by Angela Eagle
Different models of company ownership and structure should also be encouraged to develop. Market fundamentalism destroyed most of the building societies, which were demutualised and turned into PLCs – much to the detriment of the housing market and the banking system they became a part of. The establishment of new co-operatives and mutuals should be actively encouraged by government policy and they should be protected from the corporate raiders who destroyed their predecessors. There are other, newer forms of company which should also be experimented with. Foundation companies, which have an explicit social purpose to pursue rather than profit maximisation or increasing shareholder value, are an example of the attempt to diversify the type of firms doing business in the UK. All should be encouraged to establish. The concept of patient capital – investment that doesn’t seek immediate return but supports a business venture while it grows – is also an important feature of ensuring a different economic model can be built and succeed in the UK.
TAX
An ethical economy would not allow the huge disparities between the average pay and those at the top to continue to grow. The tax system has a vital role to play in achieving a more equal, ethical economy, as we shall consider in a later chapter.
CHAPTER FIFTEEN
AN ACTIVE, EMPOWERING STATE
Marx predicted that, if left unchallenged, capital would accumulate and lead to the rise of companies that would exploit their monopoly power for their own interests. In this sense, he foresaw the rise of the global multinational corporations which dominate the economic landscape today. In 2016, the Global Justice Network measured and compared the size of the largest countries by their revenues and the largest corporations by their size in the Fortune 500. The comparison revealed that, of the top 100 entities in the world, sixty-nine are corporations and only thirty-one are countries. While not wishing to trespass on debates about the relative power of some global multinationals and the majority of the countries in which they operate, their sheer size and the fact that they can choose where to register and operate from gives them a power to dictate terms that has not been seen since the heyday of the colonial British East India Company. The global nature of companies, operating across borders in multiple jurisdictions, and their capacity to shift to places where they will be least regulated and taxed can only be controlled by international agreements that close off this damaging race to the bottom. It has never been more important, therefore, to develop a nimble and confident state that can take on and regulate the most excessive self-interested behaviour of the big corporates.
Market fundamentalism has always ridiculed the capacity of the state to achieve anything good or worthwhile outside of its duty to ensure that market mechanisms are protected in law. But the ideological attack on the very concept of government or the state having a legitimate role has prevented its obvious potential for good from being fully explored. Tyrannical authoritarian states were deliberately used to caricature and condemn all state intervention by Hayek and his acolytes. Their argument fails because ensuring the effective operation of a just and decent society, where everyone has access to opportunity and protection, cannot sensibly be compared to operating a tyranny. That the democratic and accountable state must have a wider role in ensuring the continued development of a good society cannot be denied. Moreover, as many of the most pressing problems facing us in the twenty-first century can only be solved by international co-operation and agreement, the case for an empowering and effective state has never been more obvious.
THE ROLE OF THE STATE
If we are to renew democratic socialism and begin to solve the real imbalances of power in our society, as well as the pressing global challenges we now face, we will need to rehabilitate the very idea of the state. After forty years of the state being deliberately delegitimised, defunded, demoralised and discouraged from engaging in active stewardship of our society, that task is not going to be easy. But the turmoil caused by Brexit makes it even more essential that we succeed. If we are to remake our place in a fast-changing world, if we are to guarantee our continued prosperity long into the twenty-first century, we must begin to rebuild our society with a reinvigorated sense of social solidarity, community and national purpose. This will be a formidable undertaking which cannot ‘just happen’ by leaving everything to the ‘free market’. To be successful, those who work in government need to recover their sense of confidence and belief that the state can deliver big strategic change and a new national mission effectively. The size of this task should not be underestimated in the aftermath of Thatcherism and of the deliberate strategy pursued by the post-2010 governments of using the excuse of austerity to shrink the size of the state for purely ideological reasons.
So withered and shrunken are crucial parts of the state machinery now that they are not fit for purpose. If we are to meet the challenges posed by the Fourth Industrial Revolution and our ageing population, outlined earlier, the state has to change – and quickly.
THE MYTH OF THE MINIMALS TATE
Forty years of economic and political hegemony for the forces of market fundamentalism have made it difficult even to imagine the potential offered by an empowering and strategic state. Much less have they prepared us to organise and deliver it. There has been a deliberate, none-too-subtle attempt to wipe the very idea out of our imaginations. So all-pervasive is this dogma in popular discourse that the very idea of an active, dynamic state seems in its own terms absurd. Before we can even imagine the possibilities presented to us by an active, engaged and strategic state, we have first to rescue the concept. We have to challenge directly the dismal, myth-ridden market fundamentalist ideology, which proclaims that the state is always and everywhere useless and doomed to failure – even if it acts with good intentions.
Look at the language market fundamentalists use to describe the state and think about how the political possibilities inherent in its capacity to act in the economic sphere have been systematically narrowed down or eliminated entirely from public discourse. Orwell would have certainly recognised the technique. Market fundamentalists claim that the ‘dead hand of the state’ stifles individual initiative and discourages ‘enterprise’. They assert that the only thing the state should do is ‘get out of the way’ and ‘leave everything to the free market’. However well-meaning intervention may be, they claim, it will be self-defeating in the end because the state is ‘bureaucratic’ and ‘meddling’ whereas the market is ‘dynamic’ and ‘entrepreneurial’. In reality, none of these assertions are true, but why let the facts get in the way of a monolithic and hegemonic false narrative which just so happens to benefit those who are already privileged?
This view of the minimal state is libertarian in origin. It allows for the possibility of the state providing only the barest of necessities for the orderly functioning of the market, which must then be allowed to organise as much of life as possible. So, the state’s responsibility is to protect market mechanisms by enforcing property rights and the legal system, to ensure military defence and provide the infrastructure needed for the market to operate efficiently – it must on no account be allowed to do more. It means, in effect, that those who already enjoy privilege continue to benefit from it while the majority is distracted with talk of the ‘natural law’ which keeps their opportunities restricted and the privileged status quo intact.
That most diligent of market fundamentalists Mrs Thatcher famously said: ‘There is no such thing as society, there are only individuals and families.’ But she needed and ruthlessly used the power of the state to defeat the miners.
In order to imagine a different range of political choices and possibilities for the future, the myth of a minimal state must finally be jettisoned from our own and then from the popular imagination. To do that, we have to recover our intellectual confidence and assert the truth, which is that market fundamentalism has created a New Serfdom, in which an increasing number of workers are treated as ‘factors of production’, rather than human beings. Lack of robu
st employment protection and the deliberate weakening of trade union capacity has left one in ten of the UK workforce – that is, 3.2 million people – languishing in insecure work, with few guarantees and even fewer rights. Globally, it has created a polarised world in which the FTSE 100 CEOs are paid an average of £4.5 million in annual salaries – 160 times the average wage – which means that by the first Wednesday of 2017, they had already earned more than the average worker would earn all year. In the UK, ‘leaving things to the market’ and shrinking state expenditure has created a society in which wages are low and stagnating, where children will do worse than their parents, where few can aspire to get on the housing ladder and where the social safety net for the most vulnerable has been shredded by benefits cuts and pay freezes.
This may be the best that market fundamentalism has to offer, but is this really the best we can do?
MYTH BUSTING
The myth of what economist John Kay has aptly labelled the ‘American Business Model’24 made its global debut after the collapse of Soviet Communism and the fall of the Berlin Wall in 1989. Examining what it asserts as undeniable economic law or doctrine demonstrates just how self-regarding and absurd it really is, and yet it is the cornerstone of the still ruinously persistent market fundamentalist dogma which has driven the creation of the New Serfdom.
The American Business Model has as its predictable starting point that the government should do the very minimum in the economy, confining itself only to protecting property rights and enforcing contracts. Government interference with the workings of the ‘free market’ are almost never justifiable. Because markets work and self-regarding materialism (‘personal greed’ to you and me) is the dominant form of human motivation, redistributive taxation is undesirable because it blunts ‘market incentives’. On the other hand, massive disparities in income are completely justifiable. Conventional morality is thus turned on its head – personal greed is virtuous, while redistributive taxation is evil. In this topsy-turvy, immoral world, ‘worth’ – even ‘moral worth’ – is measurable by the size of your personal remuneration package and your property portfolio, which must make it much easier to sleep at night if you have made your money exploiting your workforce or mis-selling useless pension products to your customers. Since market forces have invaded religion, there is even a theology to help ease your conscience (if it was beginning to twitch at all). It’s called the prosperity gospel. This asserts that Jesus rewards those who are good Christians with economic success – a hideous perversion of our humanist understanding of the lessons in the Bible, but nevertheless very comforting for the moneylenders who have bought the privatised temple on the cheap and are converting it to luxury apartments to sell off-plan to foreign investors.
The fact is that the elements of market exchange and the boundaries of the market itself do not exist ‘naturally’ like the laws of physics or mathematics. The scope and extent of markets are obviously decided by politics and subject to decision-making processes which ought to be accountable to the people in a properly democratic system. The market does not operate in a vacuum, therefore, but is shaped by the political, cultural and historical context in which it operates. In some countries, like the USA, healthcare is provided by the market; in others, like Britain, a democratic decision has been taken to move the majority of healthcare provision out of the market because not everyone can afford access to the treatment they need if they have to pay for it. Those who assert that the market must be ‘free’ are actually asserting a political belief, intended to narrow the scope of political possibility and close down debate about a different vision, though they often hide their own political preference by pretending it is a natural and immutable ‘law’. Unfortunately, as the market is allowed to invade yet more walks of life, the possibility of meaningful change narrows still further, even as the results of market outcomes and their indifference to morality or social justice causes inequality to soar.
The fact is that the American Business Model is a self-serving lie. As John Kay masterfully details in his book, The Truth About Markets, this myth-laden description of the workings of American capitalism is not even close to an accurate picture of how the economy actually works in the USA itself, let alone elsewhere in the world. He concludes: ‘Effective market economies are embedded in an elaborate social, political and cultural context, and could not function outside that context.’
The economist Mariana Mazzucato has likewise chronicled in unanswerable detail a similar analysis in her book, The Entrepreneurial State: Debunking Public vs. Private Sector Myths. She shows that, even in the USA, it is the state, not private entrepreneurs, which made the initial risky investments that have powered the internet and the iPhone, thus paving the way for huge tech companies such as Apple and Google to become the corporate behemoths they are today. The state, then, not the private sector, is the market maker, the real entrepreneur. Her analysis and insight point the way clearly to the necessity of a new era of state action to foster and nurture innovation and to help remake our economy so that it is fit for purpose in the twenty-first century. We also need a new social settlement to enable us to achieve inclusive growth, where the proceeds of success are shared by all, not salted away offshore by a few. This vision of an empowering state, which exists to help create and maintain a healthy economy and caring society, is long overdue a revival.
THE CONFIDENT, STRATEGIC, ENABLING STATE
The British civil service has long since lost its institutional memory of the myriad possibilities inherent in an active state. More often than not, since the Thatcher era, central government has concerned itself with privatisation and the constant out-sourcing of public services rather than the innovative management or direct provision of them. As a minister serving in four different governmental departments during her eight years in government, it often struck Angela how reluctant and unconfident members of the civil service generally were to assert themselves strategically. Their lack of confidence usually manifested itself in a reluctance to take decisions without the comfort blanket of a host of eye-wateringly expensive management consultants to validate their choices. Often, responsibility for major strategic decisions was devolved down too low, leaving individuals exposed without sufficient authority or training to problem-solve effectively. And the capacity to manage change, rather than merely run a process, was in short supply. Rarely did departments even maintain an ‘intelligent customer capacity’ so that they could negotiate with insight and knowledge when outsourcing complex IT projects to suppliers who had far more expertise than they did. They were also overly defensive about the creative use of the financial leverage inherent in large procurement projects to get extra benefits and value for the use of some £200 billion a year of public expenditure which is spent annually by government procuring services.
This is not to be critical of any individual civil servant. This lack of capacity and confidence is not surprising given the ideological predominance of Hayekian ideas, which proclaim that the public service is always bad and the private sector is always good. It is certainly a far cry from the confidence inherent in the service after the war against Hitler had been won, partly by the active delivery of central planning, which co-ordinated a national effort organised by the organs of the state. In the years ahead, it is vital that this strategic confidence is recovered and extended throughout the entire civil service, and in the wider public service, in a conscious and systematic way to make civil servants fully capable of delivering the challenging agenda ahead. Delivering profound change and switching from the self-defeating market fundamentalist mindset is going to be a huge culture shock and, aptly, it will need to be planned.
CHAPTER SIXTEEN
TAXATION IN AN ETHICAL ECONOMY
The question of why, how and by how much we tax people and redistribute that income is at the centre of all political debate and choice. A state can do nothing without the revenue it collects and uses to create and sustain order and social justice in the society it
is charged with maintaining. In the UK, total public revenue from central government and local authorities in the last financial year (2016/17) was £730.2 billion, which is about 37 per cent of GDP. While it might sound like a lot, that’s far lower than many European countries, such as Germany, France, Italy and the Netherlands spend (something worth keeping in mind the next time someone tells you that a small increase in tax would cause all UK-based bankers to flee to Germany… where they would pay even more tax).
Three taxes currently comprise 60 per cent of the entire tax take in the UK: income tax (which accounts for 25.4 per cent of the whole); national insurance (17.7 per cent); and VAT (16.8 per cent). Company taxes, which mainly consist of corporation tax and business rates, make up only 10 per cent of the total, though businesses clearly also pay other taxes in the course of their activities. Duties and indirect taxes, of which fuel duty is by far the largest component, also bring in just 10 per cent of the overall receipts from tax. Council tax makes up 4.2 per cent of the total, though this is likely to increase as the current government withdraws more central support for local services and devolves down the ‘responsibility’ – though not the funding – for services such as social care.
