The pendulum swings against privatisation

Evidence suggests that ending state ownership works in some markets but not others


Tim Harford in The Financial Times


Political fashions can change quickly, as a glance at almost any western democracy will tell you. The pendulum of the politically possible swings back and forth. Nowhere is this more obvious than in the debates over privatisation and nationalisation. 

In the late 1940s, experts advocated nationalisation on a scale hard to imagine today. Arthur Lewis thought the government should run the phone system, insurance and the car industry. James Meade wanted to socialise iron, steel and chemicals; both men later won Nobel memorial prizes in economics. 

They were in tune with the times: the British government ended up owning not only utilities and heavy industry but airlines, travel agents and even the removal company, Pickfords. The pendulum swung back in the 1980s and early 1990s, as Margaret Thatcher and John Major began an ever more ambitious series of privatisations, concluding with water, electricity and the railways. The world watched, and often followed suit. 

Was it all worth it? The question arises because the pendulum is swinging back again: Jeremy Corbyn, the bookies’ favourite to be the next UK prime minister, wants to renationalise the railways, electricity, water and gas. (He has not yet mentioned Pickfords.) Furthermore, he cites these ambitions as a reason to withdraw from the European single market. 

Privatisation’s proponents mention the galvanising effect of the profit motive, or the entrepreneurial spirit of private enterprise. Opponents talk of fat cats and selling off the family silver 

That is odd, since there is nothing in single market rules to prevent state ownership of railways and utilities — the excuse seems to be yet another Eurosceptic myth, the leftwing reflection of rightwing tabloids moaning about banana regulation. Since the entire British political class has lost its mind over Brexit, it would be unfair to single out Mr Corbyn on those grounds. 

Still, he has reopened a debate that long seemed settled, and piqued my interest. Did privatisation work? Proponents sometimes mention the galvanising effect of the profit motive, or the entrepreneurial spirit of private enterprise. Opponents talk of fat cats and selling off the family silver. Realists might prefer to look at the evidence, and the ambitious UK programme has delivered plenty of that over the years. 

There is no reason for a government to own Pickfords, but the calculus of privatisation is more subtle when it comes to natural monopolies — markets that are broadly immune to competition. If I am not satisfied with what Pickford’s has to offer me when I move home, I am not short of options. But the same is not true of the Royal Mail: if I want to write to my MP then the big red pillar box at the end of the street is really the only game in town. 

Competition does sometimes emerge in unlikely seeming circumstances. British Telecom seemed to have an iron grip on telephone services in the UK — as did AT&T in the US. The grip melted away in the face of regulation and, more importantly, technological change. 

Railways seem like a natural monopoly, yet there are two separate railway lines from my home town of Oxford into London, and two separate railway companies will sell me tickets for the journey. They compete with two bus companies; competition can sometimes seem irrepressible. 

But the truth is that competition has often failed to bloom, even when one might have expected it. If I run a bus service at 20 and 50 minutes past the hour, then a competitor can grab my business without competing on price by running a service at 19 and 49 minutes past the hour. Customers will not be well served by that. 

Meanwhile electricity and phone companies offer bewildering tariffs, and it is hard to see how water companies will ever truly compete with each other; the logic of geography suggests otherwise. 

All this matters because the broad lesson of the great privatisation experiment is that it has worked well when competition has been unleashed, but less well when a government-run business has been replaced by a government-regulated monopoly. 

A few years ago, the economist David Parker assembled a survey of post-privatisation performance studies. The most striking thing is the diversity of results. Sometimes productivity soared. Sometimes investors and managers skimmed off all the cream. Revealingly, performance often leapt in the year or two before privatisation, suggesting that state-owned enterprises could be well-run when the political will existed — but that political will was often absent. 

My overall reading of the evidence is that privatisation tended to improve profitability, productivity and pricing — but the gains were neither vast nor guaranteed. Electricity privatisation was a success; water privatisation was a disappointment. Privatised railways now serve vastly more passengers than British Rail did. That is a success story but it looks like a failure every time your nose is crushed up against someone’s armpit on the 18:09 from London Victoria. 

The evidence suggests this conclusion: the picture is mixed, the details matter, and you can get results if you get the execution right. Our politicians offer a different conclusion: the picture is stark, the details are irrelevant, and we metaphorically execute not our policies but our opponents. The pendulum swings — but shows no sign of pausing in the centre.

‘Wealth creators’ are robbing our most productive people

George Monbiot in The Guardian

There is an inverse relationship between utility and reward. The most lucrative, prestigious jobs tend to cause the greatest harm. The most useful workers tend to be paid least and treated worst.

I was reminded of this while listening last week to a care worker describing her job. Carole’s company gives her a rota of, er, three half-hour visits an hour. It takes no account of the time required to travel between jobs, and doesn’t pay her for it either, which means she makes less than the minimum wage. During the few minutes she spends with a client, she may have to get them out of bed, help them on the toilet, wash them, dress them, make breakfast and give them their medicines. If she ever gets a break, she told the BBC radio programme You and Yours, she spends it with her clients. For some, she is the only person they see all day.

Is there more difficult or worthwhile employment? Yet she is paid in criticism and insults as well as pennies. She is shouted at by family members for being late and not spending enough time with each client, then upbraided by the company because of the complaints it receives. Her profession is assailed in the media as the problems created by the corporate model are blamed on the workers. “I love going to people; I love helping them, but the constant criticism is depressing,” she says. “It’s like always being in the wrong.”

Her experience is unexceptional. A report by the Resolution Foundation reveals that two-thirds of frontline care workers receive less than the living wage. Ten percent, like Carole, are illegally paid less than the minimum wage. This abuse is not confined to the UK: in the US, 27% of care workers who make home visits are paid less than the legal minimum.

Let’s imagine the lives of those who own or run the company. We have to imagine it because, for good reasons, neither the care worker’s real name nor the company she works for were revealed. The more costs and corners they cut, the more profitable their business will be. In other words, the less they care, the better they will do. The perfect chief executive, from the point of view of shareholders, is a fully fledged sociopath.

Such people will soon become very rich. They will be praised by the government as wealth creators. If they donate enough money to party funds, they have a high chance of becoming peers of the realm. Gushing profiles in the press will commend their entrepreneurial chutzpah and flair.

They’ll acquire a wide investment portfolio, perhaps including a few properties, so that – even if they cease to do anything resembling work – they can continue living off the labour of people such as Carole as she struggles to pay extortionate rents. Their descendants, perhaps for many generations, need never take a job of the kind she does.

Care workers function as a human loom, shuttling from one home to another, stitching the social fabric back together while many of their employers and shareholders, and government ministers, slash blindly at the cloth, downsizing, outsourcing and deregulating in the cause of profit.
It doesn’t matter how many times the myth of meritocracy is debunked. It keeps re-emerging, as you can see in the current election campaign. How else, after all, can the government justify stupendous inequality?

One of the most painful lessons a young adult learns is that the wrong traits are rewarded. We celebrate originality and courage, but those who rise to the top are often conformists and sycophants. We are taught that cheats never prosper, yet the country is run by spivs. A study testing British senior managers and chief executives found that on certain indicators of psychopathy their scores exceeded those of patients diagnosed with psychopathic personality disorders in the Broadmoor special hospital.

If you possess the one indispensable skill – battering and blustering your way to the top – incompetence in other areas is no impediment. The former Hewlett-Packard chief executive Carly Fiorina features prominently on lists of the worst US bosses: quite an achievement when you consider the competition. She fired 30,000 workers in the name of efficiency yet oversaw a halving of the company’s stock price. Morale and communication became so bad that she was booed at company meetings. She was forced out, with a $42m severance package. Where is she now? About to launch her campaign as presidential candidate for the Republican party, where, apparently, she is considered a serious contender. It’s the Mitt Romney story all over again.

At university I watched in horror as the grand plans of my ambitious friends dissolved. It took them about a minute, on walking into the corporate recruitment fair, to see that the careers they had pictured – working for Oxfam, becoming a photographer, defending the living world – paid about one fiftieth of what they might earn in the City. They all swore they would leave to follow their dreams after two or three years of making money; none did. They soon adjusted their morality to their circumstances. One, a firebrand who wanted to nationalise the banks and overthrow capitalism, plunged first into banking, then into politics. Claire Perry now sits on the frontbench of the Conservative party. Flinch once, at the beginning of your career, and they will have you for life. The world is wrecked by clever young people making apparently sensible choices.

The inverse relationship doesn’t always hold. There are plenty of useless, badly paid jobs, and a few useful, well-paid jobs. But surgeons and film directors are greatly outnumbered by corporate lawyers, lobbyists, advertisers, management consultants, financiers and parasitic bosses consuming the utility their workers provide. As the pay gap widens – chief executives in the UK took 60 times as much as the average worker in the 1990s and 180 times as much today – the uselessness ratio is going through the roof I propose a name for this phenomenon: klepto-remuneration.

There is no end to this theft except robust government intervention: a redistribution of wages through maximum ratios and enhanced taxation. But this won’t happen until we challenge the infrastructure of justification, built so carefully by politicians and the press. Our lives are damaged not by the undeserving poor but by the undeserving rich.

Transatlantic Trade and Investment Partnership: Wake up people, we’re being shafted

A global ban on left wing politics

George Monbiot

Remember that referendum about whether we should create a single market with the United States? You know, the one that asked whether corporations should have the power to strike down our laws? No, I don’t either. Mind you, I spent ten minutes looking for my watch the other day, before I realised I was wearing it. Forgetting about the referendum is another sign of ageing. Because there must have been one, mustn’t there? After all that agonising over whether or not we should stay in the European Union(1), the government wouldn’t cede our sovereignty to some shadowy, undemocratic body without consulting us. Would it?

The purpose of the Transatlantic Trade and Investment Partnership is to remove the regulatory differences between the US and European nations. I mentioned it a couple of weeks ago(2). But I left out the most important issue: the remarkable ability it would grant big business to sue the living daylights out of governments which try to defend their citizens. It would allow a secretive panel of corporate lawyers to overrule the will of parliament and destroy our legal protections. Yet the defenders of our sovereignty say nothing.

The mechanism is called investor-state dispute settlement. It’s already being used in many parts of the world to kill regulations protecting people and the living planet.

The Australian government, after massive debates in and out of parliament, decided that cigarettes should be sold in plain packets, marked only with shocking health warnings. The decision was validated by the Australian supreme court. But, using a trade agreement Australia struck with Hong Kong, the tobacco company Philip Morris has asked an offshore tribunal to award it a vast sum in compensation for the loss of what it calls its intellectual property(3).

During its financial crisis, and in response to public anger over rocketing charges, Argentina imposed a freeze on people’s energy and water bills (does this sound familiar?). It was sued by the international utility companies whose vast bills had prompted the government to act. For this and other such crimes, it has been forced to pay out over a billion dollars in compensation(4).

In El Salvador, local communities managed at great cost (three campaigners were murdered) to persuade the government to refuse permission for a vast gold mine which threatened to contaminate their water supplies. A victory for democracy? Not for long perhaps. The Canadian company which sought to dig the mine is now suing El Salvador for $315m – for the loss of its anticipated future profits(5).

In Canada, the courts revoked two patents owned by the US drugs firm Eli Lilly, on the grounds that the company had not produced enough evidence that they had the beneficial effects it claimed. Eli Lilly is now suing the Canadian government for $500m, and demanding that Canada’s patent laws are changed(6).

These companies (and hundreds of others) are using the investor-state dispute rules embedded in trade treaties signed by the countries they are suing. The rules are enforced by panels which have none of the safeguards we expect in our own courts(7,8). The hearings are held in secret. The judges are corporate lawyers, many of whom work for corporations of the kind whose cases they hear. Citizens and communities affected by their decisions have no legal standing. There is no right of appeal on the merits of the case. Yet they can overthrow the sovereignty of parliaments and the rulings of supreme courts.

You don’t believe it? Here’s what one of the judges on these tribunals says about his work. “When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all … Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament.”(9)

There are no corresponding rights for citizens. We can’t use these tribunals to demand better protections from corporate greed. As the Democracy Centre says, this is “a privatised justice system for global corporations.”(10)

Even if these suits don’t succeed, they can exert a powerful chilling effect on legislation. One Canadian government official, speaking about the rules introduced by the North American Free Trade Agreement, remarked, “I’ve seen the letters from the New York and DC law firms coming up to the Canadian government on virtually every new environmental regulation and proposition in the last five years. They involved dry-cleaning chemicals, pharmaceuticals, pesticides, patent law. Virtually all of the new initiatives were targeted and most of them never saw the light of day.”(11) Democracy, as a meaningful proposition, is impossible under these circumstances.
This is the system to which we will be subject if the transatlantic treaty goes ahead. The US and the European Commission, both of which have been captured by the corporations they are supposed to regulate, are pressing for investor-state dispute resolution to be included in the agreement.

The Commission justifies this policy by claiming that domestic courts don’t offer corporations sufficient protection because they “might be biased or lack independence.”(12) Which courts is it talking about? Those of the US? Its own member states? It doesn’t say. In fact it fails to produce a single concrete example demonstrating the need for a new, extra-judicial system. It is precisely because our courts are generally not biased or lacking independence that the corporations want to bypass them. The EC seeks to replace open, accountable, sovereign courts with a closed, corrupt system riddled with conflicts of interest and arbitrary powers.
Investor-state rules could be used to smash any attempt to save the NHS from corporate control, to re-regulate the banks, to curb the greed of the energy companies, to renationalise the railways, to leave fossil fuels in the ground. These rules shut down democratic alternatives. They outlaw left-wing politics.

This is why there has been no attempt by our government to inform us about this monstrous assault on democracy, let alone consult us. This is why the Conservatives who huff and puff about sovereignty are silent. Wake up people, we’re being shafted.

What's the point of wealth beyond utility?

DJ TAYLOR

Sunday 17 February 2013

Why stinking rich bankers can't imagine why there's an almighty stink when the public finds out.  

Reading the remarks uttered by Sir Philip Hampton, chairman of the Royal Bank of Scotland, in defence of his chief executive's "modest" £7.8m annual pay package, I was irresistibly reminded of Martin Amis's short story "Career Move". The piece – one of Amis's very best – is a variation on the "world turned upside down" motif, in this case examining a futuristic entertainment industry where poetry commands the attention of Hollywood ("We really think Sonnet is going to work, Luke"), while screenplays are written by desperate men in bedsits and printed in obscure magazines for little or no payment.

This wholesale role-reversal prompts a fascinating question. If the really serious and important jobs, of guaranteed practical value to humanity – social work, for instance, or school teaching – attracted stratospherically high salaries, while investment banking and currency dealing were only averagely remunerated, would Sir Philip and Stephen Hester – the beneficiary of that £7.8m-worth of largesse – suddenly itch to work with disadvantaged children? In other words, do they like doing their jobs for the satisfaction that the work affords, or do they merely want to wallow in the filthy lucre that comes with them?

Clearly, this question in unanswerable. But there is a second, associated, puzzle that the disinterested observer may be able to solve. Why does Mr Hester think that he needs to be paid £7.8m a year, other than as a rather bizarre testimony to his caste and status? What is the point of having wealth beyond utility? The explanation, alas, is that Mr Hester, and perhaps Sir Philip, altogether lack what used in bygone eras to be an absolutely vital part of the nation's moral repertoire – a puritan conscience. This may be defined as having the sort of mind that impels its owner, if taken to an expensive restaurant, automatically to order the cheapest thing on the menu.

Naturally, the puritan conscience has much to be said against it. After all, it brought us Shakespeare's Malvolio, Mrs Whitehouse and the Lady Chatterley trial (and also, ironically enough, D H Lawrence himself). On the other hand, its absence means more people like Sir Philip Hampton, who not only wants to offer his chief executive £7.8m a year, but can't imagine why there should be such an almighty stink when the public finds out.

Libertarianism and the Leap of Faith – The Origins of a Political Cult

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

You wanted God’s ideas about what was best for you to coincide with your ideas, but you also wanted him to be the almighty Creator of heaven and earth so that he could properly fulfil your wish. And yet, if he were to share your ideas, he would cease to be the almighty Father.

– Søren Kierkegaard

Political cults often have the strangest and most obscure origins. Take Marxism, for example. Today it is well-known that Marxist doctrine essentially sprang out of the obscure 19th century economic debates over the source of ‘value’. By ‘proving’ – that is, lifting the assumption from classical political economy – that all ‘value’ came from labour, Karl Marx went on to show that it was therefore only logical to assume the existence of something called ‘surplus value’ that was sucked out of labourers by a parasitic capitalist class. From out of this obscure debate flowed an awesome political movement – and a tyranny to match.

What is less well-known is that today’s most popular political cult – that is, libertarianism – was born in very similar circumstances; it too, arrived into the world out of the obscure 19th century debates over economic ‘value’. But before we explore this in any detail it might be appropriate to speculate a little on what characterises a political cult and why so many of these find their sustenance in economic theories of value.

What is a Political Cult and Why Do they Often Love Economic Value Theory?

A political cult is characterised by a political or economic doctrine that answers all the ‘big questions’ about life, the world and everything else. The doctrine that is handed down is then to be conceived of as a way to live one’s life – a project, handed down from Mount Sinai, that one is under the moral obligation to spread far and wide. This is why we refer to these movements as cults. And it is this that gives them such an awesome status in the glazed eyes of their devotees.

Under such circumstances, politics becomes a sort of religious calling. In these doctrines there is usually an ‘Evil Being’ who is opposing the spread of the ‘Good’ on earth and it is these that are to blame for all the bad things in the world. In Marxism this Evil Being is the capitalist; in libertarianism it is the figure who is at different times referred to as the ‘collectivist’, the ‘liberal’ or the ‘socialist’. Needless to say that, since these figures are usually ones of Extreme Evil they must be ‘liquidated’ or ‘eliminated’ at the first possible opportunity lest they spread their Demonic Gospel to the masses.

Political cults thus provide their devotees with a firm identity in an otherwise changeable and, let us be frank, confusing world. Like all cults they provide an anchor for their devotees with which they can fasten themselves to a rigid doctrine. They also typically lend their devotees a Holier-Than-Thou attitude as they provide them with ‘secrets’ that those outside of the cult cannot grasp. Not only does this allow the devotees to feel ‘special’, in modern political cults it also gives them practical, albeit ‘secret’ advice about what they should do in their day-to-day lives. (Think of the advice to buy gold or foreign stocks coming out of certain libertarian front men, for example).

Finally, the political cult will usually offer their followers the possibility of a Heaven on Earth. If the follower behaves well and spreads their beliefs to others they will eventually arrive at some sort of Utopia. This is their reward for believing in the doctrines, despite these doctrines being ridiculed by others.

So, why do these cults spring out of economic doctrines based on value? Well, this is a very complex question but there is one key aspect that is absolutely fundamental. In order to understand it a little better we must think for a moment about what economic ‘value’ supposedly is. It is, in fact, when we boil it right down, a moral entity. If we can tell what people ‘value’ and why, then we can make prognostications on what is Good for society as a whole.

In times past organised religions handed down fixed value systems to their adherents. Today people have become disillusioned with religious systems – ostensibly because they conflict with these peoples’ supposedly ‘scientific’ worldview. But the impulse among some for the self-assurance provided by a religion is so strong that they seek out ‘scientific’ systems that operate in an identical manner to religious or cult systems.

This is why the economic doctrine of ‘value’ is such a good foundational stone for such a cult. It provides a pseudo-scientific account about how people attribute value to things and in doing so tells the cult member a ‘Truth’ that they can use to make turn the world into a Utopia in which the optimal amount of ‘value’ is realised by the optimal amount of people.

Karl Marx claimed that ‘value’ was embodied labour and hence his followers concluded with him that all that was Good sprang from labour and that society should thus be based on free labour. The libertarians – together with the neoclassicals that they otherwise scorn – believe that all ‘value’ springs from utility maximisation. While the neoclassicals simply tinker with toy-models of ‘value’ to bolster their pseudo-scientific prestige, the libertarians undertake a leap of faith into the unknown and claim that in the theory of marginal utility they have found a ‘Truth’ that must be brought down from Heaven to Earth.

The Birthing of a Cult

Libertarianism was born out of the late 19th century doctrine of marginalism; a doctrine that went on to gain popularity with those opposed to Marxism. We will not dwell too much on the doctrine of marginalism when applied to the analysis of ‘value’ – having done so elsewhere. Here we will merely note that marginalism provides a moral defence for the supposedly ‘free market’ system that we live under today.

Marginalism, when applied to ‘value’ analysis, holds that it is in Man’s nature to follow a certain path in his consumption habits. These habits are determined by his maximising his utility. Most modern marginalists claim that they can use this concept to show that a ‘free market’ system is the fairest social system possible, since it responds automatically to Man’s marginal utility preference it delivers ‘value’ in a perfect and harmonious manner.

Markets deliver this ‘value’ through the mechanism of price. Prices, which reflect peoples’ desires to maximise their marginal utility, ensure that the most equitable distribution of ‘value-in-the-abstract’ is accommodated for by the ‘free market system’. And this is the point at which marginal value analysis becomes a value judgment in a very real sense.

The neoclassicals held, and continue to hold, that their models could capture this complex dynamic. Such an assertion was and is, of course, absolute rubbish. But the Austrians took a different tack. “Yes,” they said, “marginal utility theory is the correct way to go, but we cannot formulate models that adequately capture the inner workings of this great mechanism.”

In their book Modern Political Economics: Making Sense of the Post-2008 World, the authors provide a good summary of this approach. In the book they discuss what effect the discovery of marginalism’s inherent uselessness had on the Austrians:

Faced with the impossibility of mathematically deriving prices and quantities on the one hand and a metric of social welfare on the other, some Marginalists understood the limitations of their utility calculus. Mainly of an Austrian persuasion (most notably Ludwig von Mises, Friedrich von Hayek and Joseph Schumpeter), they even gallantly tried to use this failure to the advantage of their claims on behalf of untrammelled markets and against the encroachments of collective agencies, trade unions, governments etc.

This was a clever move. While the neoclassicals tinkered with their silly toy-models, trying to show how prices are determined through a sort of grand marginal calculus, the Austrians shrugged their shoulders as to how such a Divine Event could occur. Instead they began to think of price as a sort of Miracle that proved the divinity of the Market mechanism. They then went on deploy this argument to show that anything that encroached upon this Divine Being’s presence was inherently Evil:

If no degree of mathematical sophistication can pin down the ‘right’ prices and quantities, how can a government or any other form of collective agency work them out? How could a socialist economy, or even a national health service, ever price things? Thus, the market mechanism is indispensible because of the radical indeterminacy of prices.

Note what is happening here. The Austrians, like their marginalist brothers and sisters, thought that in marginal utility theory they had found the source from which ‘value’ truly flowed. They never for one moment questioned that. Even when they came to conclude that marginalist analysis could never definitively show anything useful about price determination, they remained confident – indeed, they became even more confident – that such an analysis was Truth.

In short, they postulated a theory and then when confronted with the inconsistencies of the theory when it was applied to any practical ventures they simply threw up their arms and claimed that such inconsistency showed just how true theory was and how much we should respect it. The knowledge that the theory imparted then became, in a very real sense, Divine, in that we meagre humans would never be able to grasp it and instead should simply bow down in front of the Great Being that possessed this knowledge – that is: the Market.

This is what gives the libertarians their religious zeal. In their quest for the Grand Truth they find this Truth to be inaccessible to Man. But in this inaccessibility they find a Higher Truth again; namely, that there is some other entity out there – a benevolent entity called ‘the Market’ – that possesses this Truth and all we have to do is follow the Laws which it has handed down to us and we will eventually reach Utopia. This is, of course, a leap of faith – a truly Kierkegaardian Leap of Faith.

From the Leap of Faith to the Knight of Faith

The Austrians were never quite content with the chicanery and political posturing that they had passed off as scientific debate. As alluded to above, their theories about market prices were forged in the debates with those who advocated a socilialistic planned economy. Being ideological to the core, the Austrians were, for a while at least, perfectly content with saying that while no economist could say anything worthwhile about price determination – and thus, any attempt at a socialist planned economy would be doomed to fail because there could be no perfectly informed coven of evil socialist economists who could administer it – they were still happy with the airy theory of market prices that they had just poked such a large hole in. Yes, they had undertaken a Leap of Faith by admitting that their logical constructions would never be whole but, as Kierkegaard well knew, every Leap of Faith needs a hero, a Knight of Faith – and the Austrians soon found theirs.

The Austrians had, although one suspects that they never fully realised this, essentially proved that their theories were inconsistent. There was always, lurking somewhere, that element that disturbed the calculation of prices in the market models.

Let us emphasise here that this element of disturbance was found, not in reality, but only in their models and in their minds. The fact is that the Austrians, even in out-stepping their neoclassical brethren, were still only exploring their own fantasies. This fact must always be kept in the front of one’s mind when considering their doctrines.

We highlight this because it was precisely at this point that the Austrians could have conceded that they were building castles in the sky – ideologically and emotionally motivated castles in the sky, no less – and that it might be time to grow up and give up on the whole sordid venture of trying to establish a ‘logical’ ‘economic’ basis for ‘value’ that would temper them with the moral certainty they needed to carry on their political crusade. But not so. Instead they found a Kierkegaardian Knight of Faith to fill the gap in their logic. And that Knight of Faith was the entrepreneur.

The Austrian economist Israel Kirzner put it as such in his fine paper ‘The Economic Calculation Debate: Lessons for Austrians’ (which is also an excellent historical overview of much of what we have here been discussing):

[T]he truth is that Hayek opened the door to an entirely new perspective on the “goodness” of economic policies and institutional arrangements. Instead of judging policies or institutional arrangements in terms of the resource-allocation pattern they are expected to produce (in comparison with the hypothetically optimal allocation pattern), we can now understand the possibility of judging them in terms of their ability to promote discovery.

And this ‘discovery’, of course, comes from the entrepreneur who was hereafter identified by the libertarian as the social hero who broke through all barriers in the pursuit of the creation of new ‘values’ – and by that, we mean economic ‘values’ – for the community as a whole. Kizner again:

For Austrians, prices emerge in an open-ended context in which entrepreneurs must grapple with true Knightian uncertainty. This context generates precisely the kind of choice that stimulates the competitive discovery process. In this context, the entrepreneur does not treat prices as parameters out of his control but, on the contrary, represents the very causal force that moves prices in coordinating directions.

In Kierkegaard’s writings which, like the writings of the Austrians sought to establish a theological metaphysic from which an individual could derive principles of moral certitude, it was the Knight of Faith – the true believer with complete faith and certainty in both himself and God – that filled in the logical gaps inherent in even the greatest philosophical systems. For the Austrians the entrepreneur filled the same role – except that this was a great hero that had both full faith in the Market and the ability to find opportunities to inject disequilibrium into the price system through innovation.

By now we are far outside the realm of anything even remotely resembling a science of ‘value’. What we have instead is a vast metaphysical and moral system that is built around a very specific – not to mention very narrow – conception of value, together with a sort of existential appendage in the form of the hero-entrepreneur. The hero veneers over the logical flaws in the metaphysical system, while that system remains in place as a faith-based explanatory schema which can be applied to the world around the libertarian.

Note how fantasy blends into reality almost completely at this point. No longer do we separate our supposedly ‘factual’ ideas about ‘value’ from the mythological figure of the entrepreneur. Fact and fantasy merge to form a sort of continuum the purpose of which is to insulate the devotee from any empirical evidence that might arise to prove them wrong – or, at least, misled – regarding, for example, more fundamental and more pressing macroeconomic questions. They simply know what is what because they have it all worked out – and no silly facts are going to tell them otherwise.

From the fertile source of marginal utility value calculus the Austrians thus constructed a pristine moral and metaphysical system. But in doing so – like all metaphysicians – they allowed their imaginations to run away with them. They never noticed the point at which they crossed that fateful line; that line that separates our attempts to represent the world accurately and dispassionately to ourselves from our attempts to create a fantasy world in which we can live. The Austrians had, at first, attempted to use their imaginations to explain the world around them and, in doing so, had fallen into a dream world of their own creation.

And so the foundations of the political cult we call libertarianism were firmly in place. It is an ingenious creation which even came to include what CG Jung and other mythologists might call a central ‘archetypal’ or mythic figure. Even more specifically, what the Austrians have done is insert into their narrative what the great American mythologist Joseph Campbell called the ‘monomyth’. The monomyth is a recurrent theme in mythologies from all over the world. It is essentially a ‘hero myth’ and, as Campbell argues, can be located in most major religious narratives (Christ, Buddha etc.). In this the Austrians provided the libertarian religion with their very own version of the monomyth.

That most libertarians are ignorant of the source of their beliefs – just as most of them are not very conversant with economic theory generally, their protestations to the contrary notwithstanding – only adds a sociological dimension to their cult. Their cult forms a hierarchy where those who are closer to the Grand Truth are supposed to know more than those who are less conversant. Those who are less conversant then scrutinise the Great Texts – which are largely taken to be Holy Writ – until they can advance up the priestly ranks.

The Malign Consequences of Political Cults

After experiencing what used to be called ‘Bolshevism’ we are well aware of the dangers of political cults if they should ever ascend to power. Indeed, we already had forewarnings of this danger in the cult of Reason that Robespierre erected in revolutionary France upon the intellectual architecture that Jean-Jacques Rousseau had constructed for him. All of these cults espouse liberty and freedom and end up creating regimes of pure tyranny. Why? Because in their violent desire to turn reality into a Utopia, they stamp all over reality as it fails to conform to the images in their minds.

Some have objected to fellow Naked Capitalism writer Andrew Dittmer’s ‘interview’ series as an attempt to misrepresent the libertarian movement by espousing the ideas of an extremist. This is unfair. The views of people like Hoppe may be fringe among libertarians – then again, they may not be – but the zealousness is the same across the whole movement.

Libertarians think that they have unearthed a Truth that no one else can grasp (because, of course, this Truth being so pure, anyone who could possibly grasp it must then by default recognise it as Truth). And they think that if they can get adequate social and political power to enforce this Truth we will all be better off for it. Hoppe’s vision of a totalitarian, corporatist future is thus realistic in that if libertarians were ever truly to get into power they would have to enact an immense violence upon the world to try to get it to conform to their vision of Utopia. In this, they are like every other political cult that has ever existed. And they are just as dangerous.

In fact, the libertarians are the direct heirs to the Marxist-Leninist throne. Even though their motives differ substantially, their Faith is based on very similar principles – which is not surprising given that both movements grew out of the same 19th century debate over economic value. In this regard it is useful to recall John Maynard Keynes’ characterisation of Marxism-Leninism:

[It] is the combination of two things which Europeans have kept for some centuries in different compartments of the soul – religion and business.

Keynes also highlighted an important point about how such cults become influenetial:

[They derive their] power not from the multitude but from a small minority of enthusiastic converts whose zeal and intolerance make each one equal in strength to a hundred indifferentists.

The goal may have changed, but the unswerving faith in pseudo-scientific – or, to be very precise, in the Austrians case, because they tend to eschew ‘scientificity’: pseudo-rational – economic doctrines has not. Let us just hope that such a cult does not deliver to us another era of primitive tyranny and medieval inquisition. It is our democracies that are at stake.

The song No Charge reminds us that Britain used to be less greedy

Those who believe the myth that 1970s Britain was 'the sick man of Europe' forget how progressive the decade was

Neil Clark
Neil Clark
guardian.co.uk, Friday 10 June 2011 10.30 BST



It's regarded by some as one of the slushiest No 1 records of all time. It's exactly 35 years ago this week that No Charge, sung by the Canadian artist JJ Barrie, got to No 1 in the British pop charts – and thanks to the wonders of BBC4, who are repeating Top of the Pops shows from 1976 on a weekly basis, we'll all be able to see it performed on our television screens next Monday.

Some won't be looking forward to it too much – in his Guardian article of a week ago, Alexis Petridis claimed that 1976 was the worst year for pop music ever.

But leaving aside debates about musical merit, what watching the repeats of Top of the Pops and other programmes from the same era on channels such as Yesterday, ITV3 and ITV4 shows us is what a less commercialised age the pre-Thatcherite 1970s were.

No Charge might be considered over-sentimental by some, but it is also a powerful critique of the mentality of putting a dollar sign on things we should be doing for free.

It's extremely unlikely that such a song would be released in the uber-capitalist Britain of today, let alone get to No 1. But in the progressive, left-leaning mid-1970s, it was always likely to be a hit.

Thanks to the glories of the "market economy", many things which were free, or at least very cheap, 35 years ago, cost a small fortune today. In 1976 you didn't have to book up months in advance to find a reasonable train fare from London to Liverpool, you just turned up on the day. Utility bills were not something to be feared in the days when publicly owned bodies and not profit-hungry private companies provided your electricity, gas and water.

Students going on to higher education did not have to worry about building up huge debts in order to pursue their studies. Neither did old people have to worry about selling their homes in order to finance going into care. And in those pre-Sky days, all the best sports – including live coverage of England's summer Test match series – could be watched on television for the very modest cost of the licence fee.

In short, in the social democratic Britain of the 1970s, No Charge was not just the name of a No 1 hit record, it summed up the ethos of the era – an era in which the interests of people came before corporate profits.

This aspect of the 1970s is often lost in accounts of the period. The dominant neoliberal narrative casts 1970s Britain as the "sick man of Europe" – a country rescued from the horrors of collectivism by the great saviour Margaret Thatcher. But even the liberal left have bought in to large parts of this rightwing myth, and have failed to stick up for the 1970s as much as they should. The fact that Britain went to the IMF in the autumn of 1976 is taken as proof that the postwar settlement had failed – even Denis Healey, chancellor at the time, has admitted: "We didn't really need the money at all."

Watching television programmes of the 1970s reminds us of the anti-capitalist values which were once mainstream. The year that No Charge got to No 1 saw the television debut of James Mitchell's drama series, When the Boat Comes In, which tells the story of trade union activist and strike organiser Jack Ford. The Onedin Line, currently being re-shown on the Yesterday channel, highlighted the greed of unscrupulous ship-owners and the terrible conditions that sailors had to endure in the 19th century. Upstairs Downstairs, another 70s classic being repeated on ITV3, showed how those "downstairs" saw their position improve in the 20th century. In Poldark, the title character takes the side of the poor against the greedy landowner and banker George Warleggan.

Since the days when those programmes were screened, we've seen the money-grabbing values of the City and Wall Street permeate all aspects of our lives. Who would have thought that water – which falls out of the sky for free – would become a tradable commodity, or that care homes would be owned by City investors?

While in the summer of 1976 we were listening to No Charge and enjoying the lowest levels of inequality in our history, in the grossly unequal Britain of June 2011, we're tuning into The Apprentice. The proto-Thatcherite little boy in No Charge – who wants to bill his mum $5 for "mowin the lawn" and $1 for "takin out the trash" – rightly gets corrected: today he'd probably be lauded as a brilliant up-and-coming entrepreneur.

Neoliberals want us to believe that "market forces" are the only show in town. But watching 1970s television programmes gives us a window into a world where things were different. It's not possible to turn the clock back to 1976, but we can make the title of JJ Barrie's No 1 hit record the slogan for a better and less commercialised Britain.