All over the south of Europe people are in the streets protesting against their governments’ efforts to balance budgets. Similar storms are brewing in the USA and elsewhere. Everywhere jobs, salaries, retirement benefits and key social services are under the threat of budget cuts.
Aren’t protest against spending cuts selfish and short sighted?
It is easy to see such protests as self centered, short sighted and based on ignorance of the limits of public finance. Is protesting against the extension of your own retirement age not problematic if the result is to heap huge amounts of public debt onto your children? Or if your government is risking its sovereignty by accepting the conditions attached to a bail out package?
It’s a matter of trust
Many politicians are discovering that it is hard to argue the subtleties of public finance when 50 000 people are rattling the gates of the legislature. This needs to be done much earlier. The technicalities of budgets are best discussed in an atmosphere of trust, not at the barricades.
The reason why people our out on the streets is not because they are ignorant of the limits of debt and deficits. The problem is more serious: They don’t believe governments’ version of the state of fiscal affairs and they don’t buy into the proposed strategies to address these problems.
Build trust through transparency and participation
No surprises here: information and participation. Governments that build up a track record of providing complete, regular and accurate information about the state of its finances will find that more people believe them when they say that they have run out of money. Declaring that the piggy bank is empty when you announce cuts in teacher numbers is unlikely to meet with much faith.
In the same way, governments that consistently invite their people to participate in deciding the limits of taxation, debt and spending will find themselves less isolated when the time comes to reign in expenditure.
As the IBP’s Open Budget Index shows, most governments don’t yet share quality budget information or invite meaningful participation in budget decisions. If governments learn this lesson, then maybe the global financial crisis will have some positive consequences after all.