News - 08.11.2024
The Austerity No One Asked For
In the autumn, specifically on the day the Althingi was convened, ASÍ, BSRB, and KÍ organized a public rally at Austurvöllur to protest the effects that persistent inflation and high interest rates have had on ordinary people. These umbrella organizations represent the majority of working people in Iceland, and the demand at the gathering was clear: the government does not have a valid mandate unless it is willing to address the economic crisis with the public interest in mind.
At that time, interest rates had remained unchanged for an entire year and had been high for the preceding year as well. Wage negotiations for the general labor market took place earlier in the year, following a controversial directive from the Governor of the Central Bank, advocating for moderate wage increases as a basis for reducing interest rates and inflation. It was even suggested that rates would decrease immediately, given that the Governor had identified wage agreements as the largest uncertainty factor in the rate-cutting process. However, no rate cuts followed as the ink dried quickly on the wage agreements.
Self-interest as a Business Model
Wage earners, borrowers, and renters continue to be burdened by sky-high interest rates, with the policy credited for bringing inflation slightly under control. However, inflation is a far more complex phenomenon than can be directly linked to the collectively bargained wages of ordinary people. Furthermore, the cost of the high-interest policy has been enormous, disproportionately impacting specific groups in society, especially those who are in debt and those who rent. This high-interest policy effectively means a massive transfer of wealth from those with less to those who have more. The most evident price tag of this transfer can be seen in the banks' interest earnings and the fact that they can charge significantly higher interest rates than they pay. They are, in effect, able to extract wealth from the public’s pockets.
Self-interest has become one of the main business models of our time. Companies that provide essential services - such as banks, insurance companies, and telecommunications companies -are generally able to raise prices at will, transferring the risks of an unstable economy onto consumers. Other companies operate on a subscription basis, and we pay a certain amount for word processing on our computers, a certain amount to store our data, and yet another to listen to music. This list could go on indefinitely. Finally, there are the companies that indulge in self-interest with respect to the state treasury, enabled by political decisions that open ever more avenues for this. Recently, for example, a new financing model for nursing home construction has been introduced, allowing private entities to build nursing homes and bill the government for “market rent.” Given that there is no market for nursing homes, “market rent” is determined by the company itself, placing it in a monopoly position over the government. Taxpayers ultimately pay the nursing home’s price many times over, with profits finding their way to tax havens.
High Interest Rates as a Component of Austerity
The high-interest policy does not operate in a vacuum; it is part of an austerity agenda aimed primarily at shifting the burdens of a difficult economic situation onto the shoulders of ordinary people while turning them into an investment opportunity for the wealthy. This issue was addressed by economics professor Clara Mattei in a compelling presentation at a VR symposium in September. In addition to high interest rates, austerity entails cutting government expenditures, privatizing basic infrastructure, and eroding wage earners’ pay and rights. Austerity fails to deliver the results promised by its proponents - it does not reduce debt or revive a struggling economy. But it does achieve a less-spoken goal: protecting capital.
It is, therefore, notable that now, when politicians are asked how they plan to respond to the economic situation, their answers are steeped in austerity politics. Leaders of all parliamentary parties, and others, have announced cuts in government spending, using various terms to describe it, from efficiency measures to percentage reductions. There are few concrete answers on what these cuts will entail, but history shows that cuts generally lead to poorer services, privatization with its associated long-term costs for taxpayers, and increased fees. In other words, mainstream politics is signaling that it is time to place even more burdens on wage earners. Those who have already paid for the economic mismanagement through high interest rates, indexation, indexed rent, and complete unpredictability in housing loans are expected to pay even more. The privatization and commercialization of health and educational services being proposed are also false solutions to the severe problems facing society. Underfunded systems cannot be fixed by allowing private interests to siphon money from the treasury; they can be fixed by ending the underfunding.
Working People Deserve Better
When the labor movement protested at Austurvöllur in September, I don’t recall anyone demanding an increase in austerity policies. No one called for the privatization of primary schools or unspecified cuts to government institutions. On the contrary, the labor movement stood united for the public interest. That interest lies in abandoning austerity policies and ceasing to make Icelandic politics revolve around the interests of the few.
Working people deserve better than to pay repeatedly for an economic crisis they did not cause. Let us break free from outdated ideologies and organize public finances based on the interests of society, not profit-driven forces. This is what the upcoming elections should be about.
Halla Gunnarsdóttir,
Vice Chairman of VR and acting Chairman
