Education, Capitalism and the Global Crisis

Stephen Ball, Meg Maguire, Ivor Goodson

• Publisher: Taylor & Francis
• Year: 2014
• Print ISBN: 9780415693424
• eBook ISBN: 9781317978343
• Edition: 1
• Topic: Education
• Subtopic: Education General

Education, Capitalism and the Global Crisis focuses on Andrew Gamble's book The Spectre at the Feast and its analysis of the background to, conduct of, and possible consequences and opportunities brought about by, the current global economic crisis. The views expressed represent a range of responses to Gamble's analysis and examination of the crisis, both in different locations and from different perspectives. They reflect upon the broader social, political and even emotional dimensions of what is taking place as well as trying to understand the true nature of the crisis.

What is key is how the state sets about 'managing' this crisis. The authors seek to answer a wide range of pertinent questions, such as: to what degree will the state continue to balance between economic and fiscal management as against the needs of the weak and vulnerable? What should be and what is the role of state welfarism in a time of recession? How will different nation states respond to this crisis? What is the role of education policy in these complicated times? What is the role of the education state?

This book was originally published as a special issue of the Journal of Education Policy.

Introduction

After the crash

Everyone agrees that something momentous happened in the autumn of 2008.¹ The credit crunch which had been slowly tightening in the previous 18 months suddenly went critical. A number of high-profile financial institutions in Europe and North America had folded and local bailouts and mergers had been arranged, but the problems though serious were thought to be manageable. A period of financial restraint to cool some of the more overheated markets, particularly housing, was in prospect, but it was expected that that this would be a temporary adjustment, which would pave the way for the resumption of the rapid growth of the previous two decades. Matters worsened, however, in September 2008. The decision by the US financial authorities not to bail out Lehman Brothers when it got into difficulties triggered a crisis of the financial system. The reaction of the markets was so extreme that the financial system appeared to be on the point of collapse, causing potentially huge disruption to the international economy, to public order and to political stability.

The response was swift and concerted. Two decades of mantras about efficient markets, spontaneous markets and the evils of government were set aside and governments of differing ideological persuasions launched a wave of bailouts, nationalisations, fiscal and monetary packages, which left nothing to chance. Conservative Republicans on Capitol Hill objected strongly to the bailouts and the takeovers, arguing that this was socialism by any other name, and that banks should be allowed to fail. Only in this way could market disciplines be restored and the bad debts purged from the system. No government or financial authority was prepared to take the risk of following that advice. They were determined to prevent a downward deflationary spiral such as had occurred in 1929 after the Great Crash, and they used every policy tool, Keynesian and monetarist, to avert the danger. In such a crisis the role of the state as the guarantor of last resort comes into play.

The governments succeeded. Financial meltdown was averted. Banks stopped collapsing, and although a very deep recession ensued, the financial system was not destroyed. Many banks had passed into public hands, but they still operated as before, and indeed were soon paying bonuses again. But the rescue came at a high cost. The banking crisis was transformed for many states into a fiscal crisis, which by 2010 had become a sovereign debt crisis, as the markets began to realise that several states had debts they had little hope of repaying. A slow recovery had begun to take hold by the end of 2009 so that by April 2010 the IMF had become quite optimistic that the recovery was sustainable, predicting average 4% growth for the world economy in 2010 and the same in 2011. But the eurozone crisis in May 2010 showed how fragile this recovery was and how easily it might be derailed. The huge build-up of debt in the system which the crash in 2008 revealed was still present; it had changed its composition, with much more of it now being shouldered by governments. But to bring down the fiscal deficits while at the same time maintaining the recovery had now become the central political task. A period of major political battles over the size of public sectors and the restructuring of public debt looked inevitable. Frontline services including education are clearly going to be in the frontline.

The nature of the crisis

Crisis is much overused in everyday discourse. 24-hour news lives by manufacturing crises. Most of them are entirely ephemeral. Any event that is in any way out of the ordinary or where there appears to be conflict and the outcome is uncertain becomes labelled a crisis. Such usage is related to traditional meanings of crisis in medicine, drama and music, and depends on the idea that crisis is a moment of climax which forces a resolution of a problem and releases tension. The crisis created by the collapse of Lehman Brothers was resolved by the bank bailouts and the decisive intervention of the national governments. A second meaning of crisis, however, in the history of capitalism refers not to a single event but to number of events over an extended period of time. There may be a precipitating event such as the 1929 stock market crash or the ending of the Bretton Woods system in 1971, but the underlying causes are structural, the product of a deep impasse which cannot be resolved quickly or easily, and which can last for a decade as in the 1930s and the 1970s. A crisis of this kind can have many twists and turns, and ups and downs, and involves political, ideological, social and cultural conflicts, since what is at stake is a fundamental reordering of the international economy and the international state system as well as national economies and national politics, the creation of new principles of order, and a new era of capitalist development.

One of the fundamental issues about the 2008 crash is whether it is the harbinger of this kind of structural crisis, or whether it is much more ephemeral. There can be no certainty about this, and there are both optimists and pessimists about the international economy. Events, like the eurozone crisis in 2010 precipitated by the risk of a default by Greece on its debts, are seen by some as the latest form the crisis is assuming, and a sure sign that the main problems have not been solved, only postponed. Others see the eurozone crisis as a serious aftershock but not a new earthquake. It can be contained and managed, and will not prevent the resumption of growth and the return to normality.

Since the onset of the crisis three key debates have emerged about how the crisis should be understood and how it might be resolved, covering the deficit, economic growth and international economic governance. They provide ways of thinking about the political implications of this crisis for different areas of policy, including education, health and welfare.

The deficit

The debate on the fiscal deficits has been dominated by market fundamentalists and market realists. The big increase in these deficits took place in 2009, but this was seen at first as a necessary consequence of the bank rescue package and of the stimulus aimed at limiting the deflationary downward spiral. The political debate that has emerged since then has centred on the timing of any reduction in the deficit, in particular whether action to reduce it should be postponed until the recovery is firmly established, or whether cuts should come earlier in order not to lose the confidence of the financial markets. During much of 2009 the market realists who gained the ascendancy in the wake of the Lehman’s collapse continued to win the argument although they were increasingly on the defensive. As late as April 2010 the international consensus as reflected in the IMF world economy outlook was that maintaining the fiscal stimulus should take priority over cutting the deficit because of the risk of a double-dip recession, and of plunging the world economy back into a second recession before the recovery had been properly established.

The eurozone crisis decisively tipped the argument in favour of the deflationists, led by surplus countries like Germany. The new coalition government elected in Britain in May 2010 also joined the deflationist camp, even though one of the parties to the coalition, the Liberal Democrats, during the election campaign had been markedly against cuts taking place too early. The need to stop the erosion of market confidence in the creditworthiness of a number of countries with high deficits, combined with arguments that the recovery was now strong enough, swung opinion towards early and more rapid cuts. This was confirmed in the June communiqué of the G20, which argued that fiscal stability and credible deficit reduction plans should now be the priority for all countries (G20 Communiqué, 5 June 2010).

The political implication of this change is that all those countries in the eurozone with high fiscal deficits as well as those outside it, including Britain, have to compete with one another in how fast they can bring down their deficits in order to keep one step ahead of the markets and prevent any lowering of their credit rating. Failure to satisfy the markets brings the risk of outright default, which the G20 and the IMF are desperate to avoid since it could mean a new banking crisis. A Greek default might just be containable, but there are distinct worries that if it triggered a default in other eurozone countries such as Spain, then the result would be to transfer the problem back from sovereign debt to the banks, since so much of the sovereign debt is held by banks.

The politics of deficit reduction are not at all straightforward, since aside from the argument about timing there are important decisions to be taken about the balance between reducing spending and increasing taxes. For some states raising taxes is much easier than cutting spending, but for others, including Greece, their tax base is narrow and their ability to enlarge it limited. This makes it difficult to spread the burden of fiscal adjustment more widely. Those states, including the UK, that do have a broader tax base, have often found it easier in the past to raise taxes than to cut spending. The Thatcher Government and the Major Government both failed to rein back public spending as much as they intended, and resorted instead to tax increases. Public spending cuts mobilise coalitions of special interests against them, both within and outside government. Even where real cuts have been made the result has often been temporary because of the pressures for continual increases in public spending. The politics of spending cuts always lays bare the nature of the state and its priorities, because it involves choices about which departments and which social groups should carry the heaviest burden.

There is an important distinction between deficits and debt, the former being the gap between revenue and expenditure, and the latter the accumulated total of deficits. Britain has had much larger national debt than it currently has; in 1815 and 1945 the national debt reached 250% of GDP. The current level of debt is only 62%, but will continue to grow if the deficit, which was 12.6% of GDP in April 2010, is not tackled. What has alarmed many observers is the size of the deficits that many countries have accumulated and the political implications of reducing them rapidly. In the UK the size of the reductions being contemplated is greater than those in the 1980s, greater than those at any time in Britain’s modern history. Many departments, apart from those like health which have been ring-fenced, face cuts of up to 25% between 2011 and 2014, and following the emergency budget in June 2010, even larger cuts have been trailed. All parties at the election in May 2010 were pledged to reduce the annual budget deficit by at least half in the next four years, but this implied a period of austerity lasting not one Parliament but two. This situation would be unprecedented in peacetime, and governments would struggle to maintain support. The new coalition government has raised expectations that the cuts will not be as severe as feared, yet at the same time has warned of how tough things are going to get. David Cameron promised during the election that frontline services would be protected, while the Deputy Prime Minister Nick Clegg has insisted that that the forthcoming cuts will not be as harsh or as divisive as those inflicted by Margaret Thatcher. The Chancellor, George Osborne, on the other hand has told the European finance ministers that austerity is the key to recovery. So keen is the Government to embrace austerity that it has pushed ahead with plans to create an Office of Budget Responsibility (OBR) to provide an independent audit of which liabilities should be included on the government balance sheet, and an independent estimate of economic growth which the Government will use in planning the budget. By choosing a forecast of economic growth lower than that of the Treasury, and by including many liabilities currently off the balance sheet, the actions of the OBR has the potential to increase the deficit substantially, obliging the Government to announce even larger cuts to placate the bond markets. The Government is embarked on a high-risk strategy and risks precipitating a new recession.

Growth

A second major debate has been joined over the sources of future economic growth. There is an underlying mainstream assumption that only a return to sustained growth offers a way of bringing down the deficit without inflicting unacceptable damage to public services, or imposing much higher taxes or resorting to inflation. The difficulty is that the financial growth model which became established in Britain in the 1980s and flowered between 1992 and 2008 lost much credibility because of the financial crash, and appears deeply flawed, resting as it does on the encouragement of financialisation and consumer debt, treating all citizens as individual financial subjects, which fuelled the credit boom and the housing bubble.

The main debate over how growth can be restored and what kind of growth it is to be has been between strategic investors and free traders, with critical contributions from green and socialist political economists. There has been much talk since 2008 about the need to rebalance the British economy, but how this is to be done is elusive. Manufacturing has declined further in the last 10 years although it still contributes a larger share to GDP than financial services. Free traders argue that governments do not have the levers to ensure that any particular sector can be expanded. They advocate instead a strategy of rebuilding exports by allowing the pound to devalue against other currencies, and seeking larger market share in those parts of the world that are still rapidly expanding, such as China and India, rather than those parts that are stagnating or declining, such as the eurozone, even though it still accounts for up to 60% of British trade.

The free trade vision for Britain’s future argues that the government should protect comparative advantage wherever Britain currently enjoys it, and that has to include above all protecting the City of London from restrictive regulations imposed as a result of the financial crash. Free traders tend to favour minimal welfare states and public services, with much greater private provision and competition in the delivery of public services. This affects education in a number of ways. In so far as education at any level provides internationally marketable services, then free traders want education as a sector to be sustained and protected from interference. A problem arises because so much of education is state-funded, and therefore a prime target for cuts to help reduce the deficit. Free traders fall back on demanding that education is progressively removed from the state sector and set free to charge whatever fees the market will bear. This project is furthest advanced with higher education, and although the issue may be deeply divisive within the coalition, the need to make such very large cuts in public spending may create the opportunity for a major privatisation of universities. This reflects the basic free trade assumption is that if something has to be paid for by the state it creates no value, and therefore the justification for it has to be particularly strong. Many free traders think that a large part of education is not a public good and should therefore be provided and paid for privately.

Strategic investors take a very different view of how a successful capitalist economy can be created, and in particular they stress the role of government in creating the conditions for a flourishing private sector. Strategic investments in education, health, infrastructure and research are considered vital to provide the competitive edge in global markets required by citizens and companies. Strategic investors therefore apply not just a market test to activities but a test about productive potential, trying to identify not the precise industries or companies to be supported but the range of skills and capacities with which citizens need to be equipped. Applied to education this implies a supportive but interventionist agenda, seeking to ensure that students at all levels acquire the skills needed to allow them to perform well in the economy. Strategic investors would seek to protect education from cuts because of the critical importance of education and human capital for this model of growth. They would also seek to protect universities, particularly the science part of universities, because of their contribution to economic growth.

International economic governance

Considerations of growth feed into debates about the international economy and the place of national economies within it. There are lively debates between economic nationalists, regulatory liberals and cosmopolitan liberals about what kind of international financial architecture and international economic governance is possible or desirable after the crash. The background to this debate is the great shift which appears to be underway in the international economy and the international state system with the rise of China, India and Brazil. This rise predates the crash, but its significance and implications have now been cast in a new light. The crisis has touched the economies of the East but only by lowering their rate of growth, not removing it altogether. In that sense it has been primarily a crisis of western rather than eastern capitalism. The East is one of the main beneficiaries of the crisis, and perhaps this is where we should look for the major shift in paradigm which will come to be associated with this crisis, and which may in time lead us to view the international system and its political economy in a quite different way.

Optimists about the future of the international economy stress the enormous potential for growth in India and China, which was confirmed in the IMF projections in April 2010. India and China may yet lift the rest of the international economy into a new phase of growth, but for this to be certain the world will have to move from the unipolar system of the last 20 years with the USA as the sole hegemonic power, to a much more multipolar system. Such systems in the past have often been unstable and have bred conflict. Regulatory liberals argue that if this is to be avoided a new set of international rules have to be negotiated covering trade and currencies, and a plan for dealing with the asymmetries between debtor and creditor nations for which Keynes tried (and failed) to find agreement at Bretton Woods. Cosmopolitan liberals would like to go much further and lay the foundations for a genuine global polity with forms of representation, deliberation and common institutions to deal with pressing global problems. Economic nationalists on the other hand view all such international arrangements through the prism of national interest, and oppose giving away what does not need to be given away. As in the 1930s despite much talk about the need for international collaboration the reality is creeping protectionism, and the abandonment of more ambitious plans to get international agreement on substantive issues like a global banking tax. At the G20 meeting in June 2010 the opposition of Japan, Canada and Brazil was sufficient to kill that proposal. The difficulties in the way of building new supranational or transnational frameworks in present circumstances have been made plain by the crisis in the eurozone which has been extremely hard to resolve and which threatens both the future of the euro, and even in the view of some analysts, the European Union itself. The prevalence of economic nationalist arguments by many of the leading players, notably Germany, may eventually lead to a recasting of the eurozone and the creation of some kind of fiscal union, but it could also lead to its breakup.

Conclusion

In all these ways the financial crash of 2008 continues to shape current debates and future prospects for the international political economy as well as for domestic politics. The worst has so far been avoided, but the resilience of the world’s political economy and its institutions of governance in many states are about to be tested by the imposition of a degree of austerity exceed...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Notes on Contributors
• Foreword
• 1. Introduction: After the crash
• 2. Summoning spectres: crises and their construction
• 3. Is greed still good? Was it ever? Exploring the emoscapes of the global financial crisis
• 4. The global economic crisis, poverty and education: a perspective from India
• 5. Governments and education reform: some lessons from the last 50 years
• 6. Accountability for public expenditure under Building Schools for the Future
• 7. After the fall: educational contracting in the USA and the global financial crisis
• 8. Times of educational change: towards an understanding of patterns of historical and cultural refraction
• 9. The global economic crisis and educational development: responses and coping strategies in Asia
• 10. Rhetorics of regulation in education after the global economic crisis
• 11. Crisis, what crisis?
• Index