I posted this thread on Twitter this morning:
There is a way out of the economic mess the UK is in. It only requires two things. The first is knowledge. The second is an admission of past mistakes. That's it, in a nutshell. A thread…..
Everyone but government ministers admit that we are in a mess, and they're just lying. It is, in that case, a universal truth worth acknowledging that we are in need of a solution to our problems.
It is also true, as Einstein once noted, that doing the same failed thing over and over again and hoping for a different outcome next time, as our politicians seem to be doing, is the closest thing to a working definition of insanity as we're likely to get.
In that case, let's presume that any likely answer to our economic woes is going to require us to do something different to what we've been going to date.
This will be a shock to Conservative politicians. They think that the imposition of austerity with the sole aim of shrinking the size of the state is their sole reason for being in office. They believe that will help the private sector flourish. It clearly has not.
The trouble we have is that so successful have the Tories been at promoting this failed belief that the Labour Party now believes it. They too now think it their job to shrink the state because they believe that the private sector is too small to support the public services we need.
The choice at the next election will, in that case, be a little more or a little less austerity, but it will be a choice of austerity, come what may. And there is no doubt that austerity has got us into the mess we're in.
Education, health care, social care, the justice system, defence, housing, and many more public services are failing. As a result, they fail us. What is more, they fail the private sector economy.
The assumption by Labour and the Tories is that we can only have the state sector that we need because we have a private sector economy. The belief is that the taxes paid by the private sector keep the state sector going.
The suggestion that the state is too big and so is unaffordable flows from this belief. But suppose that belief is wrong? Suppose that instead of us having a state sector because we have a private sector the truth is that the relationship is the other way around.
Suppose, in other words, that the only reason that we can have a flourishing private sector is because we have a state sector. That would make complete sense.
For example, the private sector needs contract law to work. The state provides that.
It also requires that there be a currency - which is what all the money used in private sector exchanges is. Only the state can supply that, as the failure of any cryptocurrency to fulfil this function proves.
And the private sector also needs regulation. Honest traders need that to ensure that dishonest traders do not undermine and even destroy markets by supplying fake, stolen, unsafe and unfairly copied products. The state provides that.
In that case, the basic functioning of a market system is wholly dependent on the state. The only reason that you can risk going out for a coffee is because the state makes it safe for you to buy that coffee, confident it should not harm you. And that's a really simple product.
But the state does a lot more than that.
The state provides the basic training every employer needs their staff to have.
The state also ensured that those employees would turn up to work fit and well, although that's not quite so certain now, which is why there are fewer people in the workforce at present.
The state also let people take the enormous risk of working for just one employer who might fail at any time. The social safety net we used to provide existed to make that possible. It's not so good anymore.
And the state took the basic pension obligation off employers.
In addition, by providing social care, childcare, education services and much more, the state ensured people could go to work whilst their loved ones were kept safe and well.
In that case, I would suggest that the state is fundamental to making the private sector work. In fact, without the state, much of the private sector could not work.
So we need to learn a number of things. One is that we are not dependent on the private sector if we are to have state services. Those services add value in their own right, and the private sector could not exist without them.
Nor is the private sector drained by the need to pay taxes in exchange for which they get no benefit. There is no one who could make profit in the UK without the existence of the state, so paying taxes is a necessary quid pro quo for that opportunity the state supplies.
And because the state pays for itself by the Bank of England creating the money to cover its costs every day, day in and day out, not only is the state not a burden on the private sector but is instead a bonus it cannot do without.
And tax is not even a payment for the state. Instead, taxes are the necessary cost of controlling inflation which would otherwise arise because most of what the state supplies is delivered free of charge, paid for by money creation.
Understand all that, and now it is apparent that the private sector is pretty heavily dependent on the state, and not vice versa, contrary to what just about every politician says.
Or is it? Could it actually be that the answer is something else altogether? Could that answer be that the state needs the private sector - because there are very obviously some things that the state cannot do - whilst the private sector needs the state for exactly the reverse reason?
In other words, might it be that to have a truly functioning modern economy we should not idolise one part of the economy and condemn the other? The question is not, in other words, which is more important - the state or private sector - but is it that both are fundamental?
Listen to almost any debate on politics or economics and that suggestion will usually be absent. But, I suggest, it is the universal truth that we're missing. By adopting dogmatic positions, most of which are now anti-state and pro-private sector, we're killing the economy.
If we just understood that the private sector needs a state sector big enough to deliver stability, security, health, education, a social safety net and more, then we would make a big step forward because right now it is glaringly obvious that their absence is crippling the country.
What is more, if we realised that enough tax has to be paid to compensate for the supply of almost all these services free of charge, we'd make another big advance.
If we also understood that this need to pay this tax arises not because those paying the tax necessarily use those services, but because the foundations of their wealth are dependent upon them, then we might also make a further advance.
But, of course, some myths would here to be slain along the way. One would be the myth of the self-made person, because they do not exist.
Another would be the idea that anyone can opt out of the state by ‘going private' because the reality is the private sector is wholly dependent on the state.
And we would also have to understand that the state really does pay for itself by creating and spending into use all the money that we use day in and day out, because that is a fact.
This would then also require that we understand that it is tax and not interest rates that really can and do control inflation - which would most definitely upset the Bank of England.
In other words, many of the stories we tell ourselves would need to change. But given that the stories that we currently tell about the economy - like taxes are too high, we have to shrink the state, and interest rates must go ever higher - are definitely wrong, wouldn't that be a good thing?
But, as I have already noted, that might require the admission that we were wrong to believe that the old stories we told about the economy wrote right when they clearly were not.
So, we have a decision to make. Do we change the economic narrative - and create a new explanation as to how it works along the lines I've just suggested?
Or do we continue with what Einstein called the insanity of keeping on doing the same things over and over again and finding that we fail yet again?
I suggest we start again. I think we need a new and better song to sing. (Watch Educating Rita if you want to know where I get that line from.) And it's time we started now.
It's not hard. It simply requires that we say:
- The state is great
- So is the private sector
- They badly need each other
- We need both
- And if one fails, so does the other
Austerity has brought our state to its knees. That is why our country no longer works. Unless we put it back on its feet again nothing can work now. But by doing that we'd also give the private sector a massive boost.
There is an enormous win:win to be had in the UK. But it can only start when we abandon austerity and rebuild our state, because our prosperity is based on it.
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Absolutely right, but you won’t hear it from Labour, because they don’t understand it, and if they did they would run scared of the Daily Mail etc. A bit of backbone wouldn’t go amiss
Labour leadership is too busy to cosy up Murdoch and will do as they are told.
https://www.theguardian.com/politics/2023/jul/09/rupert-murdoch-keir-starmer-labour-party-power-no-10
Oh Richard! Thank you for saying so clearly & logically what I have felt for decades.
This is why I sum up my political, personal & professional philosophy as:
Helping to build a sustainable world in which everyone has dreams and ambitions, and the wherewithal to achieve them.
Thank you, again
Thnak you
And as annoying young people say, no problem
Richard
Thanks, as ever, for this post.
A little off-topic, perhaps, but your homage to Pride and Prejudice at the beginning made me smile a little.
And then, referring to that Einstein quote and a truism from a film about class, gender and education prejudices and inequalities further rounded the “story” that you fashioned here.
But is a reference to the arts and more widely read and digested thought more apposite than it would immediately seem to be? Might the flourishing of the education to which you were exposed in the after-war period of burgeoning economic and political real “levelling up” be a direct result of just what this post is talking about?
A very good point
Blame an enlightened girlfiend for Jane Austen though
A brilliant piece! One of your best….. and that is quite a high bar
Thanks
That one has been in the back of my mind for some time
For some reason I work up and wrte it this morning
I had no idea I was going to do so last night
You say that the state provides regulation. I presume by that you include trading standards.
Many council trading standards departments are now privately run. Even getting in touch with trading standards is now done through Citizens Advice in many counties.
It’s become worse since Brexit.
However, most people have no idea what trading standards departments do for them.
Biut the regualtion is underpinned by law
Will it be in future? And which laws?
Trading standards departments have problems keeping up with changes.
Agreed…
Like other commenters, this today has lifted my mood as I’ve started to dread the sinking feeling I get here most days, despite the great clarity you bring to events.
It’s almost like the political establishment has forgotten how to do anything properly and is just being led around by the sound bite industry, to the accompaniment of MSM.
Thanks
“The state is great
– So is the private sector
– They badly need each other
– We need both
– And if one fails, so does the other”
Utterly brilliant Richard. One of your best posts ever, and as noted above, that’s saying something. This article should be compulsory reading for every MP. I don’t suppose many would agree or understand it, but if the message was constantly reiterated, it might sink home. You, and your like minded colleagues like Prem Sikka and Colin Hines are a glimmer of hope in the darkness.
Thank you
Oddly, it is not flying on Twitter
Probably too close to yesterday which has 1.3 million reads
I forwarded this to my local (Conservative) MP….for what good it will do!
Thank you
You have set out the overarching truth of the matter Richard.
This is the real ‘We are all in it together’ story – public and private working together and sharing wealth, health and happiness through investment.
Not the ersatz version from David Cameron which was all about suffering together – and even then, that was a lie because I fail to see how the rich have suffered – even from 2008 or austerity.
Great post.
The definition of insanity being doing the same thing over and over and expecting different results is a quote that is widely misattributed to Einstein but there’s no evidence he ever said this, and it’s not clear from where this phrase originated. Other than that I too found this a very good blog.
Whilst not being perfect – but then again which economy is? – I tend to look to the German model for as close to a working system that benefits the most people possible.
Without going into too much detail, and I realise even the German economy is not what it was 20 years ago, they do well, year-on-year, by running their country as a partnership between citizens, business and the state. All 3 elements are required to form a society and all 3 elements have a say in decisions that are made.
It’s not rocket scienct, but it can be Green science creating German high-tech, high-engineering jobs which results in their production of 55% of their own energy needs by renewables and nuclear. A clean(ish) economy too.
Sebastian Payne predictably in the Times today calling for a smaller state. He hasn’t changed since he left the FT and went to work for Onward
Indeed not…
As if on cue….:
‘The UK’s public debt could soar as the population ages and tax receipts fall, the government’s independent forecaster has warned.
The Office for Budget Responsibility (OBR) said debt could rise to more than 300% of the size of the economy by 2070, up from around 100% currently.
Climate change and geopolitical tensions also posed “significant” risks to government finances, it added.’
Debt eh? I wonder who we will owe it to? We must cut the debt! More austerity!
Isn’t Japan ‘debt’ at 240% of GDP, mainly due to the aging population / reducing workforce? How are they getting on…….
https://www.bbc.co.uk/news/business-66187743
I need to read that report
Congratulations on a well-thought-through denunciation of the mess that is the UK; it’s almost a call to arms to get the pitchforks out! I have to echo John S Warren’s thoughts yesterday: Why on earth does Scotland put up with being governed (I use the word in its loosest sense) by this cabal of Tory incompetents? The corollary to this is that Labour under Starmer inspires little more confidence than the Tories, so why are we still in this doomed Union?
Thank you for the wonderfully lucid description of reality.
Your cut-through without BS is a rallying cry we can all get behind
Thanks
Following from a comment on the Shouting at the TV post, led me to a couple of pieces by George Lakoff on Empathy – on substack https://framelab.substack.com/p/george-lakoff-why-is-empathy-central and YouTube https://www.youtube.com/watch?v=s9pZJWQ19ZE , which seem more appropriate at reinforcing this post.
Richard,
May I add my praise and thanks for such a brilliant analysis of where we are and what we need, especially the concept of a better economic song to sing.
I found myself adding an extra line to your song, along the lines of :-
And if one fails, so does the other
And we cannot fulfil who we truly are
True
And thank you
“…. the basic functioning of a market system is wholly dependent on the state.”
If this wasn’t true, why would Neoliberalism and the Conservative Party be so desperately focused on preserving the grip they hold on the levers of the State by staying in power? If markets could exist independent of the State they would be much less paranoid about who ran the State. Markets are only wholly indpendent of the State at the less than material margin.
@ John S Warren What you say about about the entwinement of the market with the state is so obvious that it’s hard to credit that most people in the UK make no effort to study the history of this. There are at least two books that do this. There’s Christine Desan’s 2014 book “Making Money: Coin, Currency and the Coming of Capitalism” and Charles P. Kindleberger’s 1984 book “A Financial History of Western Europe.” Given that Britain pioneered the advancement of financing both state and market you might think there’d be some pride in this (if not the imperialism) since the country’s martial achievement’s hinged primarily on the country’s financing innovations. This is a very dumbed down nation!
I often wondered this. If they truely cared about shrinking the state, surely the first place to start would be reducing the government’s power and getting rid of all that wasted state inefficiency in the House of Lords. Instead they have done the opposite.
Not to mention the salaries of MPs being way above the median wages of their constituents. More terrible inflation generating inefficiency!
If they can’t even reduce the size and cost of the state in the things they directly control, do they really expect us to believe that it is realistic or desirable to arbitrarily reduce the size elsewhere?
How big should a “small” state be? Do they even have any foreign example of a well run country that doesn’t have a strong state? How will we know when the state is the “right” size? Does anyone ever ask them any of these questions?
I suspect they don’t have any of this evidence to hand, because they are driven solely by an ancient and discredited ideology, rather than by any actual knowledge or intellectual curiosity.
This is my version of the better song people in the UK really need to wake up to.
In regard to money regulation it clearly requires the state to monitor the economy and exercise a judicious mix of Post-Keynesianism (MMT), Monetarism (Quantity Theory), and Protectionism (On-Shoring) according to circumstance and applied to both private and public sectors.
Additionally they need to make capitalism work for all people by recognising this also requires the state delivering goods and services, for example healthcare, educational development and environmental care to name but a few important items.
Clearly this all approximates in some degree to the social democracy the UK had in the aftermath of the Second World War up until the late Sixties and has very obviously been destroyed by Market Fundamentalist (Thatcherite) ideology over the last fifty odd years of slumber.
Maybe the song we need is “Let’s Stick Together” ?https://www.youtube.com/watch?v=Z9EbR0ckb40
Plenty of praise for this blog/tweet from others – and well deserved, of course. So all I’ll add is SPOT ON.
Thanks
Austerity or not is not the point .
According to Mattei its the preservation of the Capital Order that is the imperative.
Unfortunately the demands of capital go beyond maintaining social order, or at least it puts maintaining the social order at risk.
Plutocrats can buy the media and poison the collective mind but sooner or later reality bites back.
The reality is that thatcherism has failed and the UK is weaker than before; the uk has invested in the wrong things (housing price inflation and overseas competitors); and its not clear to the population what comes next.
The choice offered is Austerity or Austerity Light.
Neither are convincing.
@ Roger. That most UK voters can’t see that managing inflation created by the market (house price inflation for example) is no different than the possibility of the state creating inflation since both are promises (money brought forward from the future) and both mostly taxed out of existence by the state when it circulates reveals how dumb this nation’s become!
– The state is great
– So is the private sector
I agree – but ‘the private sector’ is not one thing. Mainly, it’s small businesses (around 95% of all businesses have less than 10 employees, and 75% have no employees at all); it’s also anti-capitalist but market-oriented organisations like co-operatives and social enterprises; and it’s civil society, much of which also trades. Oh, and comparatively few middle-sized, and even fewer enormous ‘shareholder value’ capitalist behemoths.
And here’s the thing: most small business is not really ‘capitalist’ at all – it is not very different from traders, artisans, musicians, etc, that worked in pre-capitalist economic systems. In the small business development/investment world, practitioners always try to distinguish ‘growth’ and ‘lifestyle’ businesses – they are looking for the actually rare ‘growth businesses’ that will repay their input. But most small businesses are in fact ‘lifestyle businesses’ – people that want to make a living doing something they love, and hopefully are good at, that serves and is pretty integrated in a local (or online) community, and has no desire to either grow too big or make vast fortunes. Such businesses would be sustainable in an economy where money actually had the ‘means of exchange’ function most people think it has. THIS ‘private sector’ is great – the enormous ‘shareholder value’ capitalist business model not so much.
Much to agree with
Great post from Richard, and I think this adds to it. The mono-culture of large corporations whose power is base outside the nation-state is the main problem. It moves the power base from the nation state out into global territory. Nationaly based politicians cannot control this but they can use Westminster as as stepping stone to join it. (Look for example at Clegg in Google or Cameron’s roll in AIIB. )
My conclusion and contribution to this discussion is this. We need to revitalise both the state and private sectors. That means constitutional change and decentralisation/devolution for the state. BUT and this is equally important it means changing corporate governance for the large public corporations – bringing in not just stakeholders but the citizen. I say public deliberately – in small private firms you can get to discuss things with the owners (I’ve worked for several) as well as big multi-nationals. What would be good is some state fostering for the cooperative and social enterprise models…and advocacy for the ignored tax breaks available to owners who don’t sell out but create employee ownership models (lib-dems slipped it in during the coalition, but who knows about it).
My main point is about big business. Do the though experiment – if what business does matters to society (as it clearly does) then instead of allowing the lobby and revolving door a seat at the government table (so we write rules for them), we should be present on their boards to make them explain and deal with the externalities that will be created at the proposal stage, they design their businesses with society in mind.
Now how we get traction for this is another matter altogether.
Not sure if this would be your cup of tea Richard but following on from your article regarding the Green Party’s lack of economic understanding this came up in my FB feed that they are holding a talk about their economic policies on Zoom next week – link below.
https://www.facebook.com/photo/?fbid=841174360697780&set=a.501801867968366
Thanks
I have registered