The need for a Courageous State

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My new book, the Courageous State is now available, and will be on sale from Amazon and such sites within days in both print and electronic versions

To give an idea of what it is about (and I admit, this is a book that seeks to cover a lot of ground), I reproduce the first few pages of the introduction here in which I argue that we have a cowardly state but need a Courageous State.

The crisis we're in

In October 2008 the world's economy nearly fell over. It didn't just suffer a problem from which it has since recovered a little, although that has happened, as we all know. I mean it nearly fell over. To put it another way, it nearly collapsed.

Over the weekend of 4—5 October 2008 emergency meetings took place in the Treasury in London because the managers of Royal Bank of Scotland knew they could not open for business on the following Monday morning. They were for all practical purposes bust. They had reached the point where they weren't sure they could put money in their cashpoint machines: they were no longer sure that they had any.[i]

That wasn't a minor embarrassment, or even a serious economic crisis: that was risk at level 10 on the economic Richter scale. To explain the seriousness of the situation, on average it is reckoned that most households in the UK have three days' meals in their store cupboards. After that their food begins to run out. As a result we are nine meals from the breakdown of society at any moment.[ii] If as a result of a bank's failure there was sudden inability on the part of large numbers of people to pay for food, or inability on the part of a major supermarket to take people's cards, or inability on the supermarket's part to pay for new supplies then any one or all of these things could have brought the food chain crashing down, with all the resulting massive social consequences that would have followed. That's how close we got to major civil disruption; to the mass breakdown of law and order and to the end of the current structure of the economy.

The day was saved: Alastair Darling may one day get the credit he deserves for his cool action in the face of this potential calamity. Gordon Brown also deserves a fair share of credit. And yet, after a brief renaissance of Keynesian economics in the aftermath of the crisis when it seemed just possible that a combination of sound thinking in the UK and strong action in the US might prevent global meltdown, everything has gone wrong again. Across Europe governments have abandoned intervention in the economy.  David Cameron and George Osborne led the way in the UK when, without an electoral mandate, they secured power and declared to the surprise of the followers of their coalition partners that the only way to deal with the economic crisis was for government to walk away from the problem.

That is precisely what Cameron and Osborne, with their allies Nick Clegg and Danny Alexander, have done since then. These two have become the apotheosis of something that has been thirty years in the making: they are the personification of what I call the cowardly state. The cowardly state in the UK is the creation of Margaret Thatcher, although its US version is of course the creation of Ronald Reagan. It was these two politicians who swept neoliberalism into the political arena in 1979 and 1980 respectively following the first neoliberal revolution in Chile in 1973 that saw the overthrow of the democratically elected Allende government by General Pinochet. Since then its progress has been continual: now it forms the consensus of thinking across the political divide within the UK, Europe and the US.

The creation of the cowardly state

The economic crisis we are now facing is the legacy of Thatcher and Reagan because they introduced into government the neoliberal[iii] idea that whatever a politician does, however well-intentioned that action might be, they will always make matters worse in the economy. This is because government is never able, according to neoliberal thinking, to outperform the market, which will always, it says, allocate resources better and so increase human well-being more than government can.

That thinking is the reason why we have ended up with cowardly government. That is why in August 2011, when we had riots on streets of London we also had Conservative politicians on holiday, reluctant to return because they were quite sure that nothing they could do and no action they could take would make any difference to the outcome of the situation. What began as an economic idea has now swept across government as a whole: we have got a class of politicians who think that the only useful function for the power that they hold is to dismantle the state they have been elected to govern while transferring as many of its functions as possible to unelected businesses that have bankrolled their path to power.

This, it should be said, has not just been an issue within the Conservative party. Thatcher arrived in power with what was, in retrospect, a remarkably timid manifesto for change, and although she became bolder as her career as Prime Minister progressed she retained a strong belief in the power of government regulation over the businesses that she privatised. Her legacy was regulated capitalism: ownership in private hands, with some power to control those sold-off enterprises retained by state-appointed regulators that were one stage removed from the ministers who appointed them.

John Major oversaw a collapse in the credibility of government, and something more besides. It was on his watch that the Private Finance Initiative (PFI) began, and it was on his watch that some of the more absurd privatisations, such as that of the railways, were undertaken. It was John Major who began the process of outsourcing. A weak Prime Minister ran away from his responsibilities: the cowardly state was by now in full flow.

Tony Blair continued the process. It was he who promised the ‘The Third Way', not that anyone knew what it was, any more than anybody now knows what David Cameron's ‘Big Society' might be. Both, however, have a hallmark in common: they meant ‘anyone but government', and that was the intention. These were prime ministers in common in that they believed that whatever one asked for it was not the state's role to supply it.

Based on this belief, Blair pursued outsourcing as if it was the solution to all the government's problems. Despite having opposed PFI when in opposition PFI became Labour's favoured form of government finance until we have ended up in the absurd situation that the building in which the Treasury is located is now owned by an offshore company.[iv] And everywhere the message was given that light touch regulation of finance was to be the Labour mantra, ‘liberated' as it had been by Thatcher from the constraints that had previously made it responsible in her ‘Big Bang' reforms in 1986. This was perhaps the most cowardly act of all, for from that ‘liberation' and subsequent failure to regulate sprang a finance sector that has now dragged us to our knees. Gordon Brown may have saved the day in 2008 and had a moment of glory in the April 2009 G20 summit, but for his role in allowing finance to take over the UK economy he too takes his share of the blame for creating the cowardly state.

What the cowardly state represents

  • This is the state that now argues that in the face of mass unemployment the government's only choice is to sack more people.
  • And this is the state that says when there is no hope of the market generating new jobs, new investment, new innovation, new skills and new prospects then the government must cuts its spending and so remove any prospect of recovery from the economy.
  • This is the state that says that those who never created this crisis must pay for it while the rich and powerful who did create it from within the banks must have tax cuts.
  • This is the state that failed to stand up to bullying and abuse from the media.
  • This is the state that is failing its young by putting them in debt for what may be the rest of their working lives to secure an education that previous generations enjoyed for nothing.
  • And this is a state that does not have the courage to provide its young people with jobs, its old people with secure care, its population with protection against unemployment and the unforeseen and its children with decent schools.

This is a cowardly state: a state that sees responsibility and runs away from it. This is a state that now exists solely to facilitate the looting of its power to tax for the benefit of an elite who want to own its assets through the PFI scheme, and be guaranteed a high and risk-free income for doing so. It is a state that wants to privatise its education system through ‘free schools' — free only because yet more tax goes to the private sector in the process. And it is a state that wants to hand control of one of the UK's greatest achievements — the National Health Service — to the market so that we can copy the US healthcare model and double the cost of provision in exchange for worse healthcare outcomes — all so that a few can cream off from the tax revenues a wholly undeserved and excessive risk-free return for being in the right place at the right time, somewhere near their old school friends who might now be in power in Westminster.

No wonder we're in a mess. And no wonder the world's markets are teetering on the brink of collapse. After all, why invest in businesses when something so much more attractive — the outsourced tax income stream of a government as anxious as possible to give it away — is waiting to be claimed just around the corner?

The result is that private industry has discovered that rather than trying to innovate new products in an uncertain consumer marketplace it is much easier to make profits from the certain commodities that people are always going to need, such as health, education, local government services, the utilities and so on that were once the preserve of government. So not only are these services now more costly because a profit margin has been or is being added into their cost structure, it can also be argued that their transfer into the private sector via outsourcing actually weakens the incentive for companies to invest in new technologies which might be useful to meeting people's needs.

Meanwhile, in the financial markets speculation has replaced real investment. This is logical because investing in new technologies in manufacturing or services is a much less safe bet for individual businesses than just getting on one of two gravy trains, the first being public sector outsourcing and the second financial derivatives.

In that case no wonder faith in government itself — and its ability to control anything — has been shattered, as recent rioting has shown.

As commentator after commentator has said, we now have weak governments led by weak politicians who are bereft of any idea apart from dismantling the mechanisms of state that they have been elected to manage for the benefit of the private sector.

This is what neoliberalism has brought us to. This is the legacy that Thatcher has delivered to us. This is what happens when government is run by cowards who believe that there is nothing they can do but acquiesce to the demands of the market.

The need for a Courageous State

And yet it need not be this way. As I argue in this book, we could have a Courageous State. A Courageous State is populated by politicians who believe in government. They believe in the power of the office they hold. They believe that office exists for the sake of the public good. They know what that public good is. They think it is their job to help each and every person in their country to achieve their potential — something that is unique to each person and which at the same time is a characteristic we all have in common. And they believe they can command the resources to fulfil this task — whether through tax or other means — and that they should command those resources so that we as a country can each achieve, both individually and collectively.

We have not had politicians like that for a long time. These are politicians with the courage to work out when the market is absolutely the right mechanism for delivering what society needs — and which backs those who wish to partake in that market openly, honestly and accountably by providing them with the environment they need so that they can flourish, while delivering all the resources required to curtail those intent on market abuse.

And they are politicians who are as capable of deciding when the market can never deliver — because it is wholly unsuitable for the task in hand — meaning that it is the job of the state to ensure that what society needs and wants society shall get, at the lowest possible cost for the highest possible outcome for the benefit of all involved.

These are politicians of integrity. Who will carry their conviction with pride. Who will stand up to those who get in their way, not by ignoring them and not by bullying them but by presenting them with reasoned argument that shows that these politicians have worked out what they are doing, and why, and how they mean to achieve it.

I suspect a great many of us want such politicians. Politicians who are strong and effective; people we can believe in and who inspire but who we know we can hold to account through the democratic process. Politicians we can hold up as examples. Politicians with the ability to admit mistakes and move on. Politicians who we are willing to follow. Politicians of the stature of those who built the post-war consensus in the UK, for example, which proves that such people can exist.

But that's the problem with this vision. That consensus was built on the basis of a very different political viewpoint to that which now prevails. It was built on the political logic of John Maynard Keynes. Keynes was a Cambridge professor of economics and a former civil servant. He realised that markets do not work as most economists, including the neoliberal economists who dominate current thinking, argue they do. He had a profound insight that neoliberal economists do not share. He realised that markets, just like the rest of us, often have little or no clue at all about what is going on. That might sound like a statement of the obvious, but as I will explore in this book, neoliberal economics — and all that follows on from it, including the crashes we have had and are facing — is built on a very different logic. Neoliberal economics assumes that there is nothing markets do not know, and therefore nothing they have not already built into the prices that they charge. Neoliberal economists assume — quite extraordinarily — that markets know everything but that as mere human beings politicians are error prone and therefore are bound to get things wrong.[v] Which is why, neoliberals say we must trust markets and not politicians. And despite the absurdity of this claim — for that's all it is — the politicians of the cowardly state think this is true.

This, at its core, is the difference between a Courageous and a cowardly politician. A Courageous politician knows that there is a great deal that he or she does not know, and knows that despite that they will have to act. A cowardly politician believes that the market knows everything and that in that case they had better do nothing. But of course, as Keynes realised, for reasons that I will explore, markets cannot know everything.  In that case they're not infallible and to be followed on all occasions as the likes of George Osborne following in the wake of Margaret Thatcher believe to be the case. Markets actually get things profoundly wrong.

[i] Paul Mason's Book ‘Meltdown: The End of the Age of Greed' provides perhaps the best account of this period , Verso, London, 2nd Edition, 2010

[ii] This idea was first explored by Andrew Simms of the New Economics Foundation — see

[iii] I am aware that the terms neoliberal and neoclassical are technically the same in economic theory — but neoliberal does clearly imply a particular political approach to the issue which explains my preference for the term

[iv] George Monbiot's book ‘Captive State: The Corporate Takeover of Britain', Pan, London, 2001, is good on this issue

[v] I am aware that many economists will argue that this is not what they think and technically they may be right. The problem for them is that they assume that the form that uncertainty takes is always predictable and that markets price on this basis. Add these together and you get back to the assumption that they assume perfect foresight.

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