Don't let yourself be lied to about the efficiency of the market

Sometimes, politics can be so strange and irrational that it takes your breath away. After a huge economic crisis, recession and now an ongoing depression, facilitated by decades of increasing deregulation and “neoliberal” policies, European governments are falling over themselves in their attempts to cut back, defund, privatise and otherwise dismantle the remains of the postwar welfare state. Far from moving into increase regulation to levels closer to those before the “neoliberal” experiment, the UK government has moved to deregulate and reduce further workers rights. The only weak move made to appease popular anger about the banks' role in the crisis has been to 'ringfence' banking and investment arms by 2019.

This is framed not just as deficit busting austerity, but as creative destruction to “unleash the private sector”: George Osborne has spoken of a state sector which is “crowding out” the private sector, and the Coalition has claimed it is “rebalancing” the UK economy away from the state.

Not so different from the orthodoxy which has reigned since the late 70s then. This is despite recent events. |It wasn't long ago that the right were crowing over how the new “Tigers” such as Ireland showed that free markets and deregulation were more effective than “outdated” European alternatives, such as those of the Nordic states. With those new Tigers like Ireland and Portugal locked into a downward spiral of perpetual crisis, you might think that the governments of capitalist countries would see it as in their own interests to follow ostensibly more sustainable models of capitalist development, such as those of the Nordic states and Germany. The UK government, for instance, on the one hand signals the need for a new, “responsible capitalism”, while on the other says that this will fall out of the air if regulation is cut, contrary to recent history and indeed common sense.

The first post-crisis government of the UK has seen, in a short period of time, the beginning of the privatisation of the NHS, a significant erosion of employment protections, and a wholsesale assault on public sector jobs, pensions and services. In the US, a large section of capital has swung sharply to the right, with the Republicans now so rightwing that Eisenhower or Nixon would be pilloried as redistributive “socialists” by their activist base and conservative funders, such as the Koch brothers.

It seems that amongst the capitalist class, faith in the “efficiency” of the private sector, at the very least to create growth, has been deepened, not disturbed by the crisis. Perhaps more accurately, they've been able to implement a project of building a minimal state and a rebalancing the economy in the immediate interests of capital thanks to the crisis.

What I want to look at in this blog, further to some of the issues discussed previously, is the basis for this increasingly fanatical belied in market efficiency, and whether, in the face of increasingly disappointing growth figures, capital may move towards reform without external pressure from the working class .

The market vs the state

For the right, and for most of the social democratic “left” which was conquered by rightwing policies in the wake of its defeats in the 1980s and 1990s, the role of the state is a minimal one. It is there to provide the framework for growth, innovation and “job creation”.

We could say that Adam Smith has been idolised and his writings have become catechism – for instance the Adam Smith Institute is the major right-wing thinktank in the UK. But in fact the current “ new normal” sees ideas which would reduce the minimal state beyond that envisaged by Smith becoming policy. He at least saw building and maintaining hospitals as the role of the state, the current government is deepening privatisation of healthcare and is even opening up the police force to privatisation.

There are some very obvious points we can make about the state/market dichotomy, which totally dominates political discourse from top to bottom.

First, the market cannot exist without the state. This is from the violent basis of the capitalist market, in dispossessing the former peasantry, to the police force stopping someone from stealing commodities from warehouses, to the patent office which records your “intellectual property” and the courts which enforce it. The police and ultimately army will stop strikers from blockading your factory gates or occupying your plant. The state builds, funds and maintains the road and rail systems which transport your workforce and goods. Ultimately, the state, and its arms will define what's mine and what's yours, and dictate that the commodity you produce with your labour belongs not to you but to your employer. It has been actively involved in the creation, maintenance and extension of capitalist markets and social relations, and still is.. Adam Smith, at least, was far more honest than any of his current fans about this:

Adam Smith

“Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.”

This much is relatively obvious, even though it cuts through the political discourse and “common sense” around markets and states.

The “interests of capital”

In a previous blog post, I discussed the way in which the obvious failures of austerity are leading to voices within the capitalist class arguing that a different strategy is in the interests of capital in the immediate and long term.

Some of this has been compounded further by the publication of a new text by the centre-left think tank Demos, which shows how innovation happens in the real world, not in the heads of right-wing ideologues. The pamphlet, The Entrepreneurial State, by Mariana Mazzucato is available in full here.

I want to look at this for two reasons here: firstly to show that contrary to ideology and common perceptions, even in “neoliberal” countries the state is frequently very proactive in driving innovation in key areas, despite the rise of the deregulated-financialised model in much other key areas of the economy. The demonstrable success could lay the basis for a much more state-centred politics elsewhere.

The second is to show that tendencies within capital are increasingly pushing a reform agenda, and that there is a very real argument that this is in capital's interests. This means that the social-democratic bounce we are seeing in Europe could well be the political force to do this, which of course has nothing to do with the interests of the working class whose support it will ride on.

The text gives many interesting examples of just how much the contemporary “cutting edge” of capitalist innovation is driven by state actors. Some choice picks include the fact the Google algorithm came from public sector National Science Foundation grant, and that molecular antibodies, which provided the foundation for biotechnology before venture capital moved into the sector, were discovered in public Medical Research Council (MRC) labs in the UK. Indeed many of the most innovative young companies in the USA were funded not by private venture capital but by public venture capital such as through the Small Business Innovation Research (SBIR) programme.

The author is highly critical of the market-state dichotomy discussed above:

“ … The rhetorical assumption behind all of this is that the role of the state is negative rather than positive. It depicts the state as less productive (by definition) than the private—or voluntary—sector. This pamphlet shows that there is an alternative interpretation of the role of the state, at least in innovation policy, that hotly contests such a view. “

Much of the pamphlet is dedicated to discussing the link between innovation and growth, and where both come from. For example:

“ … a generation ago, technological advance was seen as something that was externally given, there is now extensive literature to show that actually it is the rate, and direction, of innovation that drives the ability for economies to grow. This provides the justification for increased focus on the role that government can play to facilitate precisely that innovation, while at the same time exploding some of the myths that abound in Westminster, the European Commission and Washington about what actually drives innovation and growth.”

The basic argument is that a wealth of evidence to show that growth and innovation are maximised by public sector activity, and that in US, despite it's reputation as a bastion of creative free markets, 57% of basic R&D is state funded, with just 18% of funding coming from business, and the remainder coming from universities and other non-profits. She argues that the reason that Europe is less efficient at converting research into growth is not because of “a lack of science parks” but because it is less successful at this facilitation of R&D. So behind the sheen of silicon valley risk-taking and innovation in fact lies of complex of non-profit and public sector innovation which the private sector then commoditises. Examples such as innovations developed by DARPA, Small Business Innovation Research and recent nanotech advances are also used by Mazzucato to illustrate how non-profit innovations become “general purpose technologies” which then spread throughout the economy.

Her policy recommendations revolve around the basic conclusion that states should not just be there to fix the failures of markets, but to actively create markets.

So why is this relevant? Well, most importantly it shows that capitalism doesn't work as it says on the tin. Secondly it gives further evidence that sections of capital will be clamouring for a change from the current “austerity+neoliberalism” program, on the basis that it is in the best interests of capital to do so.

The left: the last line of defence of capitalism

The social democratic left is well positioned to do this. The current G8 talks show a rift within capital with Obama and Hollande on one side and Cameron and Merkel on the other. It looks increasingly likely that the disastrous (and predictable) economic effects of pure austerity in Britain will give the social democratic left a significant boost. This was seen in the council election results recently. This will provide a more saleable face to the project of capital restructuring both in the UK and in Europe more widely (Hollande, despite his anti-austerity rhetoric, has praised ex-Greek Prime Minister Giorgios Papandreou, who oversaw the brutal austerity project there. The Labour party here stood in the last election on a platform of massive cuts, despite presenting itself as the anti-austerity party now).

If Syriza emerges from the next round of elections in Greece able to form a government, it will be interesting to see how it attempts to manage the capitalist state given its stated aims to keep Greece inside the Euro, and while ending interest payments on it's outstanding debt. Despite the rhetoric, the party has a classic social democratic program currently focussed on effective management of the state and expanding the capitalist economy, not social transformation. The inevitable compromises that will follow between its politics and the demands of state management (as with left Latin American figures, which voices within Syriza want to emulate) reinforce the need for an independent working class movement with a grassroots presence in neighbourhoods and workplaces. In the final analysis, as always, all we can rely on to defend ourselves are ourselves.