Shock consensus


The pro-cuts message must be challenged, John O’Farrell warns, as decision day approaches.

Beware the consensus. It can be as bad as any extremist idea declaimed by the most clichéd fanatic. What is especially unnerving is the sight of a belief which is itself extreme and ideological becoming the consensus view. This is not North Korea or Iran we are talking about.

Depending on the newspapers and broadcasters you consume, it is more than possible to believe that there is complete unanimity among economists and financial journalists that the UK Government’s core economic policy is correct. Thus it is possible for one of our more free-thinking columnists, Newton Emerson, to write that “every informed speech, statement and article on the subject over the past six months,” is in agreement that there is no alternative to deep cuts in public spending as soon as possible.

One could be as cruel as Upton Sinclair, the American writer who noted that “it is difficult to get a man to understand something when his salary depends on his not understanding it,” but that would be unjustified.1

The legion of available economic expertise repeats the same mantra, some with sorrow, others with undisguised glee. Last month, Ulster Bank economist Richard Ramsey wrote of the “Ulster fry economy”, which needed a crash diet “to shed a public sector jean size.” Alarm bells should have rung at this chunk: “the onset of a major trauma in the form of huge spending cuts may provide the shock therapy that Northern Ireland needs.”

Two things. This employee of the Royal Bank of Scotland (owners of Ulster Bank) ought to remember that the ‘shock therapy’ delivered by his bank resulted in the largest expansion of the public sector in years. Mr Ramsey, like all of his fellow employees of RBS, has officially been reclassified as an employee of the public sector.2

Secondly, ‘shock therapy’ has a distinct meaning in economic history, namely Russia’s liberalisation under Boris Yeltsin, which resulted in the rise of the oligarchs “while most of its people were being impoverished and millions of them dying prematurely for lack of elementary resources.”3

Unconsciously, Mr Ramsey may be on sounder ground here. ‘Shock therapy’ was applied to a wide range of economies in the 1980s and 1990s. Some, such as New Zealand, were deemed success stories. Others such as Russia, were a disaster. The first experiments were in quasi-dictatorships such as Chile and Bolivia. The latter trials were in more advanced democracies where the responsibility for persuasion had moved from the military to the media.

This brings us back to the uses of consensus. In the Republic of Ireland, the run-up to the December’s budget, the rage of the middle classes was re-directed away from the bankers, builders, developers and Fianna Fáil and onto the public servants and welfare dependants whose incomes were to be slashed. In a remarkable piece of candour, the political editor of the Irish Times admitted (boasted?) the role played by the Fourth Estate (the press) and the Third Estate (politicians): “This is a tribute to the skill with which the public was softened up for the measure and the way it was packaged and delivered.”

For the first few months of the ConDem coalition, this consensus seemed to hold. But fortunately, cracks are appearing. The Institute for Fiscal Studies analysis of July’s ‘emergency’ Budget illustrated that it was not as ‘progressive’ as George Osborne claimed or Lib Dems wanted. In the contrary, it matched in social unfairness Brian Lenihan’s Budget of last December.

In both budgets, there is a certain consistency. All ‘shock therapy’ economics has resulted in the significant and permanent redistribution of wealth to the already rich and powerful. The ‘shock therapy’ being planned for the UK looks set to follow this course.

Fortunately, the sheer recklessness of what “everybody knows” will be announced on 20 October is getting through to more and more people, which is why the trade unions expect to see many new faces at our rally against the cuts to be held at Belfast City Hall on

23 October.

For more, see:

1 Paul Krugman, New York Times, 13 December 2009

2 Classification of Royal Bank of Scotland Group plc and Lloyds Banking Group plc, ONS, 19 February 2009

3 Failed Crusade: America and the Tragedy of Post-Communist Russia by Stephen Cohen, Norton (2000)

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