Austerity as a precursor to fascism

Austerity as a precursor to fascism

Conversation with Clara Mattei

[This conversation posted in December 2024 is translated from the German on the Internet, https://zeitschrift-luxemburg.de/artikel/austeritaet-als-wegbereiter-des-faschismus/.]

Daniel Steinmetz-Jenkins: Let's start with the question of what you understand by austerity.

It's almost synonymous with today's economic policy. Instead of seeing it as an objective tool for controlling the economy, I see it as a tool of class warfare from above: austerity serves to maintain a certain social order. Structural restrictions on social spending and wages ensure that the motto “work hard and save as much as possible” is more than just a form of discipline for the majority of the population—it is the only way to survive. Together, fiscal, monetary, and industrial austerity measures permanently deprive wage earners of resources. This exacerbates their precarious living conditions and leads to a redistribution of social wealth from the bottom to the top, with financial investors at the top benefiting in particular.

“What austerity policies achieve is less a stabilization of the economy than a cementing of class relations.”

Fiscal austerity policy refers to cuts in government social spending (on health, education, housing) that are usually decided by parliament, and to regressive tax policy. This means that consumption taxes, which place a greater burden on the poor, are increased, while the rich pay less tax. Monetary austerity is mainly seen in the form of interest rate hikes, which make creditors happy, while households that depend on credit to get by can barely pay their bills. As the cost of credit goes up, so do government spending on public construction projects and social services, with the labor market being hit the hardest. Fewer job vacancies and higher unemployment reduce workers' bargaining power. Finally, industrial policy austerity measures refer to all interventions by the state that directly interfere in labor relations in favor of employers, whether through privatization, deregulation, or obstruction of trade unions. The dominant understanding of austerity refers to monetary aspects, but almost everywhere attacks on trade unions have weakened individual and collective workers' rights, and social welfare has been replaced by workfare, which expands and subsidizes the low-wage sector.

What exactly characterizes the class-based political approach you advocate?

It is not so much about how much the state spends, but rather what it spends money on, and in particular how this deepens the divide between the few who benefit from this system and the many who lose out. The political scientist and economist Mark Blyth has famously demonstrated that austerity measures do not really serve the official objectives of reducing government debt or stimulating economic growth. So the question arises: why are they still being used?

One explanation that emerges from a look back at history is that capital has always depended on protection. What austerity policies do is not so much stabilize the economy as cement class relations. Historically, austerity policies have never been about curbing inflation or fiscal discipline. Austerity offers the best conditions for generating high profits, while the majority of the population—those who are politically underrepresented—are condemned to abandon any plans or ambitions for democratizing the economy. Low wages and constant austerity measures force them into a “hard life.”

One of your main theses is that the particular type of austerity policy pursued by the governments in Italy and the UK in the early 20th century was a reaction to the “collective anti-capitalist uprising” that began after the First World War. What exactly do you mean by that?

The so-called red years of 1919 and 1920 represented a very special moment in the history of capitalism, as the two pillars on which it was based – private ownership of the means of production and wage labor – were no longer accepted by large sections of the population in these countries. The discontent and protests of the people were motivated, among other things, by what they had experienced during the mobilization for World War I: the governments in Italy and Great Britain had adapted their entire economies, especially industrial production and the wages paid there, to the requirements of their war machines. The “natural order” of capitalism had been suspended in order to meet these state needs. Now the governments wanted to return to the old conditions.

The workers' council movement in Italy reached its peak in the summer of 1920 and represented an institutional breakthrough. With their radical horizontal organization and a strict rotation system for delegates, they envisaged representation of the broad masses of workers. These structures were to form the core of a new state that was no longer alienated from the population. The starting point was that political democracy is meaningless if it is not based on the democratization of the economy. The rejection of hierarchical production relations was part of a fundamental rejection of a hierarchical worldview. The ruling class's response to this growing awareness among the working class and its mobilization was not long in coming: at the heart of their counteroffensive was a strict austerity policy.

How do you explain the fact that liberal British economists admired Mussolini's fascism despite the violent and illiberal elements of his politics?

Both the international and Italian liberal establishment (including figures such as Luigi Einaudi, who explicitly praised Mussolini's economic program in the 1920s) played a key role in consolidating the fascist dictatorship. They supported it ideologically and materially, including with public and private loans. These were not isolated cases; a large part of the liberal elites in Italy and England backed Mussolini and his austerity policy. This included leading economically liberal media outlets such as The Times and The Economist. Dispatches from the British Embassy in Rome and documents from the Bank of England also show undisguised relief at Mussolini's rule in the 1920s.

And why? Because he was extremely effective in implementing austerity measures at the expense of the Italian working class, which benefited liberal foreign investors. Montagu Norman, then governor of the Bank of England and another popular icon of liberalism, stands for a particular double standard.

Norman complained that Mussolini's fascism tended to suppress all opposition. “Everything different” had been ‘eliminated’ and “all forms of opposition had disappeared.” In the same breath, he speculated: “Presumably, however, this is an appropriate form of government for Italy, at least for the time being.” Norman concluded that fascism was the appropriate social means to the right economic end: “Fascism has undoubtedly brought order out of chaos in recent years. This was certainly necessary to prevent the pendulum from swinging too far in the opposite direction. Il Duce was exactly the right man at the right time.”

These and similar statements leave no room for doubt: all concerns about the fascists' abuse of political power took a back seat to admiration for the “successes” of their austerity policies, whether it was the suppression of strikes, the stabilization of the national budget, or general increases in productivity. British economic liberals clearly saw the link between austerity and political repression that is typical of fascism. At the same time, it can be assumed that they would not have had any fundamental objections if the British working class had been treated in the same way as in Italy. In fact, British technocrats pushed for the undemocratic implementation of their preferred economic policies with the help of the authority of independent national central banks. Even if they did so in different ways. In the end, Italian and British austerity advocates had a similar goal: to create and secure a system that imposes daily sacrifices on the social majority and protects it from unrest and state intervention.

Are we experiencing a new era of fascism today? What is your assessment based on your class-based political approach?

If we take a closer look at the fascism of Benito Mussolini, the differences between the supposedly liberal democracies and right-wing authoritarian regimes that we take for granted today and which also have something reassuring about them appear in a different light. In fact, we see austerity policies with an anti-democratic thrust in most current governments, albeit with different nuances. The central role of nationalism in enforcing these policies must not be forgotten. Nationalism—whether espoused by Giorgia Meloni or other far-right governments today and in the past—serves to conceal state violence against its own workers (for example, in the form of cuts to social services or unfair taxation) by negating all class differences and attempting to unite everyone behind the national flag. Nationalism is also a strategy used by governments to distract attention from the real enemies of the people: the wealthy and powerful elites who are the only ones who benefit from our current economic system. Nationalism stokes resentment against “external enemies,” including migrant workers, who have usually suffered even more from austerity in their countries of origin. Meanwhile, politicians such as Bolsonaro, Trump, Meloni, and Orbán stand for an expansion of this anti-worker approach.

What lessons can be learned from history?

For example, that inflation is not a problem that can be combated with purely economic measures, but that it is closely linked to the power relations in the production process. A look at the strategies for protecting capital makes it clear that our socioeconomic system is by no means the only model for the future. Rather, it is the result of collective action that serves to make alternatives to capitalism impossible. Building collective counterpower can remedy this situation. Analyzing and exposing the logic behind the system and its purpose is a first step in this direction.

If austerity policies are part of the DNA of capitalist states, then this also means that we must take even more decisive action against them, and that true alternatives are only conceivable outside of capitalist logic. Gramsci's insight that the knowledge needed for this arises from collective mobilization and experiences such as the council movement mentioned above is crucial here. Our political imagination grows with every participation in collective actions aimed at democratizing social and economic relations.

LuXemburg editorial team: In the current constellation of multiple crises, we are witnessing a struggle within the ruling class over austerity policies: some right-wingers such as Meloni, but also convinced neoliberals who do not necessarily sympathize with fascist forces, are advocating strict austerity, new neoliberal offensives, and rearmament. The other part of the ruling class stands for a more flexible form of austerity, which, in addition to rearmament, favors Keynesian approaches such as state investment in green technologies and the reconstruction of infrastructure. How should the left deal with this division, which is in part a struggle for the survival of the imperialist world order?

Perhaps it is a little too superficial to speak of a split. Politically more relevant is the fact that both camps blindly support austerity capitalism. Today's Keynesianism has little to do with redistribution from the top down; rather, it favors public spending to support private investors. This also applies to the more moderate proponents of austerity. None of them oppose the massive expansion of the military-industrial complex or the subsidization of large international financial corporations. The left should see both camps as class enemies. Nowhere is this brutal truth more evident than in the bloodbath of the Palestinians, which is supported materially and ideologically by the West through its participation in war crimes and the complete undermining of international law. Given the apocalyptic scale of the ongoing destruction, the number of victims in Gaza continues to rise: hospitals destroyed everywhere, fields reduced to dust, contaminated water sources, garbage and debris everywhere on a highly poisoned piece of land where human life has become impossible. According to the official health authorities there (as of September 2024), around 41,000 residents of the Gaza Strip have already been killed, 20,000 orphans are living in the ruins of their villages, and half a million people are facing starvation because the Israeli military is blocking humanitarian aid. Torture of prisoners from the Gaza Strip in Israeli custody has been immortalized in various videos recorded by IDF soldiers [Israel Defense Forces, editor's note]. Meanwhile, Israel continues to annex Palestinian land in the West Bank. Ethnic cleansing there and in Gaza continues with impunity.

The US, still supported by European elites, is representative of a global trend toward austerity capitalism. While social exclusion and poverty are growing exponentially in the US, as evidenced by the alarming spread of homelessness, the taxes paid primarily by working-class households are not being used to strengthen the welfare state. On the contrary, government debt is growing to enrich major shareholders, and public funds are flowing in huge amounts to private companies, especially in the military-industrial complex. In the last ten months alone, Congress has approved $12.5 billion in military aid to Israel. (This does not include more than 100 grants from the Foreign Military Financing Program, which are not subject to congressional oversight.) What is called military aid means government-guaranteed contracts and excellent business for the more than 50 multinational companies involved in the massacre in the Gaza Strip: from General Motors to Ghost Robotics to Google and other AI companies that provide deadly algorithms.


The interview, abridged by the editors of LuXemburg, first appeared on July 18, 2023, in the magazine © The Nation under the title “Common Sense Fiscal Policy or Austerity by Another Name?”

It was supplemented by an additional question from the editors and a response from the author in September of this year.


Clara Mattei is Professor of Economics and Director of the Center for Heterodox Economics (CHE) at the University of Tulsa, Oklahoma, which will open in February 2025. She previously taught at the New School for Social Research in New York. Her much-discussed book “The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism” was published in 2022.