With the Party conference season behind us the big idea back on the agenda is, apparently, socialism versus free-markets. Stirring speeches about the return to socialism rang out from Labour in Brighton, to be met by counter-blasts of free market rhetoric from the Tories in Manchester. It was all quite nostalgia inducing for some of us – forward to the 1980s! And, of course, thoroughly specious from both camps.
In reality the debate quickly descended from the lofty heights of imaginary alternative social systems – neither socialism nor free markets have ever existed and are ever likely to – to a rather more prosaic debate about nationalization versus privatization as almost as devoid of serious thinking as it was the first time around in the 1980s.
At its Conference the Labour Party issued a report on “Alternative Models of Ownership” that started out with the rather sweeping assertion that:
“The predominance of private property ownership has led to a lack of long-term investment and declining rates of productivity, undermined democracy, left regions of the country economically forgotten, and contributed to increasing levels inequality and financial insecurity.”
Quite an indictment you might think, if you didn’t bother actually thinking. When exactly did Britain not have a “predominance of private property ownership”? Does the UK have a bigger or smaller “predominance “ than other G7 or OECD countries (the main clubs for capitalist democracies)? Where’s the evidence that this “predominance” makes a difference anyway? None of this is addressed in the Labour report.
The counter-blasts were equally, if not more, devoid of actual facts, analyses and comparisons. All the rhetoric about the benefits of free markets cannot obscure the facts – all of the G7 countries, for example, spent about 10 percent or less of national wealth creation on public activities at the start of the 20th century. By the end of the century they were all spending around 40 percent (plus or minus 5%) and were thoroughly “mixed economies”, to use that now unfashionable term.
The truth is that the ‘public’ and ‘private’ realms of society and economy have been far more mixed and entangled with one another than is generally understood.
The Public in the Private
The late, great, Herbert Simon pointed out in one his final public addresses (which I was lucky enough to be at) that loose talk about “free markets” (of the type indulged in by Theresa May at the Tory Conference) we do not live in a world of such markets but of markets and organisations. The most important of these, by far, are the limited liability joint stock companies that sit at the heart of modern capitalist democracies.
In their excellent book on the rise of The Company, John Micklethwaite and Adrian Woolridge chronicle how this model – the limited liability joint stock company – was the creation of Government: “no matter how much modern businessmen (sic) may presume to the contrary, the company was a political creation.”
The legislation creating both joint-stock and limited liability companies, first passed in Britain in the 1850s, proved to be the driving force of modern capitalism for over a century and a half. We call entities listed on the stock-exchange “public companies” precisely because of this ‘public’ element of their existence.
But governments did much more than create the legal infrastructure for capitalist companies – it provided broader market regulation, helped build the physical and human infrastructure of a modern economy. And it subsided many new technological developments and, as Marianne Mazzucato has helpfully pointed out in her The Entrepreneurial State, has continued to do so right up to the present (she shows how your iPhone is a creation of both state and company).
In the latter half of the 20th century public spending on health and education especially (which show remarkably similar patterns across otherwise diverse capitalist democracies) provided the massively important healthy and educated ‘human capital’ needed by modern economies.
Even the state’s role in producing basic ‘state-istics’ – which again started in the mid-19th century by governments in Europe, north America and Japan – is now being recognized as an important element in economic development. In his book Poor Numbers, Morten Jerven’s shows how the lack of this basic informational systems hamper developing countries today, just as it did before the mid-19th century in the West.
The Private in the Public
The state, as has already been noted, grew enormously as a proportion of economic activity during the 20th century. There are two main types of state activity: transferring money between sections of the population (tax and benefits) and organizing the provision of things like health and education (tax and services).
Both these main activities involve entanglements between the private and the public domains.
Tax – which is collected to both provide benefits and services – is now mainly collected by private organizations or individuals. In the UK PAYE and VAT are collected by companies. This has been a massive ‘outsourcing’ that is barely noticed.
Public benefits paid out go to individuals (and sometimes firms) that in turn spend them back into the market economy. Moreover public agencies buy huge quantities of goods and services from the private sector.
Public employees, who in the main provide public services, are also private citizens, operating in a relatively free labour market and are therefore free to sell their services elsewhere.
As the current Government is finding out, flexible labour markets cut both ways – depress public sector wages too much in more-or-less full-employment economy and there will be trouble.
Nor is public ownership a panacea for organization’s serving the public interest or that of their workers as Greg Rosen points out (remember Beeching?).
Horses for Courses?
The real history of the growth and entanglement of both is rather more complex than the simplistic current spat would have us believe. And that includes the politics.
The Liberals nationalized the early telephone network in 1912. The Conservatives built millions of state-owned houses in the 1950s. And New Labour social democrats privatized a few things in the 2000s. To coin a phrase, it’s complicated.
But the 1980s more purist New Right governments of Thatcher and Reagan adopted privatization of state owned industries and utilities as a ‘one size fits all’ solution (just as some of their Left predecessors had seen nationalization in much the same way).
State owned industries (SOIs) that mainly operated in competitive markets (cars, steel, aircraft building) it probably made sense to privatise in most cases – although their supposed failures before privatization and successes afterwards were often exaggerated.
Utilities and services that are ‘natural monopolies’ are a much harder category to make choices about. They certainly need strong, democratic, regulation to stop abuse of their monopoly position. But they could be owned privately, publicly or through ‘public interest companies’ (somewhat similar to the status of Universities now). There is far too non-ideological little research about this area.
Other human services like education and health are probably best left mostly in public ownership. In some cases there are ethical issues, such as should we really have private companies carrying delivering the state’s prerogative to use ‘physical force’? In others its simply that ‘marketisation’ makes them less, not more, efficient and certainly less effective.
What we need is rather more nuanced, informed and pragmatic debate about how the state, markets and privately owned companies can work together for the public and private interest, and rather less overheated and misleading rhetoric.