“Modernization of Capitalism or Social Revolution?

Brilliant study of the costs of living with a decaying capitalism, 7 Aug 2013

www.amazon.co.uk/The-Body-Economic-Austerity-Kills/dp/1846147832/ref=cm_aya_orig_subj

This Will Podmore review is from: The Body Economic: Why Austerity Kills (Hardcover)

David Stuckler, a Senior Research Leader at Oxford University, and Sanjay Basu, an Assistant Professor of Medicine at Stanford University, have produced a superb book on the costs of living with capitalism. They point out that today's second great depression is `a full-scale assault on people's health'. They compare and contrast the health effects of different economic policies.

They write, "The results of our research demonstrate that stimulus spending on specific public health programs actually helps to reduce debt by sparking new economic growth. Every $1 invested in these programs returns $3 back in economic growth that can be used to pay off debt. By contrast, those countries participating in steep short-term cuts end up with long-term economic declines."

Spending cuts reduce demand, adding to unemployment and debt. Even the IMF now says that austerity slows down economies, worsens unemployment, and hampers investor confidence.

IMF economists had assumed, without evidence, that each dollar of government spending, on whatever sector, in whatever country, created only 50 cents in growth, so public spending would shrink the economy, and cutting spending (deficits) would boost growth. The authors, using data from more than ten years, from 27 countries, found that every dollar of government spending created $1.7 in growth. Housing, health and education spending each created more than $3. They remark, "In the long term, the products of investments in education and health services were smarter and healthier workforces."

But military spending and bank bailouts created less than $1. The authors comment, "Nor do banker bailouts tend to stimulate the economy, as funds are more likely to end up stashed in offshore bank accounts and less likely to get reinvested into providing jobs or technology."

When Iceland's crisis broke, the IMF called for half the country's income to be paid to private investors between 2016 and 2023, making Iceland's people pay for private banks' bad decisions. Instead, Iceland increased its social protection spending by 4 per cent of GDP between 2007 and 2009, and thus managed to improve its public health. In 2007 its public spending was 42.3 per cent of its GDP. This rose to 57.7 per cent in 2008 and has stayed about 10 percentage points higher than it was in 2007. But this has not led to the forecast disasters of inflation, runaway debt or foreign dependency.

In March 2010, 93 per cent of Iceland's people voted to invest in rebuilding the economy and against paying for the bankers' debts. In 2012 its economy grew by 3 per cent and unemployment fell below 5 per cent. Even the IMF admitted that Iceland had a `surprisingly' strong recovery. In October 2012, two-third of its people voted for a new constitution designed to give the people more control over their natural resources and to end the cronyism between the banks and the ruling class.

Since the crisis began, Greece has cut its health budget by 40 per cent: it has now suffered outbreaks of West Nile Virus, HIV and malaria, and rates of depression have risen sharply. Between 2008 and 2010, infant mortality rose by 40 per cent.

28 billion euros of bailouts did not stop government debt levels continuing to rise, reaching 160 per cent of GDP in 2012. The IMF and the European Central Bank were sending money straight through Greece and out to creditors in Britain, France, the USA and Germany, who had blown up Greece's disastrous bubble. As Stuckler and Basu comment, "Greece's bailout was using public funds not to help Greece but to rescue the poorly invested private money of the world's banking elite."

They point out, "Iceland - rocked by the worst bank crisis in history - didn't experience rising deaths in the Great Recession. It chose to uphold its social welfare programs, and went even further to bolster them. By contrast, Greece, Europe's guinea pig for austerity, was pressured to undertake draconian cuts - the largest seen in Europe since World War II. Its recession was smaller than Iceland's at first, but now has worsened with austerity. The human costs have become dramatically clear: a 52 percent rise in HIV, a doubling in suicide, rising homicides, and a return of malaria - all as critical health programs were cut."

Stuckler and Basu point out that "Social protection programs could save lives. When countries invested more than about $200 per capita in ALMP [Active Labour Market Programmes], the correlation of unemployment with suicides appeared to completely vanish. This was precisely why unemployment spikes had no correlation with increased suicides in Sweden, Finland, and Iceland, but unemployment was strongly correlated to suicide in Spain, the US, Greece, Italy and Russia. ... ALMPs helped people to return to work and, by keeping people economically active, reduced pressure on public welfare systems by increasing the economy's labor supply - a main engine of economic growth."

Before the restoration of capitalism in the former socialist countries, "social benefit programs contributed to a very high health/GDP ratio in Soviet countries. In general Soviet economies tended to have much higher life expectancies than capitalist economies at similar levels of GDP per capita (such as Chile, Turkey, Botswana, South Africa, etc.). On average, Soviet men had 4.8 years greater health and Soviet women had 7.7 years greater health for their country's level of income compared with capitalist economy averages."

Some former socialist countries, including Russia, Kazakhstan and the three Baltic States, adopted the US/EU demand of `shock therapy' (all shock, no therapy). Milton Friedman later admitted, "In the immediate aftermath of the fall of the Soviet Union, I kept being asked what the Russians should do. I said, `Privatize, privatize, privatize.' I was wrong. [Joseph Stiglitz] was right." The UN's investigative team warned then, "a human crisis of monumental proportions is emerging in the former Soviet Union, as the transition years have literally been lethal for a great many people." Russia's vice president Alexander Rutskoy denounced Yeltsin's programme as `economic genocide'. The authors estimate that there were 10 million excess deaths in Russia in the early 1990s. The health of Russian men is still worse than it was before reforms began in 1991. Overall life expectancy for Russian men and women was sixty-eight years in 1991; in 2012 it was sixty-six years. Russia, Kazakhstan and the three Baltic States also had bigger economic declines and slower recoveries.

By contrast, Belarus did not enforce the IMF policies, so it kept poverty rates below 2 per cent; unemployment was never more than 4 per cent, and is now 1 per cent. So it had a far better health outcome.

In 1997 the East Asian bubble burst. The IMF cut food subsidies and raised by 25 per cent the tax on kerosene, Indonesian people's main cooking fuel. The IMF considers health care a `luxury good' so on its advice, Thailand cut its health spending by 15 per cent in 1998 and Indonesia cut its by 25 percent in 1996-2000. The IMF had forecast that its measures would grow Indonesia's economy by 3 per cent; it shrank by 13 per cent. South Korean people called the IMF the `Infant Mortality Fund', because infant mortality rose with the IMF's programme. There was an 8 per cent rise in death rates.

Stuckler and Basu observe, "Those countries that cut social protection programs had greater rises in poverty. Gross domestic product in 1998 fell by a dramatic 30 percent in South Korea, 27 percent in Thailand, 56 percent in Indonesia, and 34 percent in Malaysia. But these economic shocks tipped more people into poverty in South Korea, which had weaker social protection systems and also had implemented the harshest austerity. In 1997-1998, poverty in South Korea doubled from 11 percent in 1997 to 23 percent in 1998. Indonesia and Thailand also experienced significant increases. ... Without a strong safety net, rising poverty and escalating food prices led to mass hunger in Thailand and Indonesia."

By contrast, "Malaysia took a dramatically different approach, and reined in rising food prices. In 1997 Prime Minister Mahathir claimed that the source of the currency crisis was `currency trading', which he called `unnecessary, unproductive and immoral'. It should be stopped and made illegal, he said. Malaysia introduced controls on market speculation and fixed its exchange rate to the dollar. As a result, speculative investors had difficulty betting on the rises and falls of Malaysia's currency. In addition, Malaysia expanded its food support programs for impoverished citizens. Unlike Indonesia and Thailand, Malaysia experienced no significant rise in malnutrition among mothers."

Of these four countries, only Malaysia met the IMF's ultimate economic targets - because it didn't follow IMF orders. It had a budget surplus in 1997, although it was the only country that did not cut social protection spending." Stiglitz summed up, "All the IMF did was make East Asia's recessions deeper, longer, and harder."

In the USA's crisis, "the rich got richer, and the sick got sicker." US death rates are 40 per cent above the European average - almost 40,000 extra deaths a year, largely because of the USA's poor health care system. The World Health Organization ranked the US health care system among the worst in developed countries in terms of death rates and reducing suffering.

When Britain founded the NHS, public debt was 400 per cent of GDP, far higher than in any European country today. Yet we did not cut the budget to reduce the deficit: Britain's successful social protection programmes helped to end the debt crisis. The NHS still saves more lives with less money than other systems. The Commonwealth Fund and the OECD said the NHS was the most efficient, effective and responsive health service in the world.

The EU now threatens all this: "Under EU competition law, the NHS would be fully opened up to compulsory competitive markets, and private corporations are to be eligible to receive the same government subsidies as publicly funded services." Clegg lied, "There will be no privatisation."

The authors conclude, "austerity involves the deadliest social policies. Recessions can hurt, but austerity kills." They urge, "Instead of austerity, we should enact evidence-based policies to protect health during hard times. Social protection saves lives. If administered correctly, these programs don't bust the budget, but - as we have shown throughout this book - they boost economic growth and improve public health."