“Blessed is the nation that doesn’t need heroes" Goethe.
“Hero-worship is strongest where there is least regard for human freedom.” Herbert Spencer.
"My 80% friend isn't my 20% enemy" Ronald Reagan.
Discuss the relationship between economic freedom and economic outcomes in a market system
Let's take a balanced approach by discussing both the positive and negative aspects of the relationship between economic freedom and economic outcomes in a market system:
Economic Freedom and Positive Outcomes:
a) Entrepreneurship and Innovation: Economic freedom fosters an environment where individuals can freely engage in entrepreneurship and innovation, leading to economic growth and job creation.
Example: "In countries with high economic freedom, like South Korea, entrepreneurs have been able to start successful businesses and drive technological advancements, resulting in economic prosperity and increased employment opportunities."
b) Efficient Resource Allocation: Economic freedom allows market forces to allocate resources efficiently based on supply and demand, ensuring optimal utilization and productivity.
Example: "In a market system with economic freedom, price signals help guide producers in allocating resources effectively. This leads to efficient production and distribution, benefiting both producers and consumers."
Potential Negative Aspects of Economic Freedom:
a) Income Inequality: Unrestricted economic freedom can contribute to income inequality, as it allows for the accumulation of wealth by a few individuals or groups.
Example: "In some cases, economic freedom has led to a concentration of wealth among the top earners, exacerbating income inequality and creating social disparities."
b) Market Failures and Externalities: In a completely free market, certain goods and services, such as public goods or environmental conservation, may be underprovided due to market failures. Additionally, negative externalities like pollution may not be adequately addressed without government intervention.
Example: "While economic freedom encourages efficiency, it may overlook external costs such as pollution. Without regulations, businesses may not be motivated to address environmental concerns, leading to negative consequences for society."
Quotation: "Capitalism does a number of things very well: it helps create an entrepreneurial spirit, it gets people motivated to come up with new ideas, and that's a good thing." - Bernie Sanders
It's important to strike a balance between economic freedom and necessary regulations to address income inequality, market failures, and externalities. Governments often play a role in ensuring fairness, protecting consumers, and implementing policies to address societal concerns.
By acknowledging both the positive and negative aspects, societies can aim for a market system that promotes economic freedom while addressing the challenges associated with income inequality and market failures. This balanced approach can help achieve sustainable economic growth and social well-being.
Markets are considered efficient in certain aspects because they have the potential to allocate resources efficiently, respond to changes in supply and demand, and facilitate mutually beneficial transactions between buyers and sellers. This efficiency arises from the following factors:
Price mechanism: Markets utilize the price mechanism, where prices are determined by the interaction of supply and demand. This mechanism helps in efficiently allocating resources as prices adjust based on changes in supply and demand conditions. For example, when the demand for a particular product increases, its price rises, signaling producers to increase production to meet the demand. This responsiveness allows resources to be directed to where they are most valued, leading to efficiency.
Competition: In competitive markets, multiple buyers and sellers compete with each other, leading to increased efficiency. Competition incentivizes businesses to improve their products, reduce costs, and innovate, ultimately benefiting consumers. For example, when multiple companies produce similar goods, they are motivated to offer better quality or lower prices to attract customers. This competition can drive efficiency improvements over time.
Profit motive: In a capitalist system, the profit motive serves as an incentive for individuals and businesses to make efficient decisions. When individuals seek to maximize their profits, they are driven to allocate resources in the most productive and efficient ways. For instance, if a business realizes that a particular product line is not generating sufficient profits, it may reallocate resources to more profitable areas, contributing to overall efficiency.
Flexibility and adaptability: Markets are often more flexible and adaptable compared to centralized planning systems. They can quickly respond to changes in supply, demand, and consumer preferences. This adaptability allows resources to be reallocated efficiently, ensuring that goods and services align with consumer needs. For example, if a new technology emerges, markets can swiftly adjust by reallocating resources to support its development and meet the changing demand.
However, while markets can be efficient in certain respects, it is important to recognize their limitations and the factors that can hinder their efficiency. Let's understand this concept with simple examples:
Market concentration: In some industries, a few large companies can dominate the market, resulting in market concentration. These companies may have significant market power, enabling them to set prices, limit competition, and control supply. For example, imagine a telecommunications industry where only a handful of companies operate. This concentration can lead to reduced choices for consumers and hinder new entrants from competing. The efficient markets fallacy does not account for the potential negative effects of market concentration on competition and consumer welfare.
Monopolies: A monopoly occurs when a single company has exclusive control over a particular market. This lack of competition can result in inefficiency and reduced innovation. For instance, imagine a pharmaceutical company that holds a patent for a life-saving drug without any competing alternatives. This monopoly power allows the company to set high prices, limiting access to the medication. The efficient markets fallacy does not address the potential harm caused by monopolistic behavior and the need for regulations to promote competition.
Inequitable distribution of resources: The efficient markets fallacy assumes that resources are distributed fairly and efficiently in a capitalist economy. However, in reality, the distribution of resources can be highly unequal. For example, wealth and income disparities can arise, with a small portion of the population holding a significant share of resources while others struggle to meet their basic needs. This inequitable distribution can lead to social unrest and hinder overall economic growth. The efficient markets fallacy does not adequately consider the need for interventions and policies to address the inequitable distribution of resources.
Externalities and public goods: Efficient markets do not always account for externalities, which are the costs or benefits that affect third parties not involved in market transactions. For instance, pollution from factories imposes costs on the environment and public health. Without government intervention, the market may not internalize these costs, leading to inefficient outcomes. Additionally, markets may underprovide public goods like education or healthcare, which have broader societal benefits. The efficient markets fallacy fails to address the need for government intervention to address externalities and ensure the provision of public goods.
In summary, the "efficient markets" fallacy fails to address the issues of market concentration, monopolies, inequitable distribution of resources, and the provision of public goods. Recognizing these limitations is crucial for understanding the need for regulations, competition policies, and interventions to promote fair competition, address market failures, and ensure a more equitable distribution of resources in a capitalist economy.
The Free Market Always Leads to Optimal Outcomes' Fallacy
The "free market always leads to optimal outcomes" fallacy is the belief that a completely unrestricted market, with no government intervention, will always result in the best possible outcomes for individuals and society. However, there are several limitations to this idea. Let's explore them with simple examples:
Market failures: Free markets can sometimes fail to produce optimal outcomes due to various factors. For instance, in the case of public goods like clean air or national defense, individuals may not have sufficient incentives to voluntarily contribute or produce them. In this situation, the market fails to allocate resources efficiently, and government intervention may be necessary to ensure the provision of public goods.
Externalities: Externalities occur when the actions of one party impose costs or benefits on others who are not directly involved in the transaction. For example, consider a factory that emits pollutants into the air. The negative effects on the environment and public health are external costs that are not reflected in the market price of the goods produced. Without government intervention, the market fails to consider and address these external costs, resulting in suboptimal outcomes for society.
Monopolies and market power: Unregulated free markets can lead to the concentration of market power and the emergence of monopolies. Monopolies can exploit their market dominance by setting high prices, reducing quality, and stifling competition. This reduces consumer welfare and can hinder innovation and economic growth. Government intervention, such as antitrust regulations, may be necessary to prevent and address market distortions caused by monopolistic behavior.
Income inequality and social justice: Free markets do not necessarily lead to fair or equitable outcomes. In the absence of regulation and redistribution measures, income and wealth disparities can become significant. This can result in social unrest, decreased social mobility, and unequal access to essential resources and opportunities. Government intervention may be required to address income inequality and promote social justice.
Market imperfections: Free markets rely on certain assumptions, such as perfect competition, perfect information, and rational decision-making by all participants. However, in reality, these assumptions often do not hold true. Market imperfections, such as information asymmetry, unequal bargaining power, and imperfect competition, can distort market outcomes and lead to suboptimal results. Government intervention and regulations can help mitigate these imperfections.
In summary, the "free market always leads to optimal outcomes" fallacy fails to consider the limitations and challenges of unrestricted markets. Market failures, externalities, monopolies, income inequality, and market imperfections are examples of situations where the free market may not produce the best possible outcomes. Recognizing these limitations is crucial for understanding the importance of government intervention and regulation to promote a more efficient, equitable, and sustainable economy.
The "invisible hand" fallacy is a misunderstanding of the concept coined by economist Adam Smith. It suggests that if individuals pursue their own self-interest in a free market, an "invisible hand" will guide their actions to benefit society as a whole. However, this fallacy overlooks the limitations and shortcomings of relying solely on market forces. Let's explore it with simple examples:
Externalities: The invisible hand fallacy fails to account for externalities, which are the unintended effects of economic activities on third parties. For instance, imagine a factory that pollutes the environment while producing goods. The pursuit of self-interest by the factory owner may lead to increased profits, but it ignores the negative impact on the health and well-being of nearby communities. The invisible hand does not automatically correct or internalize these external costs, resulting in a market failure that harms society.
Monopolies and market power: In some cases, the pursuit of self-interest can lead to the concentration of market power and the emergence of monopolies. Monopolies can manipulate prices, restrict competition, and exploit consumers, leading to inefficient outcomes and reduced overall welfare. For example, a dominant technology company may abuse its market power by setting high prices or stifling innovation, which is detrimental to consumers and smaller businesses. The invisible hand does not necessarily prevent the abuse of market power.
Information asymmetry: The invisible hand fallacy assumes that all participants in the market have perfect information and are capable of making rational decisions. However, in reality, there is often a disparity in knowledge between buyers and sellers. For example, imagine a used car market where sellers are aware of hidden defects, but buyers are not. As a result, buyers may make suboptimal decisions and end up with lemons (defective cars). The invisible hand does not automatically address information asymmetry, leading to inefficient outcomes.
Unequal bargaining power: The invisible hand fallacy assumes that all market participants have equal bargaining power. However, in practice, there can be significant disparities in bargaining power between buyers and sellers or between employers and employees. For instance, workers with limited job opportunities may accept low wages and poor working conditions due to the lack of alternatives. The invisible hand does not necessarily ensure fair and equitable outcomes in such situations.
In summary, the "invisible hand" fallacy suggests that individual pursuit of self-interest in a free market will automatically lead to societal benefits. However, this fallacy neglects the presence of externalities, market power, information asymmetry, and unequal bargaining power, which can result in inefficient and unfair outcomes. Recognizing these limitations is crucial for implementing regulations, policies, and institutions that can correct market failures and promote a more equitable and efficient economy.
LOUD conversation in a train carriage that makes concentration impossible for fellow-passengers. A farmer spraying weedkiller that destroys his neighbour’s crop. Motorists whose idling cars spew fumes into the air, polluting the atmosphere for everyone. Such behaviour might be considered thoughtless, anti-social or even immoral. For economists these spillovers are a problem to be solved.
Markets are supposed to organise activity in a way that leaves everyone better off. But the interests of those directly involved, and of wider society, do not always coincide. Left to their own devices, boors may ignore travellers’ desire for peace and quiet; farmers the impact of weedkiller on the crops of others; motorists the effect of their emissions. In all of these cases, the active parties are doing well, but bystanders are not. Market prices—of rail tickets, weedkiller or petrol—do not take these wider costs, or “externalities”, into account.
The examples so far are the negative sort of externality. Others are positive. Melodious music could improve everyone’s commute, for example; a new road may benefit communities by more than a private investor would take into account. Still others are more properly known as “internalities”. These are the overlooked costs people inflict on their future selves, such as when they smoke, or scoff so many sugary snacks that their health suffers.
The first to lay out the idea of externalities was Alfred Marshall, a British economist. But it was one of his students at Cambridge University who became famous for his work on the problem. Born in 1877 on the Isle of Wight, Arthur Pigou cut a scruffy figure on campus. He was uncomfortable with strangers, but intellectually brilliant. Marshall championed him and with the older man’s support, Pigou succeeded him to become head of the economics faculty when he was just 30 years old.
In 1920 Pigou published “The Economics of Welfare”, a dense book that outlined his vision of economics as a toolkit for improving the lives of the poor. Externalities, where “self-interest will not…tend to make the national dividend a maximum”, were central to his theme.
Although Pigou sprinkled his analysis with examples that would have appealed to posh students, such as his concern for those whose land might be overrun by rabbits from a neighbouring field, others reflected graver problems. He claimed that chimney smoke in London meant that there was only 12% as much sunlight as was astronomically possible. Such pollution imposed huge “uncharged” costs on communities, in the form of dirty clothes and vegetables, and the need for expensive artificial light. If markets worked properly, people would invest more in smoke-prevention devices, he thought.
Pigou was open to different ways of tackling externalities. Some things should be regulated—he scoffed at the idea that the invisible hand could guide property speculators towards creating a well-planned town. Other activities ought simply to be banned. No amount of “deceptive activity”—adulterating food, for example—could generate economic benefits, he reckoned.
But he saw the most obvious forms of intervention as “bounties and taxes”. These measures would use prices to restore market perfection and avoid strangling people with red tape. Seeing that producers and sellers of “intoxicants” did not have to pay for the prisons and policemen associated with the rowdiness they caused, for example, he recommended a tax on booze. Pricier kegs should deter some drinkers; the others will pay towards the social costs they inflict.
This type of intervention is now known as a Pigouvian tax. The idea is not just ubiquitous in economics courses; it is also a favourite of policymakers. The world is littered with apparently externality-busting taxes. The French government imposes a noise tax on aircraft at its nine busiest airports. Levies on drivers to counterbalance the externalities of congestion and pollution are common in the Western world. Taxes to fix internalities, like those on tobacco, are pervasive, too. Britain will join other governments in imposing a levy on unhealthy sugary drinks starting next year.
Pigouvian taxes are also a big part of the policy debate over global warming. Finland and Denmark have had a carbon tax since the early 1990s; British Columbia, a Canadian province, since 2008; and Chile and Mexico since 2014. By using prices as signals, a tax should encourage people and companies to lower their carbon emissions more efficiently than a regulator could by diktat. If everyone faces the same tax, those who find it easiest to lower their emissions ought to lower them the most.
Such measures do change behaviour. A tax on plastic bags in Ireland, for example, cut their use by over 90% (with some unfortunate side-effects of its own, as thefts of baskets and trolleys rose). Three years after a charge was introduced on driving in central London, congestion inside the zone had fallen by a quarter. British Columbia’s carbon tax reduced fuel consumption and greenhouse-gas emissions by an estimated 5-15%. And experience with tobacco taxes suggests that they discourage smoking, as long as they are high and smuggled substitutes are hard to find.
Champions of Pigouvian taxes say that they generate a “double dividend”. As well as creating social benefits by pricing in harm, they raise revenues that can be used to lower taxes elsewhere. The Finnish carbon tax was part of a move away from taxes on labour, for example; if taxes must discourage something, better that it be pollution than work. In Denmark the tax partly funds pension contributions.
Pigou flies
Even as policymakers have embraced Pigou’s idea, however, its flaws, both theoretical and practical, have been scrutinised. Economists have picked holes in the theory. One major objection is the incompleteness of the framework, since it holds everything else in the economy fixed. The impact of a Pigouvian tax will depend on the level of competition in the market it is affecting, for example. If a monopoly is already using its power to reduce supply of its products, a new tax may not do any extra good. And if a dominant drinks firm absorbs the cost of an alcohol tax rather than passes it on, then it may not influence the rowdy. (A similar criticism applies to the idea of the double dividend: taxes on labour could cause people to work less than they otherwise might, but if an environmental tax raises the cost of things people spend their income on it might also have the effect of deterring work.)
Another assault on Pigou’s idea came from Ronald Coase, an economist at the University of Chicago (whose theory of the firm was the subject of the first brief in this series). Coase considered externalities as a problem of ill-defined property rights. If it were feasible to assign such rights properly, people could be left to bargain their way to a good solution without the need for a heavy-handed tax. Coase used the example of a confectioner, disturbing a quiet doctor working next door with his noisy machinery. Solving the conflict with a tax would make less sense than the two neighbours bargaining their way to a solution. The law could assign the right to be noisy to the sweet-maker, and if worthwhile, the doctor could pay him to be quiet.
In most cases, the sheer hassle of haggling would render this unrealistic, a problem that Coase was the first to admit. But his deeper point stands. Before charging in with a corrective tax, first think about which institutions and laws currently in place could fix things. Coase pointed out that laws against nuisance could help fix the problem of rabbits ravaging the land; quiet carriages today assign passengers to places according to their noise preferences.
Others reject Pigou’s approach on moral grounds. Michael Sandel, a political philosopher at Harvard University, has worried that relying on prices and markets to fix the world’s problems can end up legitimising bad behaviour. When in 1998 one school in Haifa tried to encourage parents to pick their children up on time by fining them, tardy pickups increased. It turned out that parental guilt was a more effective deterrent than cash; making payments seems to have assuaged the guilt.
Besides these more theoretical qualms about Pigouvian taxes, policymakers encounter all manner of practical ones. Pigou himself admitted that his prescriptions were vague; in “The Economics of Welfare”, though he believed taxes on damaging industries could benefit society, he did not say which ones. Nor did he spell out in much detail how to set the level of the tax.
Prices in the real world are no help; their failure to incorporate social costs is the problem that needs to be solved. Getting people to reveal the precise cost to them of something like clogged roads is asking a lot. In areas like these, policymakers have had to settle on a mixture of pragmatism and public acceptability. London’s initial £5 ($8) fee for driving into its city centre was suspiciously round for a sum meant to reflect the social cost of a trip.
Inevitably, a desire to raise revenue also plays a role. It would be nice to believe that politicians set Pigouvian taxes merely in order to price in an externality, but the evidence, and common sense, suggests otherwise. Research may have guided the initial level of a British landfill tax, at £7 a tonne in 1996. But other considerations may have boosted it to £40 a tonne in 2009, and thence to £80 a tonne in 2014.
Things become even harder when it comes to divining the social cost of carbon emissions. Economists have diligently poked gigantic models of the global economy to calculate the relationship between temperature and GDP. But such exercises inevitably rely on heroic assumptions. And putting a dollar number on environmental Armageddon is an ethical question, as well as a technical one, relying as it does on such judgments as how to value unborn generations. The span of estimates of the economic loss to humanity from carbon emissions is unhelpfully wide as a result, ranging from around $30 to $400 a tonne.
It’s the politics, stupid
The question of where Pigouvian taxes fall is also tricky. A common gripe is that they are regressive, punishing poorer people, who, for example, smoke more and are less able to cope with rises in heating costs. An economist might shrug: the whole point is to raise the price for whoever is generating the externality. A politician cannot afford to be so hard-hearted. When Australia introduced a version of a carbon tax in 2012, more than half of the money ended up being given back to pensioners and poorer households to help with energy costs. The tax still sharpened incentives, the handouts softened the pain.
A tax is also hard to direct very precisely at the worst offenders. Binge-drinking accounts for 77% of the costs of excessive alcohol use, as measured by lost workplace productivity and extra health-care costs, for example, but less than a fifth of Americans report drinking to excess in any one month. Economists might like to charge someone’s 12th pint of beer at a higher rate than their first, but implementing that would be a nightmare.
Globalisation piles on complications. A domestic carbon tax could encourage people to switch towards imports, or hurt the competitiveness of companies’ exports, possibly even encouraging them to relocate. One solution would be to apply a tax on the carbon content of imports and refund the tax to companies on their exports, as the European Union is doing for cement. But this would be fiendishly complicated to implement across the economy. A global harmonised tax on carbon is the stuff of economists’ dreams, and set to remain so.
So, Pigou handed economists a problem and a solution, elegant in theory but tricky in practice. Politics and policymaking are both harder than the blackboard scribblings of theoreticians. He was sure, however, that the effort was worthwhile. Economics, he said, was an instrument “for the bettering of human life.”
The public wants it and it would be good for the economy. Why has the law not been changed?
Paul Birch in The Telegraph
Channel 4’s Drugs Live programme promises to examine what cannabis does to the brain. Many of us have already seen the clips of Jon Snow struggling after a massive dose of high strength marijuana (the equivalent of forcing a teetotaller to down a bottle of vodka and then asking him how he feels).
But beyond the effects of cannabis on the brain, isn’t it time for a wider discussion on the potential effects of safe, regulated cannabis consumption on society?
Meanwhile £361 million is currently spent every year on policing and treating users of illegally traded and consumed cannabis.
It seems a lot to spend on punishing people for an activity most of us barely believe should be a crime any more. And that’s even before one factors in the potential benefit legalisation and regulation of cannabis could have for the UK exchequer.
Then, there is the job creation potential. In Colorado, which legalised marijuana at the beginning of 2014, 10,000 now work in the marijuana industry: growing and harvesting crops, working in dispensaries, and making and selling equipment. Crime has fallen: in the first three months after legalisation in Denver, the city experienced a 14.6 per cent drop in crime and specifically violent crime is down 2.4 per cent. Assaults were down by 3.7 per cent.
This reduction led to further savings and allowing stretched police forces to concentrate on more serious issues. Meanwhile, cannabis use by young people actually decreased, an uncomfortable fact for prohibitionists who argue that legalisation would simply encourage more teens to take up cannabis.
In an age when every penny of government spending is fought for, the demonstrated potential savings and revenues at very least deserve serious investigation. Revenue raised from a regulated cannabis trade could be directed towards education on safe use of cannabis.
That’s why the next government – regardless of who it is led by, should set up a Royal Commission into drug legislation.
Why a Royal Commission? Because I firmly believe this is a way forward for our fractured politics. A non-partisan commission can help politicians take hold of an issue and look at the evidence beyond the fears of being blindsided by attacks from the other side. Parties can agree to participate, evidence can be heard, everyday people can submit and read facts, opinions and analysis: it’s a real opportunity to create the “evidence-based policy” to which every party claims they aspire.
Major party leaders are reluctant to grasp the nettle of drug legislation. It’s understandable, given the current association of drugs with criminality. Half of people in the UK think cannabis contributes to street crime. But this association is inevitable as long as cannabis itself is illegal. Only a dispassionate discussion on the merits of cannabis legalisation and regulation can break that link.
Cista is standing for election on this issue because we believe the practical evidence has reached tipping point. Legalisation and regulation of cannabis can benefit the economy, lift the burden on the criminal justice system, encourage education about healthy, informed choices, and help recreational and medicinal cannabis users to enjoy a clean, safe product without being forced to engage with the underworld. Cannabis in itself is not the problem: our current law is. And we’re all paying the price.
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.
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.
