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Austerity and the City

Updated: Sep 4, 2021

Since the 2008 Financial Crisis, governments around the world have increasingly espoused austerity – a policy of fiscal conservatism and programmatic reductions in spending. Austerity is a fiscal stance that seeks to address the public debt. The 2008 Financial Crisis, mainly instigated by an over-valuation of faulty real-estate investment vehicles, caused a large-scale collapse in investor confidence and GDP free-falls in many developing countries. As unemployment soared and banking sectors collapsed worldwide, sovereign debt became a focus of increasing concerns. There are three contemporary models of austerity, the first being the Keynesian-Krugman-Reich model of austerity, which increases taxes and government spending. The second model is commonly known as the Merkel model of austerity after German chancellor Angela Merkel which involves cutting government spending while raising taxes. The third one is the free-market approach, which involves cutting government spending and taxes simultaneously (Investopedia). The free market approach austerity model is generally regarded as a non-political fiscal responsibility by most austerity advocates. As quoted by the former chancellor of the Exchequer, George Osborne, we need to take urgent action to keep our interest rates lower for longer, to boost confidence in the economy, and protect jobs to show the world we can live within our means (BBC). Here, we see austerity being promoted as a common-sense measure to protect fiscal integrity and investor confidence in order to promote growth. This is commonly associated with the work of Alberto Alesina, whose economic research supported the idea that cuts in government expenditure caused growth due to an increase in investor confidence (Guardian). More theoretical support for austerity comes from libertarian and neoliberal reinforcement of small-state governance. This camp supports austerity because of its de-prioritization of government policies that interfere with aggregate demand, instead of refocusing on allowing markets to find natural price equilibria instead (Mises).

Opposition to austerity also has its practical and theoretical underpinnings. Evaluating austerity from its practical aspect, critics have remarked on its unsatisfactory results. In regards to growth, it was predicted that private investment would increase by 67.6% from 2010 to 2016 in the UK, but in reality, investment grew by only 25.5% (PEF). The burden of the cuts in social spending such as welfare are also criticized as regressive – notable results include the increase in homelessness by 169% from 2010 to 2016 (MHCLG) and the 37.3% reduction in council spending from 2010 to 2016 (Audit), where the latter effectively reduced the amount these councils have to spend on social programs. Theoretically, austerity comes under attack from the Keynesian view, which holds that cuts in government spending should happen during periods of economic boom and not recession, because government spending can raise aggregate demand and re-stimulate economic production. There is also Fisher’s work on debt deflation, summarized by him as “the very effort of individuals to lessen their debts increases it, because of the mass effect of the stampede to liquidate in swelling each dollar owed” (Fisher). The debate over austerity continues to stay relevant, as political controversy over impositions of austerity such as in Greece cause tensions in international relations while the effects of a decade of cuts to social spending evince themselves in impoverished communities. Clearly, there are questions – on the effectiveness of austerity, on its practical mechanism and its theoretical underpinnings, on who is affected by it and who benefits. The broad question for the growing literature of austerity has been to gauge its effects relative to a wide proportion of social identifiers such as gender and class, and analysing the systems of local government, service-users, the marginalized, and the welfare state, which are where austerity measures interact most with the general populace. Through this analysis, this interdisciplinary, contemporary field of social research seeks to answer the aforementioned questions. It is in this growing discussion that I attempt to pursue research.

The field that I intend to study within the austerity literature is the topic of austerity and its relations to the city. The academics who publish in this field come from a wide range of fields – urban geography, spatial/economic geography, sociology, political science, etc. Specifically, I am looking at the austerity urbanism thesis put forward by urban geographer Jamie Peck, who commented mostly on its theory and systems, and expanded by spatial economist and welfare academic Glen Bramley, who illuminated its practical mechanisms. An important aspect for Peck is its continued imposition by a self-interested neoliberal elite despite its apparent failure in the western context. Peck looks at how austerity, by social spending and dismantling social programs especially during recessions, creates depressed economic conditions and social pressure in the forms of increased demand on the welfare state and higher poverty rates. In his words, its imposition is “an especially brazen application of a tried-and-tested neoliberal tactic, of refracting crisis pressures back onto the state itself” (Peck). Referring to the elite, Peck cites an article by Paul Krugman in the New York Times, who attacks austerity as being politically motivated, saying “the austerity drive...isn’t really about debt and deficits at all; it’s about using deficit panic as an excuse to dismantle social programs... recovery was never the point; the drive for austerity [is] about using the crisis, not solving it” (Krugman, NYT). One of the most important results of regressive austerity is growing inequality, as cuts in social services and decreases in public-sector pay are “felt most directly by workers in traditional sectors... as well as government, and often most profoundly for those on relatively lower incomes and who were already living in economically weaker areas” (Donald).

Peck identifies three characteristics of austerity urbanism: destructive creativity – which is both the amplification of existing capitalist processes in the form of cutting social spending and government interference in market processes, and the roll-back of earlier, third-way neoliberal programs; neoliberal programs themselves – deficit politics, which is the creation of a political climate that actively favours neoliberal programs and introduces downward budgetary pressure as an environmental condition that discourages potential alternative programs such as progressive redistribution; and devolved risk – where the responsibilities and results of social cuts are devolved to the level of the populace in the form of public-service cut backs and increased exposure to socio-economic risk. Similar to Peck’s triad, Bramley identifies the transmission mechanism by which the effects of austerity, specifically socio-economic disadvantage, are downloaded to the poor in the UK, and he then breaks it into three statements. The first statement is that poorer cities no longer have resources commensurate with their needs, which talks about how, in the UK especially, damaging outcomes are transmitted to welfare users because of a disproportionate loss of spending power for the more deprived urban authorities (Bramley). He refers to a scaled analysis of CIPFA data which saw that the cut in spending from 2010-2016 was functionally at 26% for the most disadvantaged councils compared to a 9% for the least disadvantaged. The second statement is that cities are no longer able to shelter services with a strong welfare role, the discussion of which focuses on the distribution of spending cuts among different services offered by local government. He uses a bespoke taxonomy of services, classifying them by usage into pro-rich, pro-poor, and neutral services. He showed that because of the large proportion they constituted in local budgets, pro-poor services constituted a much greater cut than the other services. These cuts, however, could ill be afforded by the beleaguered Civil Service – interviews from the Poverty and Social Exclusion research paper used by the paper showed that “absolute cuts to pro-poor services had begun to affect service quality, co-ordination, and in some cases, their ability to meet basic needs” (Bramley). The third statement emphasises that cuts in universal services have greater impact on the poor, because the value of these services were so much greater to them.

Bramley uses a mix of quantitative and qualitative data to look at the interaction between national level governments and their spending alongside local governments, individual bureaucrats and service users in his second statement. It is this mechanism that I seek to examine in my research.

My intended research will attempt to look at the extent to which London boroughs are able to shelter welfare services. In methodology, it is intended to be a more thorough, local, and geographically integrated application of Bramley’s analysis to London. Quantitatively, I will be using the taxonomy of services used by Bramley’s study to analyse local government spending. I intend on adding a qualitative portion to the research using structured interviews of local administrators and service-users in the style of the Poverty and Social Exclusion 2012 report. I hope to find creative ways in which spending cuts happen, such as through the inter-municipality cooperation found in the pragmatic municipalism thesis advanced by Kim et al. Overall, I hope to contribute to current contemporary research about the effects of austerity on inequality, systems of government, and urbanity as a whole, and to add to the much-needed conversation about the necessity of a fiscal policy that is fit for purpose.

Bryan Tapnio


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