Hard lessons from Europe’s austerity agenda

By Lynne Fernandez

First published in the Winnipeg Free Press February 19, 2019

It’s been obvious since his election that Premier Pallister is committed to austerity. His government is cutting public services and staff, reducing funding to municipalities and obsessing over deficit reduction, ostensibly to deal with what he labels as a financial crisis. At the same time he is oddly insistent on cutting revenues by reducing the PST by one per cent.

It is unfortunate that he is so hellbent on this strategy. Recent experience in Europe, where the European Union (EU) imposed austerity measures on Portugal, Ireland, Italy, Greece and Spain (referred to as the PIIGS countries), after their economies were decimated by the 2008 financial crisis, offer a litany of evidence that austerity causes more harm than good.

The combination of propping up the financial sector, combined with the effects of a global economic crisis drove the PIIGS’s governments deeply into debt. The EU agreed to lend them hundreds of billions of Euros to help them out – but only if they agreed to austerity measures such as deep cuts in public spending, the selloff of public assets, layoff of public servants and deregulation of the labour market (attack on unions and loosening of employment standards).

According to the European Trade Union Institute (EUTC) “The austerity and deregulation measures demanded by the creditor institutions since 2010 have included reductions in minimum wages, pensions and the scope of collective bargaining”. Before the crisis, 70 per cent of Greek workers were covered by collective bargaining; by 2015, that had reached 10 per cent.

The medical journal The Lancet has compiled a body of research on how health has been impacted in the PIIGs countries: “[. . .], our analysis suggests that, although recessions pose risks to health, the interaction of fiscal austerity with economic shocks and weak social protection is what ultimately seems to escalate health and social crisis in Europe.”

In England, where debt loads after the 2008 crisis were nowhere as high as in the PIIGS, austerity was imposed by its own government, seemingly for ideological reasons. The results have been just as stark. The return of ‘Dickensian’ illnesses like gout, scarlet fever and whooping cough, is connected to cuts in healthcare. The UN’s rapporteur on extreme poverty and human rights found that “UK austerity has inflicted great misery on citizens.” There is even academic research to show that austerity-induced misery was at the core of the Brexit vote.

Canada did not suffer so greatly as the PIIGs during the crisis, and in no part of our country has this extreme level of austerity been applied. But we can still learn from Europe’s experience. What appears to be a deliberate plan to weaken Manitoba’s unions is particularly worrisome.

Several pieces of legislation clearly show this government’s determination to undermine Manitoba’s labour movement. Since taking power this government has forced secret ballot voting in all attempts to join a union; introduced legislation (not yet proclaimed) to freeze public-sector wages; has legislation in the wings that will eliminate Project Labour Agreements (PLAs); and, many fear, will soon be going after Manitoba teachers in a province wide education review. It also introduced legislation to reduce the number of bargaining units in the healthcare sector – ostensibly to streamline collective bargaining. Simpler solutions, such as adopting Nova Scotia’s Council of Healthcare unions model were suggested by the unions, so why did the government choose the path of greatest disruption? Why bother with any of this legislation?

These are important questions. There is considerable research showing that undermining labour has long-term negative effects. As explained by John Evans, “IMF researchers, examining 20 industrialized economies, concluded that 40 per cent of the rise in inequality between the top and bottom income deciles from 1980 to 2010 was due to the decline of trade-union density alone.”

The inequality issue brings us full circle. Referred to as the ‘crisis before the crisis’ Evans notes how inequality had weakened wide swaths of society before 2008, making it impossible for them to withstand the impact of the crisis, and ensuring that a long, difficult recession would ensue.

How can we apply these insights to Manitoba?

First of all, Manitoba was not hit too hard by the recession. The main reasons for our resilience –which themselves provide valuable lessons – were our diversified economy, high rates of public-sector investment and the fact that Canada’s banking sector is much more regulated than in other countries. Manitoba’s higher than average union density rate, at 34.2 per cent also helped: more workers had decent wages so they could continue supporting Manitoban businesses.

Despite our relatively strong performance, Manitoba does have its share of inequality. University of Manitoba’s Ian Hudson and Benita Cohen found that “Inequality, especially of market income, is alarmingly high in Manitoba and the incomes of those in the bottom deciles are shockingly low. Since the late 1970s, this problem has grown considerably worse. The bottom two deciles of the population actually earn a lower market income in 2011–14 than they did in the late 1970s.”

Experts agree that the remedy for inequality and a sputtering economy includes a living wage for all workers, a healthy labour movement that can collectively bargain wages and benefits, progressive taxation to redistribute income and a strong public sector that provides adequate services (including affordable childcare).

Manitoba’s economy is currently on a relatively even keel, but refusing to increase our inadequate minimum wage to a living wage, undermining labour and privatizing and cutting healthcare services could stir up waves that throw us off course, especially when the next downturn hits.  Europe’s experimentation with austerity provides that valuable lesson.