Views & Reviews Review

Warning: austerity can seriously damage your health

BMJ 2013; 346 doi: http://dx.doi.org/10.1136/bmj.f3659 (Published 10 June 2013) Cite this as: BMJ 2013;346:f3659
  1. David McCoy, senior clinical lecturer in global health, Centre for Primary Care and Public Health, Queen Mary University London
  1. d.mccoy{at}ucl.ac.uk

Some countries have followed less austere policies and seem to have fared better in social outcomes. David McCoy is persuaded by the epidemiology in this book and concludes that economic policy is too important to be left to economists

That austerity kills should come as no surprise when reading David Stuckler and Sanjay Basu’s book on the effects of the current great recession on population health. Unemployment, homelessness, and healthcare cuts—direct consequences of austerity—will inevitably increase mortality and suffering. Likewise for alcoholism and drug use, which are indirect consequences of austerity.

The Body Economic presents a readable but depressing account of the tragedy unfolding in many parts of the world today. Lives have been blighted, firstly, by the scandalous failure of politicians to regulate banks and finance capital, and, secondly, by them imposing the cost of bailing out the financial and banking sectors on the backs of millions of ordinary citizens. It’s not the first time this has happened. The debt burden incurred by African countries in the 1980s and 1990s, a result of bad and corrupt lending by banks, resulted in millions of deaths.

But Stuckler and Basu take their argument a step further. They argue that austerity also fails to promote economic recovery and reduce public debt when compared with stimulus spending and policies that protect spending on healthcare, welfare, and housing. The conclusion is that austerity is bad for both human health and economic recovery.

Stuckler and Basu make their case on the basis of epidemiological analysis, observing patterns of association between economic policy and various economic, health, and social indicators. One chapter chronicles the disastrous effects of the rapid transition from communism to free markets in Russia. At least 10 million lives were lost; at the same time, a tiny minority of billionaire oligarchs was created. By contrast, a more gradual transition from communism to a mixed economy in Belarus has resulted in better health and social wellbeing.

When the east Asian financial crisis hit countries in the late 1990s, the International Monetary Fund’s (IMF) prescription of deregulation, privatisation, and public sector budget cuts was rejected by Malaysia, which instead instituted capital controls, a fixed exchange rate, and social protection programmes. Malaysia fared well in the crisis. Those countries that swallowed the IMF’s bitter pill fared worse.

No doubt the conclusions Stuckler and Basu draw from their epidemiological observations and case studies will come under scrutiny and be criticised. We are operating in the territory of complex phenomena and multiple confounders. But they have at least brought to the fore a set of compelling data that questions the neoliberal faith in free markets, privatisation, and small states as an effective mechanism for solving the problem of public debt and economic recession.

Faith in neoliberal economic policy should also be shaken by the book’s account of the IMF’s use of incorrect assumptions about the “fiscal multiplier” effect of government spending—that is, the estimated effect of government spending on future economic growth. Not only did the IMF assume that the effect of government spending on economic growth would be the same in all countries (irrespective of their differences), but it also assumed that it would be the same for all sectors of the economy. This is clearly ludicrous. When Stuckler and Basu looked at the empirical data, they found that public spending on health and education had much greater positive effects on economic growth. Bank bailouts, on the other hand, represented poor fiscal multipliers.

Crucially, this book demonstrates the importance of subjugating economic policy to social policy; not the other way round. All too often, economic policy is centred on the objective of ensuring economic growth, regardless of the social and environmental effect of that growth. Tellingly, the authors describe how in Iceland, an economic downturn can be accompanied by improvements in health and wellbeing if politicians choose to prioritise social goals.

The case of Iceland thus points straight to the moral and political dimensions of economic policy. It’s worth quoting directly from their book: “Icelanders were now faced with a profound moral question. To what degree if any were they as a people and a country responsible for the malfeasance of their business class? Iceland’s taxpayers were being asked to pay for a private bank’s bad investment decisions. This was serious news in a country where there was already a vast disparity between a rich few who had amassed great debt through a lavish lifestyle and the rest who were now being asked to pay.”

While Stuckler and Basu spend much of their book contrasting austerity with stimulus, the case of Iceland is the closest they get to considering the policy option of cancelling or repudiating illegitimate debt as an option for dealing with the financial crisis. But this too is not a question of economic policy, but one of politics.

The book is therefore as much about the “body politic” as it is about the “body economic.” It is about distribution: of power and wealth across society; of risk between private creditors, private debtors, speculative investors, governments, and taxpayers; and of the effects of public service budget cuts.

Indeed, a more political interpretation of the policy of austerity would be to view it as a tool by which a financial crisis has been exploited to privatise state assets and further shift wealth from the majority to a minority. Naomi Klein’s Shock Doctrine would be worth reading as a companion piece.

Economics is politics, and for that reason economic policy is too important to be left in the hands of economists, especially those of the neoclassical school who continue to believe that markets are inherently efficient and fair. Rather, these markets are socially instructed institutions that require social control.

Notes

Cite this as: BMJ 2013;346:f3659

Footnotes

  • The Body Economic: Why Austerity Kills

  • A book by David Stuckler and Sanjay Basu

  • ISBN 978-1846147838

  • Allen Lane; 240 pages; £20

  • Rating: ****

  • Competing interests: I have read and understood the BMJ Group policy on declaration of interests and have no relevant interests to declare.

  • Provenance and peer review: Commissioned; not externally peer reviewed.