The Labour Party announced last year the formation of a new government advisory committee made up of a broad-based group of some of the world’s leading economists, including Piketty, Stiglitz, Nesvetailova, Pettiffor, Wren-Lewis, Blanchflower, and Mazzucato. The Party has simultaneously launched what might be called a ‘public information initiative’, in which these economists are mandated to speak not just behind closed doors to party members, but also directly to the electorate in a series of talks.
Why does the Labour Party feel this ‘public information initiative’ is important? Is it not true that in our hearts many of us have an uneasy feeling that things have changed beyond measure and that we do not really feel equipped to understand this ‘brave new world’? Yet, in a democracy, we are called upon to make choices. This century is not like the last one, nor like the one before that. Just as technology has transformed our lives, the way the economy works has been transformed and we need new tools to make sense of it.
In the last century Prime Minister Margaret Thatcher and President Ronald Reagan, ushered in what came to be known as ‘Reagonomics’. Now in the twenty-first century it is time to look back on this paradigm of faith in market forces as quaint and old-fashioned, for that is precisely what it is. Reagonomics rests on a theory that tells us that ‘competitive forces’ act to ensure that inefficient businesses fail. On the other hand, businesses that do well deliver what the public wants in the most efficient way possible.
According to this model ‘private’ beats ‘public’ in the ‘efficiency game’, but what if ‘competition’ is not taking place along the lines that the perfectly competitive model suggests? Since Thatcher we have been actively dismantling the welfare state and pushing through wholesale privatisation, all this on the altar of enhancing ‘efficiency’ and ‘incentives’ in the economy. If the theory does not apply then all this is for nought.
What if big companies are so powerful that they can buy up many of their competitors and collude with others to gain ever-more market power? What if they then use their marker power to buy political influence in parliament? They can then achieve super-normal profits without being at all efficient at providing what the public wants. They can be inefficient and remain in business because they can insulate themselves from competition with powerful non-market strategies. These strategies, which include ‘buying’ political influence by lobbying parliament and settling legal cases quietly out of court, enable conglomerates to, for example, pollute the environment while avoiding the fines that other, less powerful operators might have to pay, and avoiding the adverse publicity which might undermine their strength in the marketplace. This ‘unfair’ competition is related to the size of the conglomerate. Ever-more concentrated business power leads to ever-larger super-normal profits. As capital is internationally mobile it can roam the world sniffing out the highest rate of return.
Once we start to realise that this is how competition works we begin to see why the notion that we all stand to benefit from the heady-heights of endlessly escalating profits in the private sector may well be false. The trickle-down effect becomes the ‘suck-it-up’ effect. In the context of the increased globalisation of modern times controlling these forces requires international co-operation. Nonetheless, we can start by not selling off our national assets.
The conclusion must be that public industry can compare very favourably with private industry in a number of ways, including efficiency and equity. Public investment can also, as Mazzucato’s work on business productivity suggests, be highly beneficial to the general rate of economic growth, underpinning investments and returns in the private sector. Countries with a healthy level of public investment might do better in attracting foreign funds than those that engage in a race to the bottom in an international bidding war.
These are just some of the issues that need to be examined to understand how the world economy operates in the twenty-first century. The new economic environment requires a new paradigm of thinking. Those who thought they had a handle on it might need to go back to the drawing board. The Labour Party needs to be applauded for providing a forum for a fresh level of debate. It can only be hoped that the ‘public information initiative’ pays dividends for the country as a whole.