Tapu Misa: Cuts in public services won't stimulate economy to grow

My first job was in the public service. It was at the Government Printing Office in Wellington, where my father worked as a storeman. My younger siblings were given holiday jobs there. My mother was the cafeteria lady at the Kilbirnie branch.

When I chucked it in for journalism, my parents were dismayed. Government jobs were the most secure, they said. But they hadn't reckoned on Rogernomics, and the big state sell-off that left them jobless some years later.

So it's possible that I'm biased, even though I've spent most of my working life in the private sector.

In Britain, the United States and here, this is a bad time to be a public servant.

Indeed, as public spending and the public sector come under attack, one could be forgiven for thinking the global financial crisis was the fault of a bloated and profligate public sector and nothing to do with an under-regulated private sector.

The economic crisis that should have been a teachable moment has only strengthened those who caused it. In the US, the too-big-to-fail banks saved by taxpayer bailouts are now bigger than they were before the crisis. Nothing has changed. The obscene bonuses are still being paid, and Wall St profits continue to grow.

And yet it's the teachers and other public sector workers who are being blamed as states try to balance budgets.

As US economist Robert Reich writes, characterising sanitation workers, police officers, teachers, social workers and other government employees as "faceless bureaucrats" suits the Republican lie that the deficit is due to big government.

It's easier to scapegoat the public sector than to talk about why the richest Americans aren't asked to pay their fair share of taxes, or how multinationals such as General Electric can make a worldwide profit of US$14 billion in 2010 (US$5.1 billion of that in the US) and yet claim a tax credit of US$3.2 billion ($4.1 billion).

In Britain, David Cameron's Conservative Government has embarked on a brutal austerity programme that will see nearly half a million public servants lose their jobs over the next three and a half years. Public services that poorer Britons rely on will be cut; many public libraries will close.

There is no alternative, Cameron declares, but Nobel economics laureates Paul Krugman and Joseph Stiglitz disagree.

Stiglitz writes in the Guardian that the countries with the largest stimulus packages relative to their size (China, for instance) had the fastest economic recovery.

Even America's too small and poorly designed package - 40 per cent of which went on household tax cuts, "which were known not to provide much bang for the buck" - had the effect of reducing unemployment from over 12 per cent to 10 per cent.

Stiglitz: "We should be clear. Most of the increase [in deficits] is not due to the stimulus but to the downturns and the bank bailouts. Those in the financial markets are egging on politicians to ask whether we can afford another stimulus. I argue that Britain, and the world, cannot afford not to have another stimulus. We cannot afford austerity.

"In a better world, we might rightfully debate the size of the public sector. Even now there should be a debate about how government spends its money. But today, cutbacks in spending will weaken Britain and even worsen its long-term fiscal position relative to well-designed government spending."

Back here, having failed to stimulate the economy with poorly designed tax cuts favouring the wealthy, we're now talking about more cuts in public services, as if that were the only path to economic salvation.

Are we bloated? What's the right size? Bill English says he doesn't know, even as he prepares to starve the public sector (and, by extension, those of us who depend on its services) of the funds it needs to maintain its present weight.

In 1987, there was one public servant for every 46 New Zealanders. Now it's about one for every 100.

There were 72,467 public servants in 1987; by the end of the 1990s, that number was down to 30,041. It climbed under Helen Clark's government (to 44,672 by 2009), and it's now around 37,000.

The British academic David Hall, who visited New Zealand in February, argues the evidence of the last 140 years shows public spending stimulates rather than chokes economic growth.

It provides the infrastructure necessary to drive growth, as well as the services - health, education and public libraries - that support the development of people, and provide an educated workforce.

Public services, he says, are more important for low and middle-income people who otherwise could not afford them.

"The economic crisis was not caused by government spending. It was not caused by government debt anywhere in the world. What caused it was unsustainable levels of private debt and irresponsible behaviour by impeccably private banks.

"This is not the time to cut back on public spending. We still need it to protect us."