A Level Economics Essay 26: Evaluation of Government's role in an economy

The efficiency of resource allocation in an economy would be improved by a reduction in the amount of government intervention. Discuss. 

Macroeconomics focuses on the behavior of the economy as a whole, and government policies play a crucial role in shaping its performance. Government interventions are implemented through fiscal, monetary, exchange rate, and regulatory policies to influence key macroeconomic variables and promote stability, growth, and social welfare. However, there are differing perspectives on the role and extent of government intervention in the economy.

Proponents of free market principles argue that reducing government intervention can lead to improved efficiency and resource allocation. They contend that markets, left to their own devices, can efficiently allocate resources based on supply and demand. Free market advocates argue that government interventions, such as taxes and regulations, distort market signals and hinder the efficient functioning of the economy. They emphasize that reducing government interference can enhance competition, spur innovation, and promote economic growth.

On the other hand, those who support a more interventionist approach argue that government interventions are necessary to correct market failures and ensure desirable outcomes. Market failures, such as externalities, monopolies, and information asymmetries, can lead to inefficient resource allocation and social costs. Proponents of government intervention contend that regulations, subsidies, and public investments are needed to address these market failures, protect consumers, and promote social welfare.

Fiscal policy plays a role in stabilizing the economy, as governments can adjust tax rates and spending levels to manage aggregate demand. Proponents of free markets argue for limited government spending and lower taxes, contending that this allows individuals and businesses to make better choices and promotes investment and entrepreneurship. However, critics of this approach suggest that during economic downturns, government spending can act as a stabilizing force by increasing aggregate demand and creating jobs.

Monetary policy, implemented by central banks, is another area where the role of government intervention is debated. Free market advocates argue for a rules-based monetary policy that allows market forces to determine interest rates and money supply. They contend that government manipulation of interest rates can lead to distortions and misallocation of resources. On the other hand, proponents of government intervention argue that central banks have a crucial role in managing inflation, stabilizing financial markets, and promoting economic stability.

Exchange rate policy also attracts differing views. Free market proponents argue for flexible exchange rates, as they allow market forces to determine the value of currencies based on supply and demand. They argue that government intervention in currency markets can lead to inefficiencies and distortions. However, proponents of intervention suggest that managing exchange rates can help countries promote export competitiveness or protect domestic industries from foreign competition.

Regulatory policies are seen by some as necessary to correct market failures, protect consumers, and maintain financial stability. Supporters of free markets argue for deregulation, emphasizing that excessive regulations can stifle innovation, deter investment, and create barriers to entry. However, proponents of government intervention believe that well-designed regulations are necessary to prevent abuses, ensure fair competition, and safeguard the public interest.

Achieving a balance between market mechanisms and government intervention is a key challenge in macroeconomic management. While excessive government intervention can lead to inefficiencies and unintended consequences, minimal intervention can also result in market failures and unequal outcomes. Finding the right level and design of government policies is crucial to address market failures, promote economic stability, and foster sustainable growth.

In conclusion, government policies play a significant role in macroeconomics, influencing key variables and promoting stability, growth, and social welfare. The perspectives of free market advocates highlight the importance of market mechanisms, competition, and limited government interference. However, proponents of government intervention argue for regulations, corrective measures, and public investments to address market failures, protect consumers, and promote social equity. Striking a balance between market mechanisms and appropriate government interventions is essential for effective macroeconomic management.

Why do Governments Bailout Undeserving Banks?

 

Richard Wolff: Competition & Monopoly In Capitalism

The limits of using GDP

Keya Acharya in The Wire.In


Most countries swear by it. It is cited by newspapers, banks and business. Almost all prominent world political leaders have used the GDP (gross domestic product) to show their countries’ well-being. Prime Minister Narendra Modi and finance minister Arun Jaitley repeatedly use India’s apparently rising GDP to point to the country’s progress and as a defence tool against criticism.

GDP measures the monetary value of goods and services produced by a country, mostly for sale in markets. Though the concept had earlier beginnings, national income and a nation’s products were first created by American Nobel laureate Simon Kuznets of the US Department of Commerce in 1934, born due to the information gaps that led to the Great Depression.

By the 1940s, wartime planning led John Maynard Keynes of the British Treasury and Henry Morgenthau Jr. of the US Treasury to go further and develop the metric of measurement we now know as GDP.

The question now is, is the concept still relevant in today’s situation? There have been criticisms for decades, from prominent economists and academics, that GDP is inadequate in measuring development, not least of all by Nobel laureate Joseph Stiglitz together with Amartya Sen and Jean-Paul Fitoussi in their 2010 report Mismeasuring our Lives: Why GDP Doesn’t Add Up.

Stiglitz, Sen et al say that statistical concepts in GDP may be correct, but the system is fundamentally flawed in that is does not measure a country’s income distribution or the well-being of its citizens. They take the case of traffic jams (page 3 of their book’s summary) as an example: GDP may rise because of increased sale of cars and gasoline but does not take into account the impact of the overuse of these on the quality of life.

The case of Delhi’s air pollution, and its major connection to its use of diesel could well be an example for us. Six years ago, a World Bank report put India’s costs of air pollution and environmental destruction at $80 billion per year; the costs could well have increased in the intervening years. Stiglitz, Sen themselves have said that statistical measures which ignore air pollution will be an inaccurate estimate of citizen’s well-being.

Indeed, even Simon Kuznets, the original founder, had said over fifty years ago that to assess a nation’s welfare, economists need to ask not how much the economy is growing, but what is growing and for whom, points out Canadian political scientist Ronald Colman (co-architect of Bhutan’s Gross National Happiness index).

Robert Costanza of Australian National University says GDP ignores social costs, environmental degradation, income-inequality, something even the OECD’s (Organisation for Economic Co-operation and Development) head of national accounts, Francois Lequiller concurs.

The WEF has a new term called inclusive development index, to measure a country’s progress. In January 2018, India ranked 62nd out of 74 emerging economies in its development index, beaten by Sri Lanka, Nepal and Pakistan in its region for development progress.

Colman outlines the enormous failure of the GDP to account for the accelerating trends of resource depletion, species extinctions and increasing greenhouse gas emissions. The last 12 years have been the hottest in millennia; sea-levels will rise by a metre by 2100; forests have been decimated and overhunted, disappearing by 1% per year whilst 40% of the world’s tropical forests have already disappeared, he says. The impacts of these existing threats do not reflect in the GDP.

And yet, in spite of this wide array of prominent criticism by noted scholars, an alternative index of economic and overall well-being has not become mainstream. Stiglitz and Sen’s economic critique was commissioned by French President Nicholas Sarkozy in 2009; yet the 2015 Paris Agreement, signed in France and deemed a milestone in the global agreement on climate change mitigation measures by 195 countries, has no inclusion of anything that offers an alternative GDP system.

At an international gathering of journalists in Italy, late November 2017, which saw a panel of economic experts from around the world discussing alternative GDP issues, I asked American physicist Fritjof Capra, director of the Centre for Ecoliteracy at Berkeley, US, why there was such a gaping lack of the inclusion of alternative GDP measures in the Paris Agreement. Capra believed that the lack of civil society participation in this particular field was a major reason for its absence. Costanza said that the habit was hard to kick, equating the GDP system to an ‘addiction’, difficult to erase.

Colman believes the fundamental reason for an alternative measurement system not finding its rightful place is that it ‘threatens the short-term economic base’: “This is unpalatable in the political arena; who is willing to challenge this?” he asks. He does agree that civil society needs to be far more engaged to displace GDP as fundamental to measuring a country’s progress.

Costanza has looked at the UN’s 17 Sustainable Development Goals (SDGs) as an alternative system. The SDGs however, are not compulsory policy practice, merely a persuasion for nations to follow. They are also complex in their interrelatedness, making it all the more difficult to present as a binding guideline. Integrating some of these development measures into the current GDP system is not possible, says Colman.

The complexity is indeed enormous, which is one reason for there not being any unity amongst economists in pushing what should be a crucial system for gauging development.

Obviously then, we need to make ecological and development economics a compulsory, system for nations to follow. Some have already done it (New Zealand, Bhutan, UK; China has re-started green growth research). It needs political will and push.

Governments might well find their own interests served in moving to an alternative GDP and striking out on a new path.

Only governments can stem the tide of tourism sweeping the globe

Elizabeth Becker in The Guardian


In Barcelona this summer, I was shown a protest sign written in English that said: “Why call it tourism season if we can’t kill them?” Anger over unhampered tourism is getting ugly, even in Barcelona, where the mayor, Ada Colau, is one of the few politicians dedicated to reining in the industry. Residents told me they have had it with skyrocketing rents, thousands of tourists from cruise ships swamping the city’s historic centre and partygoers keeping families up into the night. And they are increasingly sceptical about the economic benefits for the average citizen.

Every time I find myself smirking at another photograph of drunken tourists crowding a gracious town square, I think of Venice. The annual tourist traffic of more than 20 million visitors to La Serenissima has impoverished, rather than enriched, most Venetians. They have been pushed out, the population cut in half to fewer than 60,000 people. The survivors continue to protest and vote against giant cruise ships and mindless tourism. But the powers that be have done little. Even the United Nations has warned that the genius of Venice, its culture, art and way of life are being drowned by tourism.

 

The anger isn’t limited to Europe. In Cambodia, citizens were evicted from their fishing villages so that foreign-built resorts could rise on the pristine beaches. With record crowds and mounds of litter, the once romantic Ipanema beach in Rio de Janiero now features drunk tourists infuriating the locals. Cities across North America, from New Orleans to Vancouver, have issued regulations on Airbnb rentals after citizen complaints that their neighbourhoods were being overwhelmed by unruly tourists and rising rents.

It is no longer possible to dismiss criticism of exploding tourism as elite snobbery, of high-end cultural tourism versus T-shirt-clad visitors squeezed on a tour bus. Or a question of who has the right to travel and who doesn’t.

The dimensions of the industry have grown so vast so quickly that it has become a serious issue of globalisation, as pertinent to the communities at risk as shuttered factories have been to the American and British rust belts.

Few industries were better positioned to take advantage of the 21st century than tourism. Open borders for the first time in modern history, leaps in technology from aeroplanes to the internet and the rise of the global middle class (think China) meant travel moved from a pastime to an economic engine. In less than two decades, travel doubled from 536m trips abroad in 1995 to 1bn in 2012. When the Cold War closed off much of the world to tourism, that figure was only 25m.

Travel and tourism has become a behemoth, capable of doing great good and great damage. It is an $8tn industry. It is the largest employer on Earth: one in 11 people works in tourism and travel.

The appeal of travel is a given. Leisure, excitement, education, adventure. Nothing seems to put a damper on travel. Not the 2008 great recession. Not terrorism, including attacks on tourist resorts. Not even war. Tourists still show up in Afghanistan and North Korea. A tourist was released last week after six years held hostage in Mali by al-Qaida.

 The Thai government has banned tourists from Koh Tachai island. Photograph: Alamy

Travel is already up 6% this year, according the UN ’s World Tourism Organisation, with a 10% increase in the Middle East, the centre of the world’s most deadly conflicts, and up 6% in Europe, despite a string of terrorist attacks, particularly in France and England.

This boom has translated into crowds of tourists in every corner of the globe and, in a new rite of summer, stories of tourists behaving badly. Hong Kong protests against loud, impolite tourists urinating in the street sound a lot like the complaints I heard in Thailand about Chinese tourists desecrating Buddhist temples. An internet search of “tourists behaving badly” can keep you entertained for hours.

Many of us hear these stories and congratulate ourselves for being thoughtful travellers. We avoid the nasty crowds. We seek the out-of-the-way destinations where we enjoy the best in local food and culture. Some plant trees to offset their carbon footprints. But this problem can’t be remedied by good consumer behaviour. Appealing to the industry to refrain from packing their planes and adding new cruise destinations isn’t going to work either.

Only governments can handle runaway tourism. Few major industries fall so squarely into their hands – local, regional and national. Governments decide who is eligible for visas: how many cruise ships, airlines and trains can bring in visitors, how many hotels receive building permits, how many beaches are open to development, how many museums and concert halls are open, even how many farmers receive subsidies to raise food for the restaurants and cafes that tourists frequent.

After years spent tracking the explosion of tourism, I came to the obvious conclusion that without serious and difficult government co-ordination, mayhem can follow. The current biggest disrupters are short-term rental companies, such as Airbnb, and cruise ships.

Most governments still measure tourism success simply by the number of visitors. The more, the better. For the moment, officials have been reluctant to regulate tourism to the benefit, first of all, of their own citizens. Instead, tourism is seen as an easy moneymaker and a short cut to economic development. The exceptions are standouts. France, Bhutan, Costa Rica and Canada are among the few countries with governments willing to co-ordinate policies of sustainable tourism and they haven’t suffered: they are among the most popular destinations in the world.

Promoting tourism by the numbers works both ways. The Chinese were only allowed to travel abroad 20 years ago, after generations of forced isolation. The travel bug hit big. Now the Chinese as a nationality are ranked as the greatest number of travellers in the world and the biggest spenders. President Xi Jinping negotiates favours with other countries in return for more tourist visas for his people.

There is hope. Tourists and governments accept that too much tourism can have a deadly effect on the environment and nature. “Eco-tourism” has been popular for years, whether practised in good faith or not. Slowly, governments are adapting, sometimes in the extreme. Last year, Thailand banned all tourists from Koh Tachai as the only way to save that exquisite island.

Cities and societies can be just as vulnerable to runaway tourism as ocean beaches and forest habitats and governments need to do the hard work of taming tourism for them as well.

Even moderate drinking can damage the brain, claim researchers

Nicola Davis in The Guardian


Drinking even moderate amounts of alcohol can damage the brain and impair cognitive function over time, researchers have claimed.

While heavy drinking has previously been linked to memory problems and dementia, previous studies have suggested low levels of drinking could help protect the brain. But the new study pushes back against the notion of such benefits.

“We knew that drinking heavily for long periods of time was bad for brain health, but we didn’t know at these levels,” said Anya Topiwala, a clinical lecturer in old age psychiatry at the University of Oxford and co-author of the research.

Alcohol is a direct cause of seven ​​forms of cancer, finds study


Writing in the British Medical Journal, researchers from the University of Oxford and University College London, describe how they followed the alcohol intake and cognitive performance of 550 men and women over 30 years from 1985. At the end of the study the team took MRI scans of the participants’ brains.

None of the participants were deemed to have an alcohol dependence, but levels of drinking varied. After excluding 23 participants due to gaps in data or other issues, the team looked at participants’ alcohol intake as well as their performance on various cognitive tasks, as measured at six points over the 30 year period.

The team also looked at the structure of the participants’ brains, as shown by the MRI scan, including the structure of the white matter and the state of the hippocampus – a seahorse-shaped area of the brain associated with memory.

After taking into account a host of other factors including age, sex, social activity and education, the team found that those who reported higher levels of drinking were more often found to have a shrunken hippocampus, with the effect greater for the right side of the brain.

While 35% of those who didn’t drink were found to have shrinkage on the right side of the hippocampus, the figure was 65% for those who drank on average between 14 and 21 units a week, and 77% for those who drank 30 or more units a week.

The structure of white matter was also linked to how much individuals drank. “The big fibre tracts in the brain are cabled like electrical wire and the insulation, if you like, on those wires was of a poorer quality in people who were drinking more,” said Topiwala.


In addition, those who drank more were found to fare worse on a test of lexical fluency. “[That] is where you ask somebody to name as many words as they can within a minute beginning with a certain letter,” said Topiwala. People who drank between seven and 14 units a week were found to have 14% greater reduction in their performance on the task over 30 years, compared to those who drank just one or fewer units a week.

By contrast, no effects were found for other tasks such as word recall or those in which participants were asked to come up with words in a particular category, such as ‘animals.’

Expert reaction to the the study was mixed. While Elizabeth Coulthard, consultant senior lecturer in dementia neurology at the University of Bristol, described the research as robust, she cautioned that as the study was observational, it does not prove that alcohol was causing the damage to the brain.

Even small amounts of alcohol increase a woman's risk of cancer



In addition, the majority of the study’s participants were men, while reports of alcohol consumption are often inaccurate with people underestimating how much they drink – an effect that could have exaggerated the apparent impact of moderate amounts of alcohol.

Dr Doug Brown, director of research and development at Alzheimer’s Society said that the new research did not imply that individuals should necessarily turn teetotal, instead stressing that it was important to stick to recommended guidelines.

In 2016, the Department of Health introduced new alcohol guidelines in the UK, recommending that both men and women drink no more than 14 units of alcohol each week – the equivalent of about six pints of beer or seven 175ml glasses of wine.

“Although this research gives useful insight into the long-term effects that drinking alcohol may have on the brain, it does not show that moderate alcohol intake causes cognitive decline. However, the findings do contradict a common belief that a glass of red wine or champagne a day can protect against damage to the brain,” said Brown.

Freedom for whom, at whose expense?

George Monbiot in The Guardian


‘When thinktanks and the billionaire press call for freedom, they are careful not to specify whose freedoms they mean. Freedom for some, they suggest, means freedom for all.’ Photograph: Dan Kitwood/Getty Images




Propaganda works by sanctifying a single value, such as faith, or patriotism. Anyone who questions it puts themselves outside the circle of respectable opinion. The sacred value is used to obscure the intentions of those who champion it. Today, the value is freedom. Freedom is a word that powerful people use to shut down thought.

When thinktanks and the billionaire press call for freedom, they are careful not to specify whose freedoms they mean. Freedom for some, they suggest, means freedom for all. In certain cases, this is true. You can exercise freedom of thought, for instance, without harming others. In other cases, one person’s freedom is another’s captivity.

When corporations free themselves from trade unions, they curtail the freedoms of their workers. When the very rich free themselves from tax, other people suffer through failing public services. When financiers are free to design exotic financial instruments, the rest of us pay for the crises they cause.

Above all, billionaires and the organisations they run demand freedom from something they call “red tape”. What they mean by red tape is public protection. An article in the Telegraph last week was headlined “Cut the EU red tape choking Britain after Brexit to set the country free from the shackles of Brussels”. Yes, we are choking, but not on red tape. We are choking because the government flouts European rules on air quality. The resulting air pollution frees thousands of souls from their bodies.

‘Yes, we are choking, but not on red tape. We are choking because the government flouts European rules on air quality.’ Photograph: Stefan Rousseau/PA

Ripping down such public protections means freedom for billionaires and corporations from the constraints of democracy. This is what Brexit – and Donald Trump – are all about. The freedom we were promised is the freedom of the very rich to exploit us. 

To be fair to the Telegraph, which is running a campaign to deregulate the entire economy once Britain has left the EU, it is, unusually, almost explicit about who the beneficiaries are. It explains that “the ultimate goal of this whole process should be to … set the wealth creators free”. (Wealth creators: code for the very rich.) Among the potential prizes it lists are changes to the banana grading system, allowing strongly curved bananas to be categorised as Class 1, a return to incandescent lightbulbs and the freedom to kill great crested newts.

I suspect that the Barclay brothers, the billionaires who own the Telegraph, couldn’t give a monkey’s about bananas. But as their business empire incorporates hotels, shipping, car sales, home shopping and deliveries, they might be intensely interested in the European working time directive and other aspects of employment law, tax directives, environmental impact assessments, the consumer rights directive, maritime safety laws and a host of similar public protections.

If the government agrees to a “bonfire of red tape”, we would win bent bananas and newt-squashing prerogatives. On the other hand, we could lose our rights to fair employment, an enduring living world, clean air, clean water, public safety, consumer protection, functioning public services, and the other distinguishing features of civilisation. Tough choice, isn’t it?


The overriding of the safety mechanism on a ride at Alton Towers led to two young women having their legs amputated

As if to hammer the point home, the Sunday Telegraph interviewed Nick Varney, chief executive of Merlin Entertainments, in an article claiming that the “red tape burden” was too heavy for listed companies. He described some of the public protections that companies have to observe as “bloody baggage”. The article failed to connect these remarks to his company’s own bloody baggage, caused by its unilateral decision to cut red tape. As a result of overriding the safety mechanism on one of its rides at Alton Towers – which was operating, against the guidelines, during high winds – 16 people were injured, including two young women who had their legs amputated. That’s why we need public protections of the kind the Telegraph wants to destroy.

The same ethos, with the same justification, pervades the Trump administration. The new head of the environmental protection agency, Scott Pruitt, is seeking to annul the rules protecting rivers from pollution, workers from exposure to pesticides, and everyone from climate breakdown. It’s not as if the agency was overzealous before: one of the reasons for the mass poisoning in Flint, Michigan, was its catastrophic failure to protect people from the contamination of drinking water by lead: a failure that now afflicts 18 million Americans.

‘The new head of the US environmental protection agency is seeking to annul the rules protecting rivers from pollution, workers from exposure to pesticides and everyone from climate breakdown.’ Photograph: Alamy

As well as trying to dismantle the government’s climate change programme, Trump is waging war on even the most obscure forms of protection. For instance, he intends to remove funds from the tiny US chemical safety board, which investigates lethal industrial incidents. Discovering what happened and why would impede freedom.

On neither side of the Atlantic are these efforts unopposed. Trump’s assault on public protections has already provoked dozens of lawsuits. The European council has told the UK government that if it wants to trade with the EU on favourable terms after Brexit, companies here cannot cut their costs by dumping them on the rest of society.

This drives the leading Brexiters berserk. As a result of the pollution paradox (the dirtiest corporations have to spend the most money on politics, so the political system comes to be owned by them), politicians like Boris Johnson and Michael Gove have an incentive to champion the freedom of irresponsible companies. But it also puts them in a bind. Their primary argument for deregulation is that it makes businesses more competitive. If it means those businesses can’t trade with the EU, the case falls apart.

They will try to light the bonfire anyway, as this is a question of power and culture as well as money. You don’t need to listen for long to the very rich to realise that many see themselves as the “independents” Friedrich Hayek celebrated in The Constitution of Liberty, or as John Galt, who led a millionaires’ strike against the government in Ayn Rand’s novel, Atlas Shrugged. Like Hayek, they regard freedom from democracy as an absolute right, regardless of the costs this may inflict on others, or even themselves.

When we confront a system of propaganda, our first task is to decode it. This begins by interrogating its sacred value. Whenever we hear the word freedom, we should ask ourselves, “Freedom for whom, at whose expense?”

More freeloaders than free market. How Britain bails out the business chiefs

 

‘In an age of untrammelled greed, company executives are rewarded for cannibalising their businesses and bilking their staff.’ Illustration by Andrzej Krauze

 Aditya Chakrabortty in The Guardian


On Wednesday, two very different men will have to explain themselves. Both appear in London, to a room full of authority figures – but their finances and their status place them at opposite ends of our power structure. Yet put them together and a picture emerges of the skewedness of today’s Britain.

For the Rev Paul Nicolson, the venue will be a magistrate’s court in London. His “crime” is refusing to pay his council tax, in protest against David Cameron’s effective scrapping of council tax benefit, part of his swingeing cuts to social security. In order to pay for a financial crisis they didn’t cause, millions of families already on low incomes are sinking deeper into poverty. In order to pay bills they can’t afford, neighbours of the retired vicar are going without food. The 84-year-old faces jail this week, for the sake of £2,831.

Meanwhile, a chauffeur will drive Philip Green to parliament, where he’ll be quizzed by MPs over his part in the collapse of BHS. A business nearly as old as the Queen will die within a few weeks, leaving 11,000 workers out of a job and 22,000 members of its pension scheme facing a poorer retirement.

There the similarities peter out. Nicolson was summoned to court; Green wasn’t going to bother showing up at Westminster. When the multibillionaire was invited by Frank Field to make up BHS’s £600m pension black hole, he demanded the MP resign as chair of the work and pensions select committee.

But then, Green is used to cherry-picking which rules he plays by. Take this example: he buys Arcadia, the company that owns Topshop, then arranges for it to give his wife a dividend of £1.2bn. Since Tina Green is, conveniently, a resident of Monaco, the tax savings on that one payment alone are worth an estimated £300m. That would fund the building of 10 large secondary schools – or two-thirds of the annual cut to council tax benefits.

Just as Green underinvests in society, so he underinvests in his companies. The man to whom he sold BHS last year, Dominic Chappell, told MPs last week that “for the past 10 or 12 years there had been little or no inward investment in the stores”. A staple of the high street had been run down.

Then again, what incentive has he had to do otherwise? Green bought BHS with just £20m of family money and borrowed the rest. Within four years, he had pulled £400m of dividends out of the firm – 20 times his initial outlay.

He used the same tactic to buy Arcadia – stumping up £9.2m in equity and taking out £1.2bn three years later. This isn’t retailing as you might think of it, it’s balance-sheet shazam – the kind of financial engineering that posed as real business in Britain’s bubble years. And it’s enabled Green to turn major retailers into what Robert Peston, in Who Runs Britain?, calls “giant gushers of cash”.

But in today’s Britain, the poor are forced to pay the unaffordable, while the tax-avoider is honoured for his contribution to society. Green was knighted by Tony Blair, while David Cameron appointed him a government adviser.

Just as Green pretends to be a cheeky chappy even though he went to boarding school, so any charlatan in pinstripes can claim to be a businessperson – and be handsomely rewarded. The barons who run our rail services tout themselves as “investors”, but for every quid they put into their trains, they take out £2.47. That level of underinvestment ensures commuters are never sure of getting in on time and having a seat – but shareholders and managers can make a fortune.

From Margaret Thatcher through Tony Blair to David Cameron, successive prime ministers have preached the virtues of free enterprise. We’ve ended up with an economy comprised of what parliament’s public accounts committee calls “quasi-monopolies” – from water to banks to electricity to public outsourcing – and big businesses being treated as money-sponges to be wrung dry by their owners and managers.

In the 1970s, £10 of every £100 in corporate profits was paid to shareholders. Now between £60 and £70 of every £100 is handed out. Workers, companies and the economy are thus starved of investment and growth opportunities so that, as Andy Haldane at the Bank of England warns, firms are “eating themselves”.

In an age of untrammelled greed, company executives are rewarded for cannibalising their businesses and bilking their staff. The typical FTSE-100 boss is now on a total pay of around £5m, the High Pay Centre calculates, even while the average employee is still earning less in real terms than in 2008.

This is less about the free market than freeloading. The banks collapse and are bailed out. The Sports Direct billionaire Mike Ashley walks away from a collapsed business, giving hundreds of workers 15-minutes notice of redundancy – and handing taxpayers the £700,000 bill to clean up the mess. Tax-avoider Amazon receives tens of millions of public money to build warehouses, and even has a road in Swansea built for it. Richard Branson takes £28m to open a call centre in Wales.

The public pay for apprenticeships, so that companies get readymade workers. We shell out for upgrading the railways. Most of all, we top up poverty pay. Official figures show that 37% of working-age households in this country now take more from the public purse than they pay in. Not because they’re lazy or unemployed – employment has never been so high – but because their bosses can rely on the rest of us to pay their way.

Survival of the fittest? This is a deformed capitalism, barely worthy of the name – and it won’t improve by slinging a few rotten tomatoes in parliament. We need a working capitalism, where the public no longer give away their protections and subsidies for free – but instead make businesses take their responsibilities seriously.

If rail operators rely on taxpayer billions, they should train staff and pay them a living wage. Why shouldn’t big supermarkets that need public planning permission and licensing to trade be required to stock some locally sourced goods? And why shouldn’t local and central government, which allocate billions in procurement and tendering, foster a diversity of business models – from not-for-profit to mutually owned.

Some of you may think such measures impossible, others may see them as baby steps. They should be the first heaves on the pendulum, turning our economy away from the interests of the wealthy to the rest of us.

Last week Nicolson promised: “I shall start paying my tax again when they stop taxing benefits.” Good for him. The rest of us taxpayers should do the opposite: asking businesspeople what they’ll do to deserve our corporate welfare. That question should not just be put to Green and Ashley, but to those who run all our major corporations. Otherwise, we’re merely chasing out a few big names and hanging up a sign over Britain that reads: “Under new owners, business as usual.”

The Joy of Tax

The Joy of Tax

by

Richard Murphy

(extracts)

- It has been said that the only two things in life that are inevitable are death and taxes. This is not entirely true; while death has been with us from the time life dawned on earth 3.5 billion years ago, taxes have a recent written recorded history - 4500 years ago.

- Top UK taxes in (£) 2013-14

Income Tax -                    155 bn - 27.3%

National Insurance -         106.9 -   18.8%

VAT -                               105.1 -   18.5 %

Corporation tax -                40.1 -     7.1%

- Oxford dictionary on tax:

A compulsory contribution to state revenue, levied by the government on workers' income and business profits, or added to the cost of goods, services and transactions.

This is misleading because; we also charge tax on income from invested savings, pensions and rent. We also charge tax on wealth and on inheritance as well as on occupation of property. The collective term for all this is 'the tax base'. The tax base is made up of things on which we want to charge tax.

There are major problems with the view that tax is 'a compulsory contribution to state revenue'. The whole history of tax, government and democracy is entangled precisely because those who have been taxed have demanded that their consent to taxation be sought before any such charge was imposed. In that case is it true to say that there is a compulsion?

Even if it is undoubtedly true that a great many people in modern democracies are disenchanted with modern politics they do have the right to vote in elections that result in the formation of the governments that set taxes in the countries in which they reside. Compulsion is hard to suggest in this case.

What follows on logically is that tax paid does not become the property of some alien body. It is the property of a government in which we have a stake and in which we participate i.e. the government is something that we want to exist and in whose operation we consent.

We also understand that the government is different from us; the democratic process creates the possibility that there will be governments and taxes that we would not have personally supported with our votes. We consent nonetheless because we recognise that within the democratic process there could be a will greater and different from our own.

- If we consent to the existence of government and willingly consent to its right to tax, the the favourite phrase of politicians, 'they are spending taxpayers' money' is not true. Tax is not taxpayers' money. It is the government's money and it is the government's rightful property.

This property right of the government has been created in exactly the same way as all other property in a modern democracy by statute law.

- Modern definition of tax

In a democracy with a universal franchise that provides every adult with a right to seek election, tax  is that property held in trust by an individual or a company that is due to the state whose rightful and legal property it is.

- Any attempt by an individual to reduce the property right of a state to claim the tax that is rightfully its property is an action like all others that are motivated by the desire to take away from someone something that is rightfully theirs. Conventionally they could be called theft, tax avoidance or tax evasion.

- Why does a government tax? Contrary to popular perception, no government has to charge tax to be able to spend on what it wants to do. The most obvious alternative to tax is for a government to print money to pay for its expenditure. Modern governments tax to meet the expectations they have raised among their electorate as to the services they will provide in exchange for their votes.

In reality the main reason to use taxation is that a tax lets a government reclaim the money it has spent into the economy, in order to stop the money supply from over expanding. It is just as necessary that the government has available to it a means of destroying the money it can create and spend at will into the economy, and that mechanism is taxation. Taxation literally counterbalances government spending by reclaiming all or part of it from the economy. But what it never does is pay for the spending in the first place because any government can spend without tax.

Another reason for demanding payment of tax is to make the local currency, issued, backed and controlled by the government, the only useful currency in that place. By creating a demand for its coins and notes to settle tax liabilities the state ensures that these same notes and coins become readily acceptable as payment for the goods and services the government itself wishes to buy within the economy it manages.

In countries where the shadow economy is very large, meaning that very little tax is paid, there is ample evidence that currencies other than that issued by the local government are often used as the preferred basis for trading.

Another reason for tax (as fiscal policy) is to reorganize the economy to ensure that it delivers the government's economic goals.

Yet another reason for tax is when the market price for goods and services do not reflect all the costs and benefits that result from trade in that activity.

- In brief the six Rs for tax:

1. Reclaiming money the government has spent into the economy for re-use.

2. Ratifying the value of money

3. Re-organizing the economy.

4. Redistributing income and wealth

5. Repricing goods and services

6. Raising representation. 

Criminal bankers have brazenly milked the system. Let’s change it

Will Hutton in The Guardian

 

 Traders colluded in online chatrooms to time the buying and selling of huge amounts of currency. Photograph: Ruben Sprich/REUTERS

The world’s biggest banks had been steeling themselves for months before the US Department of Justice’s rulings on manipulation in the foreign exchange markets. Last week’s announcement was, if anything, less tough than expected; £3.7bn of fines were levied on top of those announced last autumn, to bring the grand total to an astounding £6.3bn. Crucially, the banks also admitted that what they had done was criminal. The US attorney general, Loretta Lynch, declared that foreign exchange traders had exhibited“breathtaking flagrancy” in setting up a group they called “the cartel” to manipulate the market between 2007 and the end of 2013. The fine was “commensurate with the pervasive harm done. And it should deter competitors in the future from chasing profits without regard to fairness, to the law, or to the public welfare”.


Put bluntly, the world’s most prestigious banks had brazenly and systematically ripped off their clients. It was the crime of the decade. Yet the markets had been expecting worse. Only a month ago, Deutsche Bank had paid a record £1.6bn fine for manipulating and rigging prices in the currency and money markets. If this was the benchmark, thought the markets, the fines for other banks would be higher. As it was, £3.7bn seemed almost modest and the share prices of Barclays, RBS, Citigroup and JP Morgan rose sharply in relief.

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The hope in the banking world is that the worst may be over. The combination of modestly increased regulation, stronger internal compliance and clawing back pay and bonuses if there has been malpractice – together with genuine determination at board level to root out criminal practice in dealing rooms – should begin to make a difference.


Yet will it be enough? Our grandparents, less in hock to today’s ruling doctrines – that markets can be presumed to be infallible and egoism is always beneficial – were wiser about how to organise markets than today’s economists and regulators. It is striking, despite record fines and the sacking of the Bank of England’s head of foreign exchange operations, who knew about the collusion but never drew it to the authority’s attention (on the grounds that whistleblowing was not part of his duties), that the British approach is still softly, softly.


Minouche Shafik, deputy governor of the Bank of England, expressed her horror at the casual “misconduct” among traders and the language they used to justify what they did in a speech to the London School of Economics last autumn. (Shafik is in charge of the fair and effective market review that will propose changes to the foreign exchange markets.) She conceded that no one can talk any more of a few bad apples – the barrel is rotten. But while recognising that deep change was necessary, her proposed areas for potential remedial action are largely technical. Tonally, her comments reminded me of the infamous Bischoff report into the banking system in 2008/9, which, despite the narrowly averted banking collapse, recommended as little as possible should be done to reform the City.


In fairness, Shafik spoke before last week’s admissions of criminality. The US Justice Department has raised the stakes. What everyone has to confront is that the banks have been party to an organised, global criminal conspiracy to defraud their clients. Traders colluded in secret online chatrooms to time the buying and selling of huge amounts of foreign currency to benefit each other. As one said: “If you ain’t cheating, you ain’t trying.” The entire framework, and the economic philosophy that supported it, has been found wanting.


In terms of structure, the foreign exchange markets are the closest to a Thatcherite nirvana that has ever been devised. Governments do not manage rates to comply with an internationally agreed system, as they did after the war. The price of a pivotal financial asset is determined wholly by private supply and demand. The market makes its rules. There has been close to zero public regulation. Banks buy and sell on their account freely and for their clients. Conflicts of interest abound. The pursuit of profit is the only hallowed value.


The argument in favour of this is that it is vital for the promotion of world trade and prosperity, but daily turnover on the foreign exchange markets dwarfs the volume of world trade. To paraphrase Adair Turner when chair of the now-abolished Financial Services Authority, much of this turnover is plainly neither socially useful nor promotes public welfare. It does, however, enrich those who trade in it and, as we see, criminally.


For 30 years, the doctrine has been that state involvement would be counterproductive. Modern companies, of which banks are a sub-set, have been encouraged to define themselves not as organisations delivering economic and social good, but as profit-making machines for anonymous, tourist shareholders. Managers did not question their trading teams too hard: they knew how important the profit was to their bonuses and to the bank. As for the teams, they were prepared to trade themselves – moving from bank to bank, depending on whoever paid them best. They were not an integral part of great organisation: they were, and are, boys on the make.


In a letter to all the CEOs of Fortune 500 companies, Larry Fink, head of BlackRock Asset Management, the biggest in the world, deplored the short-term financial priorities of modern corporations, which he said had lost their way and urged a refocusing. What has happened in our currency dealing rooms is part of that story. Addressing it requires a new deal between shareholders, companies and their workforces, and between the public and the private. We need a reshaping of company law and the way companies are owned so that managers pursue less fevered, short-term amoral strategies. And we need an acceptance that in market after market there is a co-dependence between state and business.


Rather than imposing swingeing fines after the event, the state has an obligation to create, with the banks, a financial architecture in which such practices cannot happen. Conflicts of interest and opportunities for price rigging should be outlawed. Criminal currency traders should be prosecuted All bonuses should be capable of being clawed back. Currency trading should be licensed on organised, accountable exchanges.


Those rules and systems that the world’s free marketeers considered so antediluvian turn out to be wise and friendly to honest-to-god businesses. Mark Carney’s Bank of England has been quietly re-regulating mortgage finance, abandoning the free-market zealotry of the 1980s and 1990s. It should do the same in the foreign exchange markets. Our grandparents were not so stupid after all.

Britain’s housing crisis is a human disaster. Here are 10 ways to solve it

Rowan Moore in The Guardian

“Every day I cry,” says an activist on a stall in Stratford, east London, that is shared by housing campaign Focus E15 and the Revolutionary Communist party. “How many thousands of people are suffering?”

Mark Carney, governor of the Bank of England, has said that problems with housing are the “biggest risk” to the UK economy. The CBI agreed, saying: “A perfect storm is brewing in the housing market. Now is the time for action.”

If there is one thing that revolutionary communists and bankers can agree on, it is that there is a housing crisis in Britain. There are too few homes, usually costing too much, often in the wrong places, and often of poor quality. The crisis damages lives, breaks up families, blights employment prospects, reduces mobility and slows the economy. 

This, you would have thought, would be a gift for any political party. Housing is a matter of vital importance to voters. At a time when all parties struggle to offer alternatives to each other, this would be a opportunity to be distinctive and take the lead. Yet all the main parties’ offerings on the subject are piecemeal, gestural and unambitious.

Back in east London, the young mothers of Focus E15 became celebrities when they occupied vacant council properties on the edge of the Olympic Park in the London borough of Newham. They had been told by the Labour council that they were to be rehoused outside the capital – part of a city-wide tendency to send its homeless people to places as far-flung as Bristol, Hastings and Stoke-on-Trent.

Their protest won them a reprieve, but thousands of others are not so lucky: at the Focus E15 stall you hear of families evicted by council-hired bailiffs who break in at 6am, often acting on tenuous legal authority. You hear of schooling disrupted, jobs lost, support networks broken and relocation putting impossible distances between friends and relatives.

The price of housing is a problem that runs across most social classes. In London, the south-east, much of rural Britain and several of the more desirable cities, you can be young, employed and even well-paid and have little prospect of acquiring a decent home. Britain was once famous as a country of houses with gardens, accessible to manual workers and clerks, but in many areas this is now a distant fantasy to those without property-rich parents to help them.

If the most conspicuous issues are about homes costing too much, there are also places where they cost too little. In Accrington, Lancashire, a two-bedroom house might be worth £40,000, which is less than it would cost to refurbish and repair it. This means that it is not worth the owners – often absentee landlords – investing in their maintenance. Roofs leak, mould grows on walls, condensation forms and heating bills rise in poorly insulated buildings.

According to Daniel Klemm of the north of England housing association Together Housing, which is working with property company Better Places, “a spiral of decline sets in”, where the physical environment deteriorates, which further deters investment. Those who can, leave, and those who stay have few prospects of employment. In a place like this you can have a home but no job; in high-value areas you can have a job, but no home.

FacebookTwitterPinterest Terraced homes in Accrington, Lancashire, before and as it is expected to look after a renovation by PlaceFirst. Photograph: PlaceFirst

The housing crisis is an accelerating human disaster. It is creating exploitative landlords, overcrowding and poor-quality homes. Private renters spend 40% of their income on housing. It is shocking that many people in their 20s now regard it as an accepted fact that they will never have much by way of a home.

It is wrong that having a home in many rural areas, or in London, should be regarded as a luxury. This applies even to traditionally poor London boroughs. “If you can’t afford to live in Newham,” the borough’s mayor told the Focus E15 mothers, “you can’t afford to live in Newham.” But these people hadn’t asked for their neighbourhood to become a high-performing investment asset, and they gain nothing from the change.

High house prices, which owe much to policies promoted by Margaret Thatcher’s government, pervert the promises of Thatcherism. If you work hard and are thrifty, she said, you will be rewarded. Yet people who own property can make more money from sitting on it than by doing a job, while others will never get on the property ladder however hard they strive. If you get on your bike to look for work, as her minister Norman Tebbit urged, you might have to pedal a hundred miles or more back to where you live.

Property values are distorting human values. But if politicians are incapable of making an argument based on ideas of a fair or fulfilling society, there are also economic reasons for addressing the problems of housing. It’s hard to run a business if your employees find it hard to get a home. If people on low and middle incomes are pushed out, big cities will in course lose those who make, maintain and repair things, who care for the ill and old, who clean, who cook and wait in restaurants, and who look after and teach children. The creative and inventive types, currently such a big part of London’s sales pitch to the world, will go too.

The most obvious cause of Britain’s housing is the simple operation of supply and demand. The country’s population is increasing, and we like to live in smaller units than in the past. A figure of about 240,000 is consistently estimated as the amount of new homes Britain needs each year, and with equal consistency it is never achieved. In 2014, fewer than 120,000 were built. The most commonly given reason for this undersupply is that Britain is short of land and that it has a planning system which, for good reasons, wants to protect the beauties of the countryside.

These arguments are only part of the story. Another reason is that inflation in housing – so taboo when it comes to other commodities – has since the 1980s been celebrated by governments and encouraged by policies on taxation and borrowing. Prices are pushed up further by recent initiatives such as the changes to pension pot rules which allow people 55 and over to invest theirs in property. Meanwhile, the Thatcher government stopped local authorities from building more housing. Right To Buy took affordable homes out of the available stock and were not replaced. Some were resold as investments, and rented out for profit. A wasteful loop was created, whereby councils now find themselves paying high rents to private landlords, in order to house their homeless in properties that once belonged to the council.

It is also too simple to say that Britain is short of land. “The notion that there is no land left really is nonsense,” says David Orr, chief executive of the National Housing Federation. “Nine per cent of the country is developed and that includes roads, factories and so on: only 2% is housing.” The challenge is rather to find places that do not affect somebody’s view, somebody’s dog-walking route and somebody’s property prices.

The combined effects of demand, government stimulants and restrictions on supply consistently push house prices above other forms of inflation, making residential property an attractive speculative investment. The investors might be British individuals who take the perfectly rational decision to buy and rent out homes as a way of providing for their old age. They might also be overseas investors who, also rational and encouraged by, among other things, non-dom tax breaks, see British property as a safe bet.

The crisis in house prices is therefore not an act of pure economic fate but constructed and willed by policy over decades. As such, it can also be defused by policy, if not easily or quickly. So far, the main government response has been to try to relax planning rules and to encourage the market with measures such as Help To Buy which, presented as much-needed assistance to first-time buyers, tend to push up prices further.

There is a confusion here between the problems of availability and affordability. If the only way to encourage building in larger numbers is to put up prices, this is no help for the people who cannot afford a home. The underlying belief is that the market will provide, if only it were properly stimulated and enticed, but it is one unsupported by evidence. At no time since the second world war has the private sector built at the rate now required, and usually it has fallen a long way short. The only time when the total housing numbers exceeded those now thought essential was in the 1950s and 1960s, when council housing accounted for half the figure.

By itself, the market does not provide. One reason for this is that never, not even in the wildest libertarian fantasy, will there be no planning. It is something that, despite criticisms, everyone wants: we complain about faceless bureaucrats, but when something we don’t like comes down our street, we want them to defend us. Where there is planning, the market cannot operate as freely as it would in trading, say, ironmongery. The other factor is called absorption: if developers start building in sufficient numbers to make homes cheaper or slower to sell, they stop.

The public sector has to build more itself. It also needs to plan more constructively and actively, creating positive proposals for what new places could be, which also recognise and allay the reasonable fears of existing residents. The idea of greater public involvement will raise spectres of the famous failings of mass public housing in the past, but this is to ignore the successes of postwar public development (in many new towns, for example, and in several now sought-after council estates) and to assume that it is impossible to learn from and improve on mistakes.

FacebookTwitterPinterest Council housing should be built to suit a range of incomes. Photograph: Jess Hurd/reportdigital.co.uk

The Homes for Britain campaign, which brings together housing associations, private house builders, landlords, planners and architects, is holding a rally in Westminster. It aims to solve the housing crisis “in a generation”, which is a realistic time frame, given that it has taken a generation to create the current situation. It would be foolish of anyone to suggest that the solutions are easy and obvious, but a party serious about improving the housing of the country should consider these:

1 Make zero inflation a target

In the same way that targets are set for retail prices, it could be stated that it is desirable to stop house prices rising. In real terms they would slowly fall to affordable levels, and the heat would be taken out of speculation, but no one would be put into negative equity. Inflationary incentives like Help To Buy should be ended, and taxation should be used to deflate property bubbles.

2 End the obsession with owner-occupation

Good though it is for many people, owning your own home is neither desirable nor possible for many. It also encourages an approach to development that relies on continuing increases in value. Other options, such as renting from private or public landlords, should be equally attractive and viable.

3 Use every tool in the box

Politicians of all main parties have declared their wish to create garden cities. This is well and good, but requires a level of will and expertise not so far evident, and only goes so far. The scale of the need also requires every option to be considered. This includes building on ex-industrial land, in many small increments as well as through large plans, and increasing the density of existing cities and suburbs.

4 Build – carefully and well – in green belts

Restricting urban sprawl and protecting natural landscapes, the country’s green belts are one of the triumphs of British planning. But some of their land is of little environmental or economic value. Last year planning consultancy Urbed showed that green belts can be built on responsibly, allowing more people to live close to nature. There is no good reason not to realise some of these ideas.

5 Make neighbourhoods

The University of Cambridge, faced with the impossibility of housing its staff in an expensive city, is working with local authorities to create well-planned, good-quality new neighbourhoods, with high environmental standards and well designed communal spaces. Examples like this, which show that new homes do not have to be a form of pollution, should be followed across the country.

6 End discounts on right to buy

At a time when some people are being ejected from their homes in the name of austerity, it is grotesque that others are being offered lavish discounts to buy their local authority homes – often so that they can resell them for a quick profit.

7 End vindictive benefit cuts

The benefit cap unfairly punishes people living in areas that have become expensive by making it impossible for them to pay their inflated rents. The bedroom tax is mean-spirited and destructive. Both should end.

8 Act regionally

The needs of Lancashire, Cambridge and Newham differ widely. There should be the ability to make different measures in different areas.

9 Put a secretary of state for housing in the cabinet

As the renters’ campaign group Generation Rent has proposed, the issue is big enough to be represented at the highest level of government.

10 Let councils borrow to build

For the first time since the 1980s, councils are now allowed to build housing again. To do this more and better, they should be able to borrow money against their considerable assets, rather than form partnerships with private property companies who take 20% of the proceeds in profit. New council housing should not be a last resort only for those in the most desperate need, but suited to a range of incomes.

FacebookTwitterPinterest Greener pastures … Welwyn Garden City, Hertfordshire. Photograph: Graham Turner for the Guardian

The obvious objection to some of these proposals will be that there is no money. But money is already being wasted – on paying housing benefit to private landlords for example, on right-to-buy discounts, and on the profits developers make on publicly owned land. It is partly a question of spending it better.

There is also what Ebenezer Howard, the inventor of garden cities, called the “unearned increment”, which is the uplift in value when land becomes available for housing. It was the basis on which postwar new towns were built. Currently it is being squandered – when the government, for example, relaxes planning constraints on certain properties, or makes it easier to convert offices or shops into homes they drench the lucky owners of such places in cash, without asking for much in return.

House price inflation is an addiction. It is destructive and divisive. It is a tax by the haves on the have-nots, and by the old on the young.

It makes for more losers than real winners – if you own your home, its rising price is of little use to you unless you want to downsize, in which case you can never return to your previous position on the ladder. The only real beneficiaries are those who own more property than they need for their own living.

Thatcher’s property-owning democracy has run its course. It is time for a new model.

Business giants walk off with our billions. No more something for nothing

The state has the powers to make business serve us better. A north London borough is leading the way

•  
• • Aditya Chakrabortty
  • The Guardian, Tuesday 9 December 2014

Illustration by Matt Kenyon

A few weeks ago, I had the disconcerting experience of sitting in a smart room full of clever people who sincerely held a silly idea. We had been gathered together by a big charity to discuss its research on inequality, and talk naturally turned to Britain’s free-market economy. Some praised the free market, others longed to reform it: all agreed it was central to the UK being one of the most unequal economies in the rich world.

The famous political philosopher worried whether the free market was eroding our ethics; the gentle wonk from a rightwing thinktank thought that tempering it would turn a dynamic economy into an arthritic one. The British people now saw themselves as free-marketeers, argued the strategist from a giant consultancy; try telling that to the Occupy protesters in Parliament Square, retorted the environmentalist at his elbow.

Economists, politicians, academics: all well read and well meaning. But what was this free market they each took for granted? It had nothing to do with the tap water in our glasses – that came from the local monopoly, Thames Water. Nor did it apply to the trains that delivered some of my fellow diners – many rail services face no direct competition.

And what about the lights and heating? Nearly three decades on from the start of liberalisation, 90% of the gas and electricity piped into our homes is still controlled by an oligopoly of six huge suppliers who contend for our custom by trying to bamboozle us with their tariffs.

Few conceits are more cherished by our political classes than the notion that this is a free-market economy. To the right it is what makes Britain great. For the left it is what they are up against. And for the rich it is what justifies their huge pay packets: after all, they have earned it.

When asked for his view of western civilisation, Gandhi said he thought it would be a very good idea. I feel much the same way about the free market: I’m genuinely curious to see what such a mythical beast looks like. But that term, however widely accepted and advertised, has little to do with today’s Britain. The economy most of us experience – everything from who collects our bins, to how we commute to work, to that new school attended by the kids – is often not a free market at all. Instead, it’s a bog of privately run monopolies; of public projects and services outsourced to businesses for years, even decades, at a time; and massive taxpayer subsidies handed to the corporate sector with fewer questions asked than of disabled people wondering where their living allowance has gone.

Grasp that, and the question of how to tame corporate power becomes easier to answer. If corporations rely on the public for a sizeable chunk of their revenues and power, then we should start asking what they are doing for us in return. Do businesses deserve the privileges given them by society?

You almost never hear this question from any politician. What you get instead is the kind of cant served up by David Cameron at last year’s Conservative conference: “It’s not the government that creates jobs. It’s businesses that get wages in people’s pockets, food on their tables, hope for their families and success for our country.”

Really? Cameron can’t be looking at the same economy as the rest of us. In Britain businesses take £85bn a year from the public in grants, subsidies, insurance schemes, preferential credit and government services. That’s the corporate welfare bill as totted up by Kevin Farnsworth, senior lecturer in social policy at the University of York, and he admits it’s on the conservative side. Add on the various subsidies for too-big-to-fail banks and you’re well in excess of a hundred billion. Nor does he include the most fundamental privilege society affords the investors in a business such as Tesco: that of limited liability, which means they only stand to lose the value of their shares, and no more. We could argue for limited liability, but let’s not pretend it’s anything less than a substantial underwriting of shareholder enterprises.

If it is business that gives, and government that takes, then how does Cameron account for privatisation and outsourcing? Take the farce that is the rail industry, where taxpayers stump up billions for the infrastructure and the upgrades, while tycoons such as Richard Branson and Brian Souter put in hardly any investment, and always have the option in hard times of walking away. That is what GNER did with the East coast mainline that the public had to step in and save – and which the government has justawarded to Branson and Souter.

The same wacky logic of low risk, low investment applies in outsourcing. G4S can’t provide the security for the Olympics, Serco can’t lay on the staff for an out-of-hours GP service in Cornwall – but never mind, both still get to bid and win more public sector work. Under this coalition the money spent on outsourcing has doubled to £88bn,creating a whole string of what Margaret Hodge at the public accounts committee calls “quasi-monopolies”.

The fashionable thing to say is that in a globalised economy states can’t keep up with businesses. That is to get the relationship the wrong way round. The reality is that states often give businesses their revenues and so their power. More than that: markets are created by states, who provide the infrastructure, the transports and the rule of law.

So let’s start asking businesses what they’ve done for us recently. If the state is going to subsidise the rail industry (and we will, until it’s eventually renationalised), ministers should insist not just on an intermittently punctual train service and a token contribution to the Treasury, but also better pay and conditions for staff, decent training, and a commitment to sourcing equipment in Britain.

This is what the Centre for Research in Socio-Cultural Change terms “social licensing” in its latest book, The End of the Experiment. The academics’ suggestions have been followed by one council in north London, Enfield. Officers and researchers sat down and worked out how much money its 300,000 residents sent the way of big businesses: 11 Tesco stores, for instance, provided the PLC with around £8m of its annual profit. And what did the area get back? Not very much, but the highlight included a community toilet scheme and some charitable giving from the supermarket’s corporate social responsibility department.

And so the council has started asking big businesses, such as utility firms, what they had done for Enfield recently. They’ve begun hassling banks to lend more to local businesses, the likes of British Gas to give more of their local work to local contractors with local staff – or run the risk of being named and shamed in the local press. It may sound small, but imagine if the same approach were taken by Holyrood or Cardiff – or by Westminster.