I note, with interest, that Martin Wolf at the Financial Times is descending into a state of panic as a consequence of what Trump and Musk are doing in the USA.
He has already written one article about the need to fund opposition parties to create effective democracy, which has given rise to quite useful debate at Naked Capitalism, to which Colonel Smithers, who will be familiar to commentators here, has contributed.
Now, he has written an article entitled “In Defence of the State". My suggestion is that he is a little late in realising that the state might have merit after all when he and his newspaper have for so long ignored all the benefits a well-functioning state can provide.
I have always believed in the state. That was, maybe, the consequence of having a mother who was a nurse who only ever worked for the NHS and a father who essentially worked for the nationalised electricity industry throughout its existence. Those facts must help, but so too does the fact that all the obvious benefits provided by the state were drawn to my attention during my upbringing, from the provision of my education to the supply of free healthcare to the support my family's numerous elder relatives enjoyed in the form of pensions and other benefits. That meant that absolutely no one needed to convince me of the benefits that the state supplied. That was my lived experience throughout the time that I became politically aware.
Then, I saw an alternative worldview. I prepared my first set of accounts at the age of 17, working in holidays for a local firm of accountants who provided me with invaluable experience from then until I went on, after university, to work for what is now KPMG. I saw and met self-employed people and the so-called entrepreneurs (although I use the term with care because most of the people whose accounts I prepared were, in fact, jobbing artisans of various sorts) who did not share my worldview.
Although I think that they realised that government was essential, and all of them did in various ways rely on the services it provided, they all appeared to be quite casual about their duty to disclose their financial affairs. In addition, it seems that these people seemed to hold almost all people who worked in regular employment in contempt but were most aggrieved by those who worked for the state even if, very often, those same people were the customers to whom they sold their goods or services. The foundations of the support for what became Thatcherism were to be found amongst these people, but I never understood their position.
For the sake of the record, it is very likely that I have been more entrepreneurial during the course of my career than the vast majority of people in the UK. I cannot recall with certainty how many companies I have created, been a director of, or helped grow. My accountancy practice was at the core of this activity, but there were at least five other companies or groups to which I made a major contribution in very senior management roles before I reached the age of 40.
Since then, I have been what many might describe as a social entrepreneur, creating a number of quite influential campaigning organisations that, without exception, I think, still exist.
I know what is involved in entrepreneurial activity, unlike the majority of right-wing politicians, think-tankers and policy wonks who proclaim their belief in the so-called free market activity whilst having always worked in situations where their pay cheque was guaranteed at the end of the month, and not a penny of their own money has ever been at risk. I find the irony of that almost amusing.
At the same time, I also know that my entrepreneurial activity was utterly dependent upon the state to succeed. It often occurred to me that employees who took the risk to work in the businesses and organisations that I created could only afford to do so if they knew that the state would provide them with assistance if everything went wrong (although it never did). The implicit guarantee of the social safety net was absolutely fundamental to the well-being of those who took the risk of working in the small business sector at the time. The erosion of that safety net has, in my opinion, been deeply detrimental to employment prospects in smaller businesses precisely because that element of security has been removed.
Put all this another way, and what I am saying is that for well over 40 years now, I have understood that we need a symbiotic relationship between business and the state. There has never been a case of one being inherently or absolutely better than the other. Each has always been dependent upon the capacity of the other to deliver. Without the other, each cannot make sense, in my opinion.
That is why I was never a believer in Clause 4 of the Labour Party, as it was.
Saying so, that did not mean I agreed with Blair. The reason is that he, like Martin Wolf, seems to have never understood that the neoliberal approach to this issue has always been fundamentally wrong.
As I suggested in my 2011 book, The Courageous State, whenever a neoliberal politician sees an issue needing to be addressed, their first and only reaction is to presume that whatever solution the state might come up with to the problem that has been identified will be inferior to one that the market might create and that they should, as a result, do nothing about it. Instead, they either leave it alone or seek to contract it out. What they never want to do is address it.
So pervasive and pernicious has this belief been that the reason why the state no longer works is the straightforward consequence of this single, disabling ideological position. It is taken as read that the state cannot work, in which case politicians do not try to make it work.
There is no basis for this hypothesis. As I argue in today's video, the fundamental management logic of the state has, by necessity, to be completely different to that of the private sector. Private companies can fail. By definition, that risk is acceptable in their case, meaning they can cut corners in a way the state cannot. The state cannot fail, meaning it must have resilience way beyond anything that the private sector requires. And yet, despite this obvious fact, the neoliberal claims that the same criteria for appraisal must be used for both, including with regard to the quest for productivity, which is meaningless in the context of the state.
The state is a singular activity. It has no competitor because if the boundaries between the state and private sector are correctly drawn (and they need to be and must exist) then what the state does cannot be replicated by another entity. It exists for public purpose and will do so at the lowest cost if a single entity is tasked to undertake an activity. By definition, however, that entity cannot then fail. If it does, the public good does not just cease to exist, but harm will be caused.
For this reason, the state entity cannot be 'efficient' because its chance of survival cannot be prejudiced, which is the risk that the quest for efficiency and productivity creates. The quest for what is called efficiency threatens the over-arching necessity of state activity, which is that it be there. The denial of resources that supposed efficiency demands exists necessarily prejudices the achievement of that goal.
More than that, if the public entity tasked with the delivery of a service seeks to be efficient, it simply creates an externality that then imposes a cost on the public, which in turn then creates the perception of failure, cost and inconvenience, and so of inefficiency. This is obvious and is now widespread with regard to the NHS, HM Revenue & Customs, education, the DWP, the judicial system, and so much else. The quest for neoliberal efficiency in these entities, beloved of politicians like Wes Streeting, who seem to know no better, has sought to reduce their cost whilst massively increasing the cost of those using other services. So great has the imbalance become that the disquiet with regard to it now dominated the political narrative of the UK, and yet it is wholly unnecessary. All that is happening is that the self-fulfilling belief propagated by a few neoliberal economists that the state cannot work is now so pervasive amongst neoliberal politicians that they are delivering policies that ensure that the state cannot work.
What is the answer? It is at least threefold.
First, the fallacy that neoliberalism promotes has to be exposed.
Second, it has to be accepted that state organisations exist for quite different purposes to private sector organisations and so require their own appraisal criteria that embrace the externalities that they create. In accounting terms, I would suggest that this means that they are accepted as the macroeconomic entities that they are, meaning that their performance should be appraised using both dual and dynamic materiality instead of the singular materiality that is used for the appraisal of microeconomic entities. (See the footnote for an explanation of these terms).
Third, we need to recognise that if proper funding of the state reduces the externalities it creates, this is a welfare as well as an economic bonus. Why those tasked with macroeconomic management cannot see this, I do not know.
I suspect I will need to return to this issue. For now, let me conclude that without changing his neoliberal spots, Martin Wolf cannot defend the state. By definition, that ideology is an aggressor of the state. If you believe in the state, you cannot be a neoliberal. To claim otherwise is to promote a tautology. He needs to get his head around that, as do a lot of other people.
Footnote
Single and double materiality
The concept of materiality suggests that:
“information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.”
What is material is determined by the reporting entity.
Materiality can be appraised by a single reasonableness test i.e. a matter is material if there is a substantial likelihood that a reasonable person would consider it important.
The concept of double materiality expands the concept of materiality to include both climate-related impacts on the company as well as the impacts of a company on the climate. As a consequence, the reporting entity is required to consider the impact of its behaviour on the users of its financial statements, making explicit that there exists a relationship with them that extends beyond contractual obligation.
Double materiality uses a double reasonableness test. A 'double reasonableness' test sets a high threshold by asking whether a reasonable person might hold the view that disclosure was reasonably required.
The consequence of using the concept of double materiality is that the reporting entity cannot presume that it is preparing financial statements solely for the benefit of those considered the primary users of financial statements. It does, instead, have obligations to all users of financial statements.
In the context noted above, the duty of the state entity is not just to the Treasury to minimise cost. It is also to the person using its services and the person potentially using its services. A singular perception of value cannot exist.
Dynamic materiality
As EFRAG notes:
‘the determination of financially material effects on the reporting entity can rely on non-monetary quantitative, monetary quantitative, or qualitative data, while recognising the dynamic relationship between them. Many impacts on people and the environment may be considered ‘pre-financial' in the sense that they may become material for financial reporting purposes over time (so-called ‘dynamic materiality'). Financial materiality for sustainability reporting cannot be extrapolated from financial materiality for financial reporting.'
Dynamic materiality recognises the disconnect between financial and non-financial aspects of materiality and requires that anticipation be made of financial consequences of non-financial impacts on the reporting entity.
In the context noted above, if the state imposes a cost on other dynamic materials requires that the state take those costs into account.
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Very fine post.
Chickens coming home to roost. The neolibtards aim at a market-driven utopia (with circular logic to justify it).
Their handmaidens are the liberals as this pretty good article notes: https://robinmcalpine.org/bundling-and-the-path-to-barbarism/
The problem in the Uk & EU is that neolibtard-lite seems to run the show, currently engaged in hand-wringing and “oh-dear”. Time to get a grip, get real, & act.
The problem is that Scholtz, Starmer, Macron (? perhaps has more a grip than the other two clowns), Von Der Leyen and Lagarde are all +/- cut from the same cloth. They think the USA is still “our buddy”. It’s not. Russia – USA – diff sides of the same coin.
Thanks and much to agree with
Blimey! This is one of the best posts you’ve done.
Thanks
That’s what comes from finally having a bit of time to think.
Wolf will be blind to Neo-liberalism because – as we know – Neo-liberalism has a use for government/the state in that after slagging it off to the hills, it will then hide behind its legal system and sovereignty to defend what it has stolen.
Thanks, Pilgrim, that’s another nail banged squarely on the head.
Neoliberals – who in this instance our uniparty can be cited – will always claim to be the opponents of those they call “ideological”, whilst at the same time denying the fact that they themselves are the most ideological of all.
The fact is, those on the (and including the centre-) right have a view of the world and try to make the world conform to it, while those who are really of the left start with trying to understand the reality of the world, and should then base their political choices on that. My use of the word “should” says enough to describe the current state of the self-styled centre-left at the moment. It is that which is creating the openings for the far-right at the moment all over Europe.
Hi PSR, couldn’t agree more with you! Also don’t forget the hatred of socialism, until erm… they need it themselves (2008 banking crisis, Elon musk government funding etc) – you could not make up the level of hypocrisy even if you tried could you.
You remind me of a panel discussion I was involved in years ago at a social enterprise conference on planning service development. A director of social services described the very careful strategic planning they had done – research, consultation, trying to predict even secondary impacts, etc; he was followed by a lauded social entrepreneur who started by saying something like ‘Well, we didn’t do any of that – we tried this and it didn’t work out, then we tried that and it didn’t work out, then we hit on an approach that worked…’
The key, perhaps, is knowing when to take the ‘design’ approach, and when to take the ‘evolutionary’ approach.
They key is knowing to whom you are obligated
That sounds horribly familiar. In too many film production meetings back in the 1980s well thought out and properly costed proposals would be superceded by showy types who could sell ‘bringing it in’ cheaper. Always because they were ignorant of the nuts and bolts of actual film production. The, delivered with a fake smile, refrain: well, let’s try it their way first and if it doesn’t work, we’ll try yours – has since become a household catchphrase covering any false shortcuts.
🙂
[…] but I chose what to do and, as a result, remained fresh enough to begin work last night on the post I published this morning on the defence of the state, which implicitly references my thinking about the relationship between […]
Superb article Richard – really superb. This deserves to be read (and understood) by as many people as possible.
Thanks
Richard
Your ‘business’ career sounds fascinating and of course demonstrates that you know of which you speak.
Any chance of us ever getting more details?
It’s history
“unlike the majority of right-wing politicians, think-tankers and policy wonks who proclaim their belief in the so-called free market activity whilst having always worked in situations where their pay cheque was guaranteed at the end of the month”
Brilliant
That’s because these people are motivated by what they’re against rather than what they’re for. Frankly, they just like making life harder for people.
You might want to check out a Right winger called Louise Perry. She’s talking up civil war occurring in this country in the next five years. She has a fixation with old people, the welfare state and mass immigration and seeks to lay the blame for all the country’s problems on those things. This is because she’s obsessed with the idea that she’s over-taxed and as a member of a “downwardly mobile elite” she doesn’t have the standard of living she thinks she deserves. She just hosted an academic who works for the British state to make these claims about impending violence.
My response would be to eschew all forms of violence and to defend the functions of the state that she wishes to abolish.
“That is why I was never a believer in Clause 4 of the Labour Party, as it was”
Yes I have to say having read about what happened in the 70s I do think it was a huge mistake on the part of the Left to seek to nationalise “the commanding heights of the economy” i.e the main private sector companies. That seems to me to have been red rag to a bull for an increasingly nervous capitalist class at that time and hardly defensible morally speaking.
That is not what I said
I didn’t say you did, it was my opinion about why Clause 4 was a mistake
OK
Thanks
Thanks Richard. ‘There’s always been a state and there always will be’.
Maybe this has to be broadened – to encompass the idea of an ‘international state’ or at least international law and trans national rules needed to cope with the global technology monopolies – and the oligarchs like Teil who want to create a .’post democratic’ world order.
On a corollary of your discussion – many ‘entrepreneurs’ / corporate chiefs seem very conflicted – between their knee- jerk dislike of ‘regulation’ on the one hand, and their admission that if market competition is to work they need a level playing field – which a strong single regulator – empowered by the State – can provide – with clear published rules.
Some deregulation has been an absolute catastrophe eg Grenfell Tower , where builders/developers/local authorities invent their own regulators – which powers a race to the bottom. And ironically there is a mushrooming of more and more quasi regulators.
Going back a couple of days to your question on video topics, would it be good to do a very simple one, or a series, on how a well functioning state is critical to all our daily lives whether we are salaried, entrepreneurs, retired or not in work, or even bankers!
It seems to me the state also needs defending against a certain level of ignorance about how it underpins our lives.
Forgive me if this was already on your list.
Noted….
“What’s the state ever done for me?”
Answer with reference to your personal experience, but also highlighting how prominent right wing commentators, think-tanks and large corporations have relied on the state, for a stable economy, a sovereign currency, personal and public health, education, transport infrastructure, defence, justice, law and order, environmental protection, corporate subsidy (see K Farnsworth), and major bailouts.
For example, what has the state ever done for:
Kemi Badenoch
Liz Truss
Robert Jenrick
Richard Branson
Ni**l Fa***e
HSBC
Lloyds Bank/HBOS
The City of London
Rupert Murdoch
Chris Philp
Lee Anderson
Lawrence Fox
Julia Hartley-Brewer
Thames Water
J K Rowling
Andrea Jenkyns
Sue Ellen Braverman
Priti Patel
Peter Mandelson
Andrew Neil
Laura Kuensberg
Nick Robinson
The Pimlico Plumber
Jeremy Clarkson
etc etc etc?
We should not forget the physical infrastructure such as roads provided by the state.
The most optimistic I can be is Musk and Trump may wake up the world to the failure of neoliberalism and like Martin Woolf maybe start to look for alternatives. The other alternative is too awful to name as Trump blames Ukraine for the Russian invasion. What are we in for?
A good question
Thanks for the useful definitions. One more I would welcome would be ‘neoliberalism’ Wikipedia says ” The term has multiple, competing definitions, and is often used pejoratively. In scholarly use, the term is often left undefined or used to describe a multitude of phenomena; however, it is primarily employed to delineate the societal transformation resulting from market-based reforms.”
This doesn’t satisfy me much.
As far as I can see it is simply a euphemism for what used to be called rampant corruption.
That is not how I would define it
The glossary does need to be revised though, I do agree
If you don’t like what Wikipedia says, then you can change it, by joining the project as an editor. I did a fair few years ago, so I could improve its accuracy on digital privacy and those nosy lawbreakers who were breaching EU privacy directives at the time. Are any MMT experts editing in Wikipedia?
Not me…
My own Wikipedia entry is wildly inaccurate
Dear Richard, have you read William Mitchell and Thomas Fazi’s book “Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World” (Pluto Press, 2017)? Bill Mitchell, as you probably know, is one of the founders of MMT. Along with Randall Wray and Martin Watts, they have recently published a new edition of their macroeconomics textbook (Macmillan Press, 2019) – also with a 2nd edition in the pipeline. Great commentary, as usual!
No, because I Mitchell is someone for whom I, and some others in MMT, have no time.
He supported fascism in Italy at ione time. His political thinking is dire. So why read him?
I got the textbook and felt it changed nothing.
I have much time for DStephanie Kelton. I have as much time for Mitchell as she has. You might note she never meets him when in Australia.
Great post – thanks!
The question arises, though: how is the state to be governed, be accountable and transparent? And at what scale (geographically, socially…)? And if it is centralised, can it not all-too-easily be ‘captured’ by specific interest groups, or simply suffer from the ‘tyranny of the majority’. (Viz our current government: a technically huge majority ‘in name only’.)
Some things require large scale, for reasons of efficiency or natural monopoly; and especially to ensure equity. (Unlike current situations with ‘postcode lotteries’ for such as NHS provision, availability of dentists, etc.)
Other matters should, I suggest, be much more devolved (in the general sense of the word – not opening the ‘nations’ issue); and that devolution should be more accountable – unlike, it seems to me, the plans for greater powers for metro/regional mayors: another ‘tyranny of the majority’.
Something to set alongside Markets, Corporations and Households (the neoliberals’ ideal trio?) and the State (the ‘socialists’ desire, perhaps, but at risk of becoming overbearing, even dictatorial?) – is the Commons. We need more “re-commoning” as well as a robust State. Governance of Commons is not without problems (hence Harding’s ‘tragedy’… but cf. Elinor Ostrom’s refutation of that) but it provides the social space for connectivity, solidarity and ‘conviviality’ which is lacking in the more-bureaucratic institutions and governance of the State.
I think Commons can provide local resilience in ways that will become increasingly necessary, as Corporations and oligarchies increase their control and the State perhaps fails to escape from capture by those malign actors, or is simply less and less functional.
Something for future posts?
Richard good article.
The state seems to me to have been in this position as the modern corporation has grown ever more powerful over the 20th century to be the massive economic, social and political influence it is today.
Successive political parties have felt the need to adjust to this new powerful group which undermines both good democratic governance and social wellbeing.
Modern corporations need their powers and influence checked and reversed. Then the belief in the potential good of the state can enjoy a renaissance.
How to do this is a massive challenge for politicians of all colours assuming they recognise the need to.
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