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Spending cuts, business and fairness

October 24, 2010

There is only one big news story in the UK press this week: the announcement of the long awaited conclusions of the government’s spending review. The response of the public has been illuminating. In the first instance, polls have shown widespread acceptance of the need for cuts; however, at the same time coverage in the wake of Wednesday’s announcement has focused on the perceived unfairness of the actual way those cuts have been implemented.

Of course, to call something unfair is to criticise it. Yet there seems to be something particularly significant about attaching a charge of unfairness to the actions of the state or, looking from a slightly different perspective, the distributive effects of the institutions of the state. This connection was well highlighted by John Rawls, the great political philosopher of the twentieth century, when he used ‘justice as fairness’ as the guiding idea of his theory of social justice.

The notion of fairness that is being fixed upon in discussion of the spending review is based around the idea that people should bear a ‘fair share’ of the pain that is being handed out. In particular, it is asked whether the spending cuts are ‘progressive’ or ‘regressive’. To be progressive, the better off would have to sacrifice a higher percentage of their income than the worse off. If the worse off sacrificed a higher percentage, then the cuts would be regressive.

I won’t enter into this extremely complex debate. It is also not worth trying to say too much about the specific notion of fairness that Rawls developed in the context of his theory. What is worth highlighting, however, is why fairness is particularly important when it comes to judging the state. For Rawls, one primary reason is that, unlike other associations that people make, it is not possible simply to leave the state if they do not like the terms of the deal that they get. This difference between states and businesses has often been raised to justify why businesses can treat people and act in ways that would be illegitimate for states.

To see why this thought might be particularly relevant to the case of the spending review, it is worth mentioning another context in which the question of fairness has arisen – the extent to which those ‘responsible’ for the economic crisis which has necessitated the spending review (widely held to be ‘the banks’) are being made to pay. The government is accused of letting the banks off the hook. At the same time, warnings are issued that even the measures that have been taken to date will drive these businesses and the significant tax revenues that they generate to other, more accommodating, countries.

So here we appear to have a dilemma. We supposedly need to apply a particularly strict notion of fairness to the operations of states because their members do not have the option of leaving, whereas other kinds of associations are not so constrained since their members can simply move on if they are unhappy with the deal they are getting. But what happens when a situation arises where those in a state from whom the most must be demanded (because they are the wealthiest and also because they are supposed to bear much of the blame for the cuts in the first place) are actually those to whom the normal constraints do not apply? If the banks and the bankers that work for them can simply up and leave to a more appealing political climate then the practical rationale for applying the requirements of fairness appears to have been removed, even if the justification of the principles of fairness has not.

What are we to do in a world where the majority are to all intents and purposes stuck in the countries into which they were born, while a privileged (and wealthy) minority are free to treat the state as a voluntary organisation which they will leave if they get an unsatisfactory deal? Fairness may tell us to tax the banks and the bankers (I emphasise may since I do not want to suppose that this question has been conclusively settled), but if the end result of this is simply a draining of tax revenues as they all head to the first airport they can find then the victory for fairness looks decidedly pyrrhic. Maybe this is why the government has ‘let the bankers off the hook’. Of course, coordinated action between states has the potential to provide some kind of solution to what is essentially an international collective action problem. But while we can point to some recent examples of international agreements on banking regulation, it might be unwise for champions of fairness to get too excited just yet.

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