Over the weekend The Guardian reported that:
Keir Starmer appealed to the Labour left to back his bid for the leadership on Saturday as he denounced the “free-market model” as a failure and backed higher taxes on the wealthiest to pay for better public services.
I had two immediate thoughts. One was that the comment on tax showed that Starmer does not get modern monetary theory. His comment implying we need to tax the wealthiest to pay for public services proves that. But that is an issue for another blog. The matter of concern here is his suggestion that the “free market model” is a failure. A number of thoughts flow from that.
The first is that it is surprising that this is contentious. Or that it is considered left wing. It isn't. The Financial Times has declared that the model of capitalism that we have had for forty years is in need of radical reform. So too has the American Business Roundtable that is made up of about 180 of the most influential US CEOs. It's a fact: capitalism as we have it is not working. The climate crisis is evidence of that. So too was the 2008 crash. it really should not be seen as radical to state an obvious fact that business knows to be true.
Second, then, why does this need to be said? I suggest that this is because the model of so-called free market economics is still taught in almost every university as if it is a) true and b) without alternative when c) it is based on assumptions that any rational human being will realise are completely absurd. There remain true believers in this fantasy. Most of them have never been near a real business. Their worldview is decidedly limited. They are either academics, or right-wing think tank wonks, or the politicians drawn from the ranks of the last group, in particular. This is where this issue becomes political: right wing politicians promote belief in an incredible creed, and it appears radical for the left to challenge it.
Third, the left does not help itself by promoting a vision of the economy that is hostile to the private sector. This makes no sense. As a matter of fact we live in a mixed economy. In effect, almost every person in the UK has always done so. And any effective (in the sense of likely to be electorally successful) economic plan the left is going to put forward now is going to have to embrace that fact, for fact it will be.
And yet what we have forgotten to do is sing the mixed economy's praises, and note the fact that it works until undermined by dogma and the anti-market abuse which far too many right wing politcians and large companies promote in the name of supposed free markets when what they are really seeking to do is suppress competition to deliver monopoly profits to a few at cost to most in society.
I wrote in praise of the mixed economy in my book The Courageous State, in which I made it clear that any such state would promote the conditions in which genuine markets could flourish where appropriate whilst at the same time suppressing abuse by requiring the state run or regulate natural monopolies. I described the mixed economy using the metaphor of a cappuccino as follows:
A cappuccino economy is the mixed economy that exists within society (the cappuccino cup) with the state being represented by the strong black coffee that underpins the whole edifice, while the private sector is the hot frothy milk that is added to that coffee to work in combination with it to make the final product. The luxuries paid for out of our limited disposable incomes that add the gloss to the private sector are represented by the nutmeg or chocolate that float on top of the hot milk which represents the private sector as a whole. The spoon represents democracy that determines the mix between the coffee and milk, with sugar representing the sweeteners necessary to ensure that almost all accept the eventual outcomes determined by government.
The metaphor can be pushed a lot further: the saucer represents the welfare state that stops people falling out of society; the barista has the skills society needs and must perpetuate, the coffee-making machine and indeed the coffee shop in which most cappuccino is drunk are both representative of the infrastructure that is essential in any society, while the recipe is based on our wisdom and tradition of accumulated knowledge. The fact that cappuccino is very often drunk in a social environment is indicative of the fact that it is the exchanges within society that actually fulfil us as people and are the way in which we understand our purpose.
Most people I have ever described this metaphor to can instantly relate to it: this is the world in which many people live and it is the world that they understand. And yet there is no economic theory currently in use that describes this economy. And that, I suggest, is the real problem we face right now, and is the reason why we are in a mess.
I am still of that opinion. We still need an economics and an ethos that actually relates to the merits of the world of compromise in which balance is created in which we can and must actually live.
Keir Starmer looks to be the most likely person to replace Jeremy Corbyn as Labour leader. In that role he most certainly needs to say, time and again, that the Tory myth that free markets work is complete nonsense. But he must be careful not to suggest that the alternative is state ownership and control of all activity. What is required is proper regulation of the markets that we need to ensure that abuse does not take place, appropriate taxes are paid and monopoly power is curtailed. That is a policy that all should be able to endorse. It is the way for Labour to go, I suggest.
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He is comfortable in the dominant belief system. Very hard to overcome as it isn’t based on rationality and so challenges are countered by assertion that it’s true undisturbed by evidence. What is to be done?
You and Keir need to have a chat, Richard.
I’m available!
Seamus Milne still carries influence so does that rules you out?
Do you know who influences Labour economic policy? Is is still Simon Wren-Lewis?
No idea to any of that right now
All is in the air
I strongly suspect Milne will be asking the Guardian for a job back
I have an opinion on whether he should get it
I share your concern about Mr. Starmer’s grasp of economic reality, but I agree wholeheartedly with your concluding paragraph. All politicians are required to dissemble from time to time. Voters must judge as to whether or not the dissumulation is in pursuit of a valid end. In this instance, Mr. Starmer appears to be addressing the more die-hard left-wing elements of the selectocracy that is comprised of the Labour members, supporters and affiliates who will have a vote in the leadership election – and not the national electorate. But he has to be careful. It is unlikely that he will ever convince the die-hards that he possesses sufficient ideological purity to secure their support and he could concede hostages to fortune in this futile effort that could damage, and be used to damage, his credibility with the broader electorate.
In this context, a period of silence from Tony Blair would be most welcome. Mr. Starmer conveys the potential to appeal to the type of voters that Labour so badly needs to win back and, to an extent, this may be compared with the potential Tony Blair demonstrated in the mid-‘90s. But, given the outcomes that resulted from Mr. Blair’s success at converting this potential in to electoral success — in terms of trashing the UN and provoking disastrous apparently intractable conflicts (in cahoots with the then US administration) and of trying and failing to constrain, and then succumbing to, the vicious so-called neo-liberal mutation of capitalism, today’s Labour politicians who demonstrate this potential are vilified by large swathes of the selectocracy. This is the tragedy of a selectocracy with so many members seized by mistaken convictions.
I tore up my Labour membership card when Tony Blair became leader in 1994. I simply had a bad feeling about him which he subsequently confirmed in spades. But I have now renewed my membership.
Can I suggest that you contact Keir Starmer and the other candidates and perhaps offer them some of your insight?
MMT as opposed to MMT is quite difficult for the man on the Clapham omnibus to get his head around.
BTW when interviewing Clive Lewis on the Andrew Neil Show last week, it was stated that Rebecca Long-Bailey was the author of the Green New Deal…??
With so much mis-information over the past three or more years, we can do with clarity from whoever becomes Labour leader.
I have heard that rumour of RLB
And it utterly untrue
Even with regard to labour’s own version as far as I know
There is nothing in the quote from the Guardian or the article itself that urgently suggests that “Keir Starmer needs to get up to speed on economics”. With reference to the MMT point, taxes may not be entirely necessary to pay for better public services but tax plays an important role in redistribution and various other areas that are discussed frequently in this blog. I don’t have a problem with this post generallly but its title seems a bit unfair.
I beg to differ
“All is in the air”
Be nice (keep your options open) 🙂
One of the most erroneous ideas is that of the existence of a “free market” which regulates everything outside government, with efficiency and order. Consequently, whatever inequality or insecurity is generated is beyond our control and inevitable and where those who aren’t paid enough to live on or those who earn billions, is the determination of the market.
It is also held that unwarranted constraints on the market’s freedom, and will inevitably lead to some form of catastrophic collapse, therefore, government shouldn’t intrude through minimum wages, taxes on top earners, public spending to get people back to work, or regulations on business etc., because the “free market” will regulate everything efficiently.
The “free market” is merely a set of rules which determines what can be owned and traded, on what terms, under what conditions, what is public and what is private, and how to pay for what. These rules are man’s creations. Markets aren’t “free” of rules, governments set the rules and framework which define markets. Adam Smith the so called advocate and originator of the “free market” concept held that government should be responsible for and regulate in his time;
– the Navigation Acts, blessed by Smith under the assertion that ‘defence, however, is of much more importance than opulence’ (WN464);
– Sterling marks on plate and stamps on linen and woollen cloth (WN138—9);
– enforcement of contracts by a system of justice (WN720);
– wages to be paid in money, not goods;
– regulations of paper money in banking (WN437);
– obligations to build party walls to prevent the spread of fire (WN324);
– rights of farmers to send farm produce to the best market (except ‘only in the most urgent necessity’) (WN539);
– ‘Premiums and other encouragements to advance the linen and woollen industries’ (TMS185);
– ‘Police’, or preservation of the ‘cleanliness of roads, streets, and to prevent the bad effects of corruption and putrifying substances’;
– ensuring the ‘cheapness or plenty [of provisions]’ (LJ6; 331);
– patrols by town guards and fire fighters to watch for hazardous accidents (LJ331—2);
– erecting and maintaining certain public works and public institutions intended to facilitate commerce (roads, bridges, canals and harbours) (WN723);
– coinage and the mint (WN478; 1724);
– post office (WN724);
– regulation of institutions, such as company structures (joint- stock companies, co-partneries, regulated companies and so on) (WN731—58);
– temporary monopolies, including copyright and patents, of fixed duration (WN754);
– education of youth (‘village schools’, curriculum design and so on) (WN758—89);
– education of people of all ages (tythes or land tax) (WN788);
– encouragement of ‘the frequency and gaiety of publick diversions’(WN796);
– the prevention of ‘leprosy or any other loathsome and offensive disease’ from spreading among the population (WN787—88);
– encouragement of martial exercises (WN786);
– registration of mortgages for land, houses and boats over two tons (WN861, 863);
– government restrictions on interest for borrowing (usury laws) to overcome investor ‘stupidity’ (WN356—7);
– laws against banks issuing low-denomination promissory notes (WN324);
– natural liberty may be breached if individuals ‘endanger the security of the whole society’ (WN324);
– limiting ‘free exportation of corn’ only ‘in cases of the most urgent necessity’ (‘dearth’ turning into ‘famine’) (WN539); and
– moderate export taxes on wool exports for government revenue (WN879).
The question is what the rules should seek to achieve and what protections they give to social order They can be designed to maximise efficiency, growth or fairness depending on our ideas about a decent society. Or some combination of all three which aren’t necessarily in competition with one another. It is self evident that if prosperity were more widely and equitably shared, we’d have faster growth. However, at present, the rules seem to be designed to entrench and enhance the wealth of a few at the top and keep almost everyone else comparatively poor and economically insecure
In 2008, the banks did not uphold the principle of free market values and keeping the state out of the market. They begged the state to use tax payer money to cover their debts whilst only they enjoyed the profits. The IMF estimated that this bailout has so far cost the taxpayers of the world £7.12 trillion. Now, most of the world governments are some form of corporatised state whose policies are judged against the “market” as though this was an accurate assessment of their worth. All the market reaction tells you is whether or not a cabal of corporations think they can or have made a profit from it.
The market is not free, and never can be. It requires legislation to prevent rational corporate behaviour which would and has perpetually sought to undermine it, and any regulator will be corrupted by corporations seeking to influence them as can be seen by the top corporations spending more on Lobbying and subsidy to governments than they pay in taxes.
The basic ambition for governments around the world should be to increase living standards, to raise the levels of health, education, social cohesion and progress such that we can all benefit from it whilst not destroying our planet which does not mean the sequestration of wealth from the poor through zero carbon policies which have no verifiable scientific foundation.
Thank you
As Jim points out, Adam Smith was only too aware of the failings of unfettered markets and the need for state regulation in different forms. It’s always amused me that the Adam Smith Institute and their pals have clearly read very little Adam Smith. Probably just the one sentence.
More broadly, the last Labour manifesto had little or nothing to say about wealth creation and the role of the state in creating a healthy mixed economy. Nationalisation alone does nothing in itself to create new sustainable jobs or wealth, whatever it’s other merits might be. I suspect Labour voters, many/most (?) of whom work in businesses may be smart enough to work out that something else might be needed to encourage healthy sustainable business of all sizes. Meanwhile the Tories continue with their ideological view that the market alone will solve all problems.
Labour could be a party of the mixed economy but that’s unlikely under the current leadership group, or some of the proposed replacements
Talking of public and private, Yin and Yang come to mind