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Income distribution in times of austerity: why the cuts are likely to widen the gap

Blog Editor, IOE Digital22 July 2015

Nicola Pensiero.
Yesterday, the House of Commons passed a bill that will cut £12bn in welfare programmes. Chancellor George Osborne argues that the government has no choice but to continue reducing the budget deficit. When announcing the plan, he pointed to the unfolding Greek crisis to reinforce his idea that a country has to be in control of its own borrowing or the “borrowing takes control of the country”. The plan is expected to move Britain “from a low-wage, high-tax, high-welfare economy to the higher wage, lower tax, lower welfare country we intend to create”. Despite the proclaimed intentions, a likely consequence of these planned cuts is an increased polarisation of household incomes, as my recent research shows. (more…)

The French election – 60,000 teachers can't be wrong

Blog Editor, IOE Digital17 May 2012

Germ Janmaat
In this month’s presidential elections France elected a socialist, François Hollande. According to The Economist and many other western media the country is now heading for financial meltdown. His election programme, if carried out, is said to represent a lethal cocktail of policies that will shatter the trust of the financial markets. If we are to believe these sources, M Hollande promised the French electorate to renounce the Eurozone austerity treaty, to lower the pension age by two years and to dramatically increase taxes for the rich.
A closer scrutiny of his promises, however, shows that he has no intention of challenging the existing budgetary rules of the treaty. He does want to add a growth and investment component to it. As to the pensions, he promised to lower the pension age only for those who have worked for 40 years or more. Regarding the taxes, he proposed  a 75% band for earnings over 1 million euros and a Tobin tax on large corporations and banks.
Why this deliberate misrepresentation of his campaign promises? Probably because it is the Pavlovian reaction of media that have become unaccustomed to the idea of a politician proposing a classical Keynesian recipe to overcome the economic crisis. Over the last two decades the neoliberal rhetoric of competitiveness and lean-and-mean government has become so powerful that any real alternative is immediately branded as completely out of order.
Yet it’s worth seeing things in perspective. Not only are there scores of economists who argue that the eurozone countries cannot work themselves out of the crisis with austerity measures alone, but even David Cameron and IMF managing director Christine Lagarde have recognised that a stimulus component is needed. Moreover, reality does not exactly comply with the easy assumption that competitiveness depends on small government. The Scandinavian countries and Germany, for instance, combine high levels of social spending with good performance on key indicators of competitiveness, such as innovation, unemployment and inflation.
But perhaps most important is the message of hope M Hollande extends to the young generation – 60,000 extra teachers and an increase in the minimum wage. These policies at least go some way towards alleviating the plight of the young. Let us not forget that it is precisely the young who are most affected by the current economic crisis. Everywhere youth unemployment is reaching record levels. Never before has it been so difficult for first time buyers to take their first step onto the property ladder.
Research from the IOE’s ESRC-funded Llakes Centre has shown that young people’s sharply diminished life chances in the current age of austerity are damaging social cohesion and affecting young people’s attitudes towards democratic processes. Does it mean that many youngsters have turned their backs on liberal democracy altogether? Or does it represent a temporary loss of faith that can easily be restored when economic conditions improve? What can education do to rebuild trust and engagement? These are key questions informing LLAKES research for the time to come.