Why, for the love of God, don’t governments utilize the most obvious solutions to solve their budgetary challenges whenever a global financial crisis hits, instead of defaulting to budget cuts that can appear either inept or mean-spirited?
Finance Ministers don’t set out to craft inept or mean-spirited policies during times of economic crisis, but that’s how it plays out in the media and in living rooms across the country or wherever people gather to discuss the economy.
In the UK, this manifests itself in the names that people call their political parties.
If government austerity cuts don’t affect you, you continue to call the Conservative Party by its rightful name. But if austerity hits you hard, then you’re one of those who’ve taken to calling the Conservatives ‘The Nasty Party’ — and they’ll never get your vote ever again, etc., etc. (Yes, I do empathize, BTW. But that’s not what this blog post is about)
It just depends upon which side austerity hits you.
And budget cuts (at least budget cuts perceived as unfair by a significant percentage of the population) almost always result in either a lost election or loss of parliamentary majority at the next election. Check out those stats! (You’ll see how true that statement is)
Theresa May’s ‘hung Parliament’ election result in June 2017 is 100% attributable to the UK austerity budgets that have been in effect since 2010, and hers is just one example out of many majority governments around the world that have suffered as a result of their austerity policies.
There IS a Better Way!
Due to market conditions, about every 25-years a recession comes along in the capitalist countries. You can almost set your clock by it. It’s the ‘nature of the beast — carry on’ is how recessions are described by economists, and nobody tries to prevent recessions, as such ‘resets’ help to prevent even worse economic crashes in the future.
Still, there’s a way for countries to survive economic downturns WITHOUT shooting themselves in the foot every day of the recession. (A novel idea!)
The public knows an economic downturn when they see it. In fact, they have enough experience in their own lives balancing family finances when times are good, let alone when domestic financial challenges appear such as a job loss or (suddenly) another mouth to feed. Therefore, they know the government must compensate whenever the country faces a financial challenge.
The question for governments is how to do it and not lose the next election. Or the one after that.
And the answer is; To do it fairly.
That is; Apply cuts that will be perceived as ‘fair’ by a majority of the public — instead of deep cuts to some departments while other departments see no cuts at all, or worse, are able to increase their spending.
Does it seem fair to you while in recession that Health or Education should receive deep cuts, while spending on the military or the environment is unaffected? (I’m just using hypotheticals here for an example. Every Briton knows their military is chronically underfunded and few begrudge the UK military being exempted from budget cuts)
Back to the subject at hand; Every department in practically any organization on the planet has 5% ‘fat’ built-in to it. It’s just the way of organizations.
Budgets tend to be tightly managed in the first few years, then, over time, surpluses accrue or unused properties aren’t sold off as quickly as they could be, or in other ways there’s potential for either budget savings or revenue increases. Or, depending on the department, perhaps a combination of selling off unused assets and departmental savings could meet the new budget targets set by the government.
If you’re a large organization like the UK government and you expect your revenue to fall by 7% (for example) here’s the way to do it fairly!
Simply inform your departments of the 7% budget exigency, and instead of arranging deep cuts for some departments and zero cuts to others which sets the seeds for future electoral defeat, inform all departments to cut their budget by 7% — or alternatively — tell them to find ways to increase their revenue by the shortfall amount.
Let me be clear, if former Chancellor of the Exchequer George Osborne had simply told every government department in 2010, “We’re facing a 7% (or whatever percentage) cut in revenue, therefore, each government department must cut 7% from their annual budget until further notice,” each department would’ve done exactly that and hardly anyone would’ve noticed. (Remember, every organization/department already has 5% ‘fat’ in their system, so only a 2% budget challenge remains in this hypothetical example. At that point, accounting for the final 2% equates to selling off surplus real estate assets until that amount is obtained)
On the other hand, some departments might be real estate ‘heavy’ and could counter their entire 7% budget challenge by simply unloading their surplus real estate, thereby meeting the government’s directives to cut costs by 7% or increase revenues by 7% (or any combination thereof) to hit their departmental budget targets.
Wouldn’t that have been much better than the pain inflicted on the bottom-two economic quintile people in Britain (and which cost Theresa May a parliamentary majority) all of which has conspired to cheapen the ‘British brand’ around the world?
Read here, in the New York Times just how ‘fairly’ or ‘unfairly’ (depending on your worldview) the United Kingdom’s austerity plan has been portrayed around the world.
A country’s fortunes (fairly or unfairly) can rise or fall based on the perceptions of large numbers of people. Let’s hope that future UK budget cuts will not only be fair, but be seen to be fair by large numbers of Britons and by people around the world.