Harold Stone — A Brief History of Austerity

In 1973 the price of oil quadrupled. This was disastrous for poorer countries, whose economies were built on exporting raw materials to wealthier countries. Expensive oil affected consumption in these wealthy countries, which meant reduced demand for poorer countries’ materials. With these exports falling and the cost of imports ballooning with the new price of oil, these countries (predominantly African but also South Asian, Latin American and Caribbean) inescapably ran up national deficits.

Hazardously in debt, these countries turned to the world’s financial institutions for help, and these institutions (the IMF and the World Bank) responded by offering loans accompanied by strict, harsh, stern conditions. These conditions were called Structural Adjustment Programmes and demanded the following:

• financial deregulation;
• the removal of subsidies (including basic food subsidies);
• the removal of protective import controls and other “trade barriers”;
• the introduction of fees-for-service in education and healthcare;
• currency devaluation;
• the privatisation of state enterprises such as hospitals, schools, public transport, electricity, power stations, water supply, sanitation, and other essential infrastructure.

Flying in the face of national sovereignty, these poverty-inducing demands were politely referred to as austerity measures. The message was clear then, and is clear now – shrink the state and maximise the market. This type of thinking (see also Thatcherism, Reaganomics, the Chicago Boys) has its intellectual origins in people like Milton Friedman, Friedrich Hayek and Ayn Rand, and is commonly referred to as neoliberalism.

Neoliberalism is perhaps the most extreme form of capitalism ever realised, only a few philosophical steps away from anarcho-capitalism (wherein courts and the legal system would ideally be privatised). Because it is an ideology, nobody is sure exactly how shrunken the ideal neoliberal state would be. Increasingly a relic of its 19-20th century stateliness, there is the prospect that followed to its logical conclusion, neoliberalism will leave us with some form of privatised feudalism.…

The London Economic
A Brief History of Austerity
Harold Stone