The boom and bust cycle is an inevitable feature of capitalism. The extent of the current collapse, however, was new but avoidable. According to the UN Conference on Trade and Development, a sustained process of financial deregulation, which led to an explosion in new novel financial products and excessive risk taking, are the ultimate causes of the crisis. The assumption that markets are self-regulating has been forever discredited. Global efforts to re-regulate in area of finance have been slow while major economies, including the European Union and United States, have continued to push financial deregulation onto trading partners through neoliberal free trade deals.
After the global financial meltdown of 2008, which was sparked by bank failures in the United States and Europe, G20 nations were united on the need to jumpstart economic activity with stimulus spending on job-creating infrastructure and other projects. However, less than two years later some countries, including Canada began, to endorse cutbacks in the stimulus, as well as austerity measures designed to quickly reduce government spending.
Canadians will be familiar with the process. In the mid-1990s, “deficit” became the dirty “d” word in Canada, and deficit reduction the most important policy recommendation of mainstream economists and business lobby groups. Partly this was in response to a downgrade in Canada’s credit rating, which affects government borrowing. As finance minister for Jean Chretien, Paul Martin announced major cuts to the public sector and drastically reduced transfer payments to the provinces for education, health care and other services.
Austerity is also an ideological project. To reduce government spending in Greece, for example, the International Monetary Fund has tied vicious conditions to its debt relief, including requirements to reduce workers pensions and privatize essential services such as water. The winners are the private sector who get cut rate deals on government infrastructure. The losers during austerity are inevitably the workers whose salaries and benefits are reduced or gutted, as well as the poorest in society who cannot afford to pay higher taxes or to do without accessible public services which are threatened by under funding or privatization.
It’s because of the way austerity takes from the poor and transfers it to rich multinationals, bondholders and other financial capitalists, that it can be called a type of class warfare. The more governments are held hostage by private credit rating agencies and the financial elite, the more austerity becomes the norm, the more our democracy will suffer. It would be far better policy today in Canada if the government would continue to stimulate job growth through needed infrastructure projects (water, transit, green energy, roads, etc), and to reverse corporate tax cuts which are leading to the worst income inequality in Canada since the Great Depression.