Free market capitalism is a con. The state is the backbone of modern British capitalism
Clutch your mobile phone close to your bosom, stroke it tenderly, and praise
the Fairy Godmother of Free Market Capitalism that you’re not walking around
with an obscene brick stuck to your ear, a breadstick aerial reaching towards
the heavens. “Imagine what telephones would look like if the public sector had
been entrusted with designing and making them,” as an opinion piece in the
Telegraph had it this week, reflecting views widely held on the Right.
“The smartphone revolution would probably be at least another couple of decades
away.”
One tiny little flaw with this dystopic piece of
counter-factualism: er, the public sector was entrusted with doing just that.
Economics professor Mariana Mazzucato’s The Entrepreneurial State shows how – to
take just one example – the Apple iPhone brings together a dazzling array of
state-funded innovations: like the touchscreen display, microelectronics, and
the global positioning system.
The governing ideology of this country is that it is the
entrepreneurial private sector that drives human progress. The state is a
bureaucratic mess of red tape that just gets in the way. But free market
capitalism is a con, a myth. The state is the very backbone of modern British
capitalism.
It begins with the state’s protection of property rights, which
needs a costly legal system to protect. Patent law prevents companies having
their products ripped off by rivals, and limited liability and insolvency law
encourages investment by preventing shareholders being made personally liable
for debts. As the economist Ha-Joon Chang has pointed out, in the early days of
capitalism a businessperson would have to sell all their earthly possessions if
they fell into ruinous debt, even facing the prospect of the debtors’
prison.
The state spends billions of pounds a year on research and
development that directly benefits business: no wonder the CBI applauds
“additional spending on research and innovation” that attracts business
investment. Businesses depend on the billions the state lavishes on
infrastructure, too. The CBI routinely demands more and more public dosh is
thrown at roads and airport expansion. Our taxpayer-subsidised privatised
railway network is a classic example of how our modern economic system works.
The government splashes out several times more money than in the days of British
Rail.
Recently, the House of Commons’ Public Accounts Committee
denounced the Government for throwing a £1.2bn subsidy at British Telecom for
building rural broadband. Fossil-fuel industries are granted effective
subsidies, too, with generous tax allowances, and by leaving the state to deal
with the costly environmental damage they inflict. A recent environmental
committee of MPs found that nuclear power gets an annual subsidy worth £2.3bn,
and arms exports benefit from government subsidies worth £890m a year.
Who do businesses depend on to
train their workers? State-funded
education, of course, and indeed there are those who advocate letting
for-profit companies take over schools, which would mean taxpayers’ money
subsidising shareholders rather than looking after children.
Many companies pay poverty wages,
leaving the state to subsidise them with billions of pounds of tax credits,
housing benefits and other in-work benefits. Businesses are even increasingly
benefiting from free labour with the rise of so-called workfare, where they pay nothing to shelf-stackers and other
workers, leaving the taxpayer to pay out derisory benefits instead.
Privatisation has proved a generous subsidy of the private
sector, too, with £1 in every £3 of government spending on public spending going
straight to profiteers. Like G4S, for example, which failed to provide the
security personnel for the Olympics, leaving the state to come to the rescue. Or
take PFI, where private contractors are paid to build schools and hospitals and
lease them back to the state. The actual worth of the completed projects was
£54.7 billion, but the taxpayer is projected to pay them £310 billion when it
finally pays them off. And then there’s the financial system that all businesses
depend on. It wasn’t free-market dogma that saved the banks: it was, of course,
the state.
Free-market triumphalism is endemic among the British elite,
but rarely challenged. It’s time to start exposing it for the sham it is. They
demonise the state, but they are dependent on it. Perhaps they should be a bit
more grateful.
