

Policy changes included:

• The Climate Change Act 2008 to increase the government’s emissions reduction targets and give them statutory weight
• Policies to incentivise renewable energy and encourage more efficient homes and electric vehicles.

Policymaking changes included introducing the Office for Climate Change to coordinate responses (2006), independent Committee on Climate Change (CCC) to report on UK progress, and Department for Energy and Climate Change (DECC) to lead policies to meet targets (2008).

Still, climate change was not a top priority for long, and the coalition government from 2010 was keener to support policies to reverse recession and prompt economic growth (e.g. supporting oil and gas).  

There was resurgent interest by 2019, to amend the Climate Change Act to set a ‘net zero’ target by 2050 (the amount of new GHGs entering the atmosphere is matched by the removal of GHGs) and establish UK and devolved government strategies to that end. Still, we are witnessing the gap between climate change aims versus outcomes, in which governments make big long term commitments, achieve the easy short term stuff, do things that undermine these long term commitments, and pass the rest to their successors.

Case studies: energy, transport, food

Chapter 8 examines this relationship between high ambition and limited progress:

• UK renewables policy is a partial success story, featuring a long term shift from coal to renewables (especially Scotland), often backed by government economic incentives to invest in renewables. At the same time, UK governments support fossil fuel extraction and use, especially when faced with periods of energy insecurity and high global energy costs.
• UK transport policy exhibits a post-war legacy of unsustainable policies (e.g. to support roads and car use). Reforms are difficult and thankless (e.g. to promote public transport), governments juggle multiple aims (transport, economy, climate), many remain unfulfilled, and integration and coherence are elusive.
• Postwar food systems are unsustainable. Brexit perhaps offered the opportunity to reform more quickly than in the EU, but we are yet to see the fruits of such initiatives.

Critical policy analysis: who matters to policy makers?

Chapter 8 describes the pursuit of a ‘just transition’ from high to low carbon energy systems. Here, climate justice can describe: being seen as a legitimate contributor of relevant knowledge (recognitional), fair rules and processes to make decisions (procedural), and the fair distribution of costs and benefits associated with climate change and policy (distributional).

At the international level, issues include: the UK causes a disproportionate share of the problem, but does not bear proportionate costs, so climate change is a foreign policy, trade, and international development as well as an environmental issue.  At the domestic level, problems such as fuel poverty endure despite the promotion of UK and devolved strategies, and there is contestation to determine who is in greatest need, who should bear the burden of costs (people, business, government), and if energy justice is a human rights issue.

Conclusion

Both of our policymaking stories signal bad news for the environment. The Westminster story could be harnessed to generate support for rapid and radical policy change, driven by a centralised focus on addressing an urgent problem. Rather, we see bursts of attention and limited follow-through. The complex government story describes the absence of single central government control over policy outcomes. Some is by choice, such as to privatise energy then minimise regulation. Some is by necessity, in which policymakers struggle to understand systems far less control them. Central governments often exacerbate this confusion by fudging their stories of policymaking – we are in control (the Westminster story) and we are not in control (the complex government story) – to project a sense of governing competence but avoid full responsibility for policy outcomes. The result is that UK (and devolved) governments have described maximally their ambitions to deal with climate change, but minimally how they will achieve them.