Growing Stakeholder Value

Our economy has many stakeholders - society, environment, commerce.
Governments have a responsibility to ensure all stakeholders are served fairly.
They have to grow value for all stakeholders.


11th April 2019
Adrian Dore
Austerity - an inappropriate response to financial difficulty.

Austerity - an inappropriate response to financial difficulty.

Austerity doesn't work.
Austerity programmes do not address government financial problems, they lead to a worsening financial position, from which only the rich benefit.

Austerity programmes are implemented because we have a dysfunctional economy, which is a result of a dysfunctional democracy.

Proof of our dysfunctional democracy lies in the fact that our economy serves the needs of the wealthy one per cent, not the ninety-nine per cent of us. I always thought that in a democracy, the economy is supposed to serve the needs of the majority. The politicians representing us are supposed to see to this. Obviously, I’m wrong. If the economy did serve the majority, then austerity programmes would definitely not be implemented, as they hurt, rather than help, the majority. However as the wealthy one per cent dictate economic outcomes, austerity programmes are foisted upon us, as it’s in their direct interests to do so.

There are many causes which lead governments into financial difficulties, and as a result, this forces them into taking some action. Austerity programmes are an option, but not a good one, as I will explain. In this short article, I can’t provide any explanations as to the causes of government’s financial difficulties, that’s way beyond the scope of this article. In any event, you are reading this article to learn why austerity programmes are not an appropriate response to government’s financial difficulties, not the causes of the difficulties. You want to know what the better option to austerity would be - the one which serves the majorities needs.

As I have already mentioned, you must appreciate that austerity, as an option to supposedly “improve” a government’s financial problems is not the only alternative, or even the best alternative available. It’s an alternative chosen because it serves the masters of our economy, the wealthy one per cent’s interests. This is a disgrace, how in a democracy can the one per cent dictate outcomes which suit them, while hurting the rest of us.

The wealthy one per cent favour austerity because it leads to smaller governments, which ultimately leads to greater “free markets” (or unregulated markets,) reduced tax and a greater opportunity for tax avoidance. All the things which make them richer. A viable alternative to austerity would mean the complete opposite - larger government, more market regulation, higher taxes and the tightening of tax avoidance and evasion. Naturally, they don’t want this as it would reduce their wealth. So, they hide their true motives by creating a misleading and entirely untrue narrative of why we need austerity.

They draw an analogy between government and a household budget. The story goes like this. If an individual’s expenditure is higher than their income they must cut back on their expenditure to balance their books, to keep them out of trouble. The same with governments, when their expenditure exceeds their income they have no alternative other than to implement austerity programmes. It sounds reasonable because that’s what it’s like in your life. However, this analogy is incorrect because a government’s income is not fixed like that of an individual. Governments can influence, or stimulate the economy to produce greater income, in many different ways, so their incomes are not fixed like individuals. Individuals can only implement cost savings, whereas governments have the option to address both income and or costs.

You don’t cure austerity through austerity - it worsens it. An austerity programme means there is less money circulating in the economy. That reduces government revenue, which deepens austerity. The best policy to adopt is for government to invest in stimulating growth. It can do this in two important ways. First, invest directly in the economy through infrastructure projects, key strategic businesses and R&D (Research & Development.) Second, invest in social support. Money invested in social support is recycled back into the economy quickly, thus providing what is commonly called “economic stabilisers.” The higher this expenditure, the more stable the economy becomes.

Successful governments throughout history have proved that acting proactively, stimulating the economy, rather than waiting for some miraculous event to occur, while the economy collapses, is the far better strategy to follow. Those who wait perish. Unfortunately, it’s the middle/lower income groups who are perishing.

A stimulus strategy would even benefit the wealthy one per cent, from the perspective of a more buoyant economy. However, they have their eyes set on reducing the size of government. This holds many benefits for them as already elaborated - free markets (less regulation), so they can exploit markets unhindered. Lower taxes, as small governments are less expensive. Greater opportunity to avoid and evade taxes as small governments are less efficient in tax collection. They also encourage governments to outsource or divest themselves of valuable contracts, to reduce expenditure. These are rich pickings for the wealthy, who can profit enormously from these services. So, the harder they push for austerity, the wealthier they become. The poorer the majority become. The less the state supports and provides for its citizens, the greater the cost to its citizens. They either have to provide the service themselves or forgo it. Either way, it’s a cost to them. This lowers their quality-of-life.

If the government follows the stimulus alternative, the majority will experience an improved quality-of-life. That’s the objective of every government. There is no question - the wealthy one per cent would have to contribute more, but then they would be earning more because of a more buoyant economy. The growing rich/poor divide is a clear indication that they are not contributing enough right now.

The more the majority understands that austerity is a bad option, the more political clout we provide our politicians to stand up and implement changes which would see more progressive taxes and a higher top tax rate. However, we will be told that increasing taxes reduces the incentive to invest, but that’s another misleading fallacy which I deal with in another article.
Copyright © Adrian Mark Dore 2019.

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