- Top of page
- The failures of markets
- A new political economy
- Policy implications
Despite its worthy motives, social market philosophy provides neither a useful analytical framework for understanding modern capitalism, nor the policy tools to address our present economic and social predicament. The concept of ‘market failure’, with its underlying assumption of market equilibrium, does not capture the systemically adverse outcomes of collective market forces. A more sophisticated understanding of capitalist economies, and the societies in which they exist, would recognise that the market economy is a dynamic but not self-regulating system. It is embedded in, and impacts on, four other economies – of the natural environment, of family and care, of voluntary association, and of the public sector – which operate under different motivations and allocative principles. The role of government is central, to balance the values created by different kinds of institutions and to constrain the dynamic impacts of market forces. A number of policy conclusions are offered arising from this framework.
The philosophy of social markets provides a beguilingly reasonable framework through which to understand how modern economies and societies function, and how to make them function better. It combines a bias towards markets with a strong justification for regulation to correct market failures. It marries a hard-headed desire for competition and efficiency to a compassionate concern for social justice. In this reconciliation of competing principles, it seeks to offer a moderate third way between the more extreme philosophies of free markets and statist socialism.
But on closer inspection, the social market turns out to be a rather slippery beast. On the one hand, it is more or less a truism to assert, as Ian Mulheirn puts it, ‘the basic superiority of the market mechanism in allocating resources’.1 For the vast majority of goods and services, only a handful of unpersuadable communists (if they still exist) would disagree. On the other hand, the acknowledgement that market failures are ‘pervasive’, that markets generate ‘outcomes so unequal’ as to restrict the freedom of a majority of the population, and that they do not create ‘the conditions needed to originate and sustain them’, would appear to blow several large holes in the idea of ‘superiority’. These major problems with markets mean that in practice, in many of the most significant areas of economic and public life, the policy stance required of social market advocates would appear to be not to promote markets, but rather to regulate and limit them.
So what precisely is ‘the social market approach’?2 Is it primarily the promotion of markets, or their limitation? In Robert Skidelsky's founding manifesto for the Social Market Foundation, the answer is clear. The social market approach is that ‘we turn to the market as a first resort and the government as a last resort… Our first instinct is to use the market, not to override it’.3 Similarly, for Mulheirn, the Foundation's present Director, it is ‘a presumption that markets are to be nurtured not only in the private sphere, but also in the delivery of public services and goods—provided they're well designed’. Though the state has a range of ‘important’ roles, the social marketeer is ‘suspicious of government intervention’. While acknowledging the necessity of both market and state, it is hard to avoid the impression that the social market advocate is an enthusiastic promoter of markets, and a rather reluctant limiter of them.
But that may simply be because social market theorists have, for the past quarter of a century, mainly been concerned with the failures of public policy in areas where the state has been dominant, notably in the delivery of public services. Unsurprisingly, this has led them to focus on how more market-oriented approaches might provide better alternatives to monolithic public provision.
Over the past five years, however, the primary problem facing Western societies has not been a consequence of the failure of the state, but of the failure of markets. Financial markets, as we now know, took colossal, systemic risks in the pursuit of enormous profits—behaviour which almost culminated in the ruin of the entire global economy. Only state intervention prevented it. At the same time, the market generated huge inequalities in income levels, with financial institutions and corporate boardrooms remunerating their senior executives out of all proportion to performance, while a freer labour market compressed wages at the bottom half of income distribution.4 Today we are witnessing a third huge failure of markets, in the inability of Western economies’ private sector to generate growth without government stimulus. Private corporations are sitting on huge mountains of saved cash but, given current market conditions, are unwilling to invest it in productive capacity due to lack of economic demand: a classic instance of Keynes's ‘paradox of thrift’.5 No or slow growth and high unemployment are the result.
It is of course true that some states (including the British one) also ‘failed’ in the same period, notably by running unsustainable budget deficits at the height of a boom. But it is clear that the primary failure of government was not too much intervention in the economy, but too little. In both the weak regulatory framework of financial institutions and corporate pay, and the lax fiscal policy which allowed a huge build-up of private debt (in households, firms and banks), governments proved themselves overly pro-market, not insufficiently so.
What do social market theorists say about all this? Ian Mulheirn acknowledges all of these factors. And on the economy—in contrast to the field of public services—he does not propose new market mechanisms. On the contrary, he calls for ‘state-led infrastructure investment’, and supports a government-owned investment bank. He argues for state intervention to restructure private banks, with the complete separation of their retail and investment functions. And he even suggests that policy-makers should be concerned about ‘industrial diversity’—that is, with changing the structure of the economy. These are hardly pro-market policy stances.
Of course, to a proponent of the social market, this is no contradiction. One can be pro-market in the field of public services, where the state is dominant, and pro-regulation in the wider economy, where it has been too weak. That is precisely the beauty of social market philosophy.
But this then gets us to the nub of the problem. What precisely is the work which this philosophy is doing here? How does it help us, either in analysis—understanding how capitalist economies and societies function—or in prescription—guiding policy towards them? Because social market philosophers have spent a lot of time seeking to show that the market principles of choice and competition can improve public services, it is clear how their analysis informs their policy choices in this area. But in the economic sphere, there seems to be much less theory underpinning the prescriptions. What is the analytical basis for arguing in favour of a state bank? When should governments decide how private enterprises should be structured, and when should they leave them alone? What are the principles underpinning the appropriate regulation of markets? What kind of state is required to undertake it?
The failures of markets
- Top of page
- The failures of markets
- A new political economy
- Policy implications
Social market theorists do have a general answer to these questions. Governments should intervene in markets when there is ‘market failure’—that is, when markets do not allocate resources efficiently. Markets fail in a number of ways. The classic market failure is where there are negative externalities—effects on third parties not involved in the market transaction. Pollution and other forms of environmental damage provide the paradigm cases. But markets also fail where there are positive externalities—economic benefits which cannot be captured by the market players. Research and development in science and technology provides the usual case in point: it tends to be under-supplied by private actors, thus justifying government spending. Markets under-produce public goods for the same reason: the impossibility of preventing free riding means that defence, policing, fire services and so on need to be paid for from compulsory taxes rather than free markets. The same problem afflicts infrastructure provision: even where it is possible to confine usage to paying customers, such as with toll roads and electricity supply, a private market tends to produce too little to maximise the benefits to private actors, so states almost always have to fill in, or take over.
Other social goods are private in consumption, but the inequalities in provision which arise under a market allocation reduce the potential for economic growth—that is why education, health and a variety of social services tend to be at least partly publicly funded and provided. (It is also, of course, because civilised societies have seen these goods as necessary components of citizenship, and a concern for social justice has demanded their universal provision in some form.) Over the past two decades, the range of social services which have come under the category of those necessary to support economic growth has widened, now including childcare and care of the elderly, in order to allow women in particular to participate equally in the labour force. At the same time it has been widely recognised that skills training too tends to be under-supplied by the market—here, again, public subsidy has proved necessary to correct market failures.
If these are some of the failures of markets as static systems of resource allocation, a different set emerge when markets are analysed in term of their dynamic effects. The most obvious is that of boom and bust—markets left to themselves tend to generate periods of excessive demand, inflation and asset bubbles, followed by recession and slump and accompanying structural unemployment. As is being demonstrated all too painfully today, not only does this produce huge social costs, but market economies may not be able to get out of a downturn without state intervention of some kind.
Other dynamics are also evident. Market economies tend towards concentration: as markets mature, large corporations tend to become dominant, frequently forming oligopolies which in turn inhibit competition and innovation, concentrating not just economic but political power. Over the past three decades, throughout which public policy has been progressively aimed at deregulating labour and capital markets, developed economies have shown a pronounced tendency towards greater inequality, with the most deregulated manifesting the greatest divergence between the rich and poor.6 At the same time, market economies have shown themselves unable to take account of long-term risk: dependence on fossil fuels as the primary source of energy is on a clear trajectory to causing catastrophic climate change which will destroy economic value, and indeed appears already to be doing so; yet the problem of organising collective action in a global commons makes markets unable to respond on the required scale or in the required timeframe.7
But hang on. As lists of failures go, this is a pretty long one. When seen together like this, it suggests not just that market failure is (as Mulheirn acknowledges) ‘pervasive’, in the sense that all markets generate externalities which need regulating; it also indicates that such failure is systematic: multi-dimensional, simultaneous and on an economy-wide scale. But then this surely raises the question of why we should see the positive attributes of markets—their statically efficient allocation of resources, and the innovation-induced growth which they generate—as the norm, while these negative characteristics are regarded as aberrations. The very language of ‘market failure’ betrays the assumption that markets normally succeed. But in fact they normally succeed only in some ways; they normally fail in others. All these tendencies, positive and negative, are basic to markets: privileging some as their ‘natural’ outcomes, while others are seen as occasional lapses, is to misunderstand them. It denies the historical record of capitalism, and completely misses the point about what has been happening over the past thirty years.
None of this is revelatory. Everyone, including proponents of the social market, knows about these characteristics of markets. They have been analysed in theory and documented in practice over 150 years of economic scholarship. Not least, they are the reason why between one-third and half of the value of all modern Western economies is produced by the public sector. They explain why, in addition to the services which the state provides directly to its citizens, it performs a panoply of regulatory and strategic activities to both constrain and support market processes and the businesses which engage in them—from environmental taxes to R&D subsidies, from training provision to infrastructure investment.
So why, therefore, does the ‘market success/market failure’ model persist as the dominant framing for analysis of the capitalist system and prescription of policy? In its neoliberal form, the answer is straightforward. Neoliberals may accept that markets generate negative consequences, but they do not believe that any intervention which the state might make to ameliorate these will be either successful or worth the cost. Whether because economic actors will always predict government interventions and thereby negate them, because governments are almost always incompetent, because the effect of state action is an unacceptable diminution of freedom, or because the unintended costs of intervention tend to outweigh its ostensible benefits, neoliberalism rejects all but the most fundamental roles for government in the economy.8 So an analytical model which assumes market success and sees failure as an occasional aberration is helpful: it justifies the prior ideological and theoretical stance.
But it is not so evident why social market philosophers should use the same model. As Mulheirn makes clear, social market advocates understand that market economies generate severe disbenefits, and are prepared to use the state to tackle them. They are concerned about inequality and injustice, seeing the former as a restriction on freedom and the latter as a source of illegitimacy. They acknowledge that markets can only work on a foundation of non-market institutions which operate under different principles, such as the rule of law. So why employ a foundational market model which sees government interventions to supply public goods as exceptions to the normal rule, proclaims itself ‘suspicious’ of them and seeks, in general, their limitation?
The answer almost certainly lies in the history of the social market idea. It is no coincidence that the Social Market Foundation was founded in 1989, the year the Berlin Wall fell. As Mulheirn notes, its genesis lay in the collapse not just of state socialist countries, but of the intellectual tradition which had nurtured them and which still at that time underpinned social democratic thought in most Western Labour parties. These had made the disbenefits of market forces central to economic analysis, and placed government intervention—whether based on ownership or regulation—at the heart of an alternative economic worldview. Although Western social democrats held no truck with the state socialist systems of Eastern Europe, they were inevitably contaminated when those collapsed. As confidence on the left drained away, the obvious intellectual beneficiaries were the neoliberals and free marketeers—those who rejected almost any form of government intervention in the economy and sought both to delegitimise the state and to roll back its functions.
For those who rejected this extreme position, but did not identify with the socialist tradition, an alternative was needed, and the idea of the social market provided it. By accepting the primacy of markets, social marketeers entered the debate on the terms offered by the newly dominant neoliberals, but with a more nuanced and compassionate approach in which the failures of the market could be acknowledged and limits accepted on its free functioning. At the same time, the social marketeers drew on the philosophers of ‘market socialism’ who had sought in the 1980s to develop a new approach to public policy on the left, employing the competition and innovation of markets to stimulate egalitarian improvements in public services and to liberate the then-nationalised industries.9
This is an honourable history. But times have changed, and the social market philosophy is no longer adequate for the analytic and prescriptive tasks it sets itself. Today it is not the problems of state socialism but the multiple disbenefits of market capitalism which are the dominant economic facts to be confronted by our societies—its tendency to create unsustainable asset bubbles and generate systemic risk, the inability of an unregulated finance industry to support long-term productive investment, the unbalanced distribution of economic activities between sectors and lack of innovation in key industries, the inequalities of reward between the highest earners and the bottom half of the income scale, the concentration of economic power in corporations and their consequent political influence, the systemic dependence on fossil fuels which cause climate change, and the failure of private enterprises to invest out of a slump despite negative interest rates. In the public sector, likewise, we need today to account not just for the failures of public service provision, but for the increasing evidence of the failures of private service providers: the rents they have taken out of public contracts, the difficulty of system coordination, the impact of the profit motive on the quality of social care, and the creation of oligopolies with powerful political influence.10
To understand these phenomena we need a more sophisticated understanding of capitalism, and of public service provision, than is provided by the idea of a social market. In particular, we need to escape the neoclassical concept of ‘the market’ as the foundation of analysis. At a microeconomic level, markets for the vast majority of goods and services can be helpfully analysed in neoclassical terms, as homeostatic, equilibrating mechanisms. But at the level of the whole economy this kind of analysis breaks down, and its use as the foundation of economic theory is positively misleading. At a macroeconomic level we confront not individual markets, but what are best called market forces: the aggregated outcomes of individual consumer and firm behaviours in hundreds of thousands of separate markets. Some of these outcomes are positive, such as economic growth and technological advance; some are negative, as we have noted. But in both cases it is not equilibrium which is the primary characteristic observed, but dynamic change. And it is for this reason that a neoclassical market framework is not the best basis for analysis.
It is possible, of course, to understand these phenomena in terms of ‘market failure’. Almost by definition, if the market is your frame of reference and your assumption is that it normally succeeds, then negative outcomes can be described as market failures. By extension, policies to ameliorate or prevent these disbenefits can be described as ‘correcting market failures’. But very little explanatory work is done by such an approach. It is one thing to observe disbenefits after the event, call them market failures, and then seek post-hoc policy correction; it is quite another for one's analysis of the system to predict such events, and so to seek ex ante policy which would prevent them occurring or dampen their impact. It is notable that social market theorists were not in general advocates for greater regulation of financial markets before the crash: on the contrary, their anti-interventionist approach tended to support deregulation. They did not argue for state investment banks. They were ‘cautious’, as Mulheirn puts it, about using taxation for purposes of redistribution. They did not acknowledge the systemic risk posed by over-dependence on fossil fuels. In general, as Mulheirn acknowledges, social marketeers argued for limited state intervention in the economy. So there is something odd about the claim that the social market approach offers the best conceptual framework to confront our present problems. In reality it has neither the analytical tools, nor the policy arsenal, to perform the task required.
A new political economy
- Top of page
- The failures of markets
- A new political economy
- Policy implications
What would perform the task better? A more sophisticated, and useful, analysis of capitalist economies and the societies in which they exist would start from four fundamental insights.
First, that capitalist economies are systems. That is, they are formed of multiple relationships between economic actors which give rise to dynamic patterns of growth and change. These patterns—market forces—in turn generate aggregate, macroeconomic outcomes which are more than simply the sum of the microeconomic markets which underpin them. To understand different forms of capitalism, we need to understand the ways in which these market forces arise and the systemic outcomes they create—both those which are generally positive for social and individual wellbeing, and those which are generally adverse.
Second, market economies do not exist in isolation. They are embedded in, and depend upon, four other systems of production (and reproduction). The first of these is the natural environment, which produces the fundamental energy and material resources on which all economic output is based, and which assimilates the waste products it generates. The second is the economy of the family, through which children are brought up and socialised, which nourishes the labour force outside the sphere of market production and which cares for the elderly, disabled and others unable to contribute to market production. The third is the economy of voluntary association, charity and the community, through which people gather together with others to produce collective goods, both for private consumption (such as sports and leisure associations) and for general benefit (such as charities, civic societies, non-governmental organisations and community associations). This economy is small (though not negligible), but it is an important part of the fabric of any functioning society. The fourth is the public economy, which provides those public and social goods which the market economy under-supplies, or would supply only on an unacceptably unequal (and insufficiently productive) basis. Without these four systems of production underpinning it, the market economy could not function as it does: it would not have a supply of energy or resources, it would be forced to spend far more on reproductive and care activities (thereby much reducing its output productivity), and it would be chronically under-served with social and public goods.
The dependence is, of course, mutual: it is activity in the market economy which increases the productivity of the natural environment, enriches the family and community and provides (part of) the taxable income which pays for public goods. So to understand capitalist economies and societies we need to understand this interdependence, and in particular how the dynamic forces of the market economy can both support the wellbeing and productivity of the other sectors, and damage them.
The third insight is that different kinds of institutions operate under different value systems and motivations, and as a consequence allocate resources in particular ways and generate different kinds of outcomes. The profit motive embodied in private enterprises is a powerful driver in the market economy: it gives rise in general to competition, efficiency and innovation. But it is not the driver in any of the other four systems of production. The natural environment operates under the laws of thermodynamics: the first law, under which matter and energy cannot be created or destroyed, only transformed from one form to another, and the second law, which observes that without an external source of energy all systems tend towards entropy, or increasing disorder.11 The family economy operates under the motivations of love and obligation, which create powerful drivers of care and reciprocity.12 The community economy operates under motivations of belonging, altruism, mutuality and often status, underpinned by a notion of collective welfare and local or other forms of collective identity.13 The public economy has different systems of motivation and production again: a notion of the public interest, which seeks to aggregate and reconcile private interests and to meet the collective needs and aspirations of society as a whole; an ethic of social justice, which seeks to distribute goods fairly between equal citizens and an ideal of professionalism, in which those engaged in public service of various kinds seek to abide by institutional ethics embodying standards of skill, impartiality and wise judgement.14
Much more could obviously be said about how production occurs in each of these different systems. But the important point here is that recognising these different ways in which resources are allocated in different economic and social institutions is important, both because it ensures that we understand how value is generated not just in the market economy but also in the other four systems of production and because it may help clarify what kinds of institutions we may wish to fashion or support to ensure different kinds of policy outcomes.
The fourth insight is that government is an essential part of any capitalist economy. This follows ineluctably from the first three insights. If market economies are systems which generate dynamic forces with negative as well as positive outcomes, only governments have the legitimacy and power to steer these forces towards the positive—indeed, only democratic governments, mandated by their citizens, have the authority to define what the general good is. If they don't, the outcomes that market economies will generate will be, in ethical terms, entirely arbitrary: an allocation of production and wealth reflecting the most powerful economic forces, but with only a contingent relationship either to the desires of the majority of citizens or to any general notions of societal wellbeing, social justice, environmental sustainability or other ideals. Of course, one may deny that even democratic governments in fact have the authority to ‘steer’ market forces in this way: free market and neoliberal philosophers would argue that such collective interventions must necessarily be totalitarian, unjust, counterproductive or ineffective. But for those who cannot see the justice or necessary social wellbeing in the arbitrary outcomes of market forces—indeed, who observe, as now its multiple failures and disasters—a central role for government seems inescapable.
That role needs to pay particular attention to the interdependencies between the market economy and the four other systems of production. As a freer form of market capitalism has developed over the past few decades, one of its most striking characteristics has been the impact it has had on the other economies. Environmental damage is now widely acknowledged, although its scale, and the threat it poses to future economic growth, are still largely ignored by mainstream economists.15 Analysed even less well, though experienced by nearly all of us, are the pressures which the demands of higher productivity in the workplace and more demanding patterns of consumption have placed on family life. The increasing length of working hours and their greater intensity—what most of us experience as work ‘stress’—are consequences of the structural changes in the economy over the past thirty years. They have resulted in a widely felt ‘time squeeze’ on family life, and on the possibilities for and quality of family care for elderly and disabled people. A similar squeeze has occurred on the time people have been able to spend in the community economy.16
The relationship between the market and public economies is complex. But one of its most obvious features in recent years has been the large-scale entry of private enterprises operating within the market economy into what were formerly purely public services. While different views may be taken as to the benefits or otherwise of this, it seems incontrovertible that it has affected the structure and nature of those services, as different motivations and systems of production have been brought to bear on them.17
These relationships between the market economy and the other economies create an important role for government. The relationships are not equal. The dynamic forces of markets tend towards environmental degradation, the squeezing of time and the pre-eminence of commercial market and exchange-based values over those of reciprocity and public service. These may be acceptable trade-offs, but their acceptability or otherwise will not be judged by the market. So a crucial function of government is to bring these tensions out into public debate, to find a means of judging an appropriate balance and, where appropriate, to protect the non-market economies and values against their excessive depredation by the powerful but unthinking forces of the market economy.
Another way of putting this is that only government can enable society to determine the kinds and balance of institutions of which it is composed. The market economy creates very particular kinds of institutions: profit-motivated companies and markets in which value is determined through commercial exchange. Its dynamism in turn tends to expand these kinds of institutions. But if society acknowledges the importance of other kinds of institutions, with other motivations and values—the family, community associations, co-operatives and mutuals, the professions, public bodies of various kinds; and, underpinning them all, the natural environment—it needs to ensure that these are protected, and given the resources, recognition and space they need to flourish. This will sometimes mean placing limits on the expansion and reach of the market economy. Only government can do this.
- Top of page
- The failures of markets
- A new political economy
- Policy implications
These four insights provide for a much richer understanding of how capitalist economies and societies work than the simple framework of markets and their ‘failure’ which underpins the philosophy of social markets. None of them are original. All have their own body of scholarship. But it is surprising how little of this analysis has found its way into mainstream commentary on the crisis through which we have been living over the past five years. On the contrary, the dominant framework of thought has been the very neoliberal theory which provided the intellectual basis for the forces which created the crisis. Despite the wealth of evidence that the financial sector is under-regulated, that Western economies are now finding it hard to generate growth, that income inequalities are still growing and living standards for the majority are now stagnating or in decline and that global economic growth is causing runaway climate change, the virtues of the unrestrained market economy are still the foundation of mainstream economic and political analysis. Governments and their potential interventions in the economy are still regarded with suspicion.
Advocates of the social market are not to blame for this. The hegemony of neoliberal thought is a consequence of the economic and political power wielded by those whom it most benefits. But the social market theorists do not help in the necessary work of developing an alternative intellectual framework by their acceptance of the basic assumptions—celebratory of markets and suspicious of government—of neoliberalism.
What kinds of approach to policy would follow from this alternative analytical framework of political economy? There is not space here for a full account, but let us enumerate a few.
First, we would acknowledge the strategic need for governments to guide the market economy through the business cycle. As Keynes taught, market economies as a whole are not self-equilibrating: they need to be restrained in times of boom, and stimulated in times of bust. Now that the financial sector has detached itself from the moorings of the real economy, it is particularly important to regulate it against its own tendencies towards excessive risk taking. That is why separation of retail and investment banking is so important: no private bank making high-risk investments should be subsidised through government guarantees against catastrophic loss, but such guarantees are inevitable in the deposit-taking retail sector. By the same token, there is now a strong case for greater market competition in retail banking—that is, in what is essentially a utility function: lending to households and to small and medium-sized enterprises. In the UK, the oligopolistic banking sector, which is now intent on rebuilding its balance sheets rather than lending to the real economy, should be given a stiff dose of competition from a variety of publicly and mutually owned regional banks, as exist in most other capitalist countries (including Germany and the US).18 The public ownership of RBS and Lloyds TSB provides an ideal base from which to create such institutions. The Green Investment Bank is already in place—though, absurdly, without borrowing powers for another three years (at least)—to provide state support for vital investment in infrastructure.
But we can now see that what is needed is more than just management of the financial system. The British economy, in common with most of its Western counterparts, is not structured well to meet the competitive demands of the new global economy. As many economic commentators and politicians have observed, after two decades of domination by the financial sector, it is sectorally ‘unbalanced’. Less often admitted is that its rate of productivity growth and capacity for technological innovation continue to lag behind those of most of its competitors. In these circumstances, governments need to engage in more active forms of intervention aimed at stimulating innovation and growth in those key sectors which can meet the demands of expanding overseas and domestic markets. The need for ‘industrial policy’ of this kind was belatedly recognised by the last Labour government towards the end of its period in office; more recently, Michael Heseltine's report for the present Coalition government made the same case.19 But there remains much work to be done to define in practice what is required. The most convincing account of late has come from the innovation economist Mariana Mazzucato, who calls for the creation of public institutions able to undertake research and development themselves (as exist especially in the US), and for a focus on medium to large-sized innovation-based companies which are capable of growing to significant market size.20
Second, we would acknowledge the need to halt the dynamic of growth in greenhouse gas emissions. Fossil fuels have powered the industrial economy for 200 years, but it is now clear that we can only avoid catastrophic climate change if we shift towards renewable (and nuclear) sources and towards the interconnected ‘smart’ grids and integrated energy markets which can support them.21 This cannot be left to the market, which in the absence of government policy will simply go on exploiting abundant fossil fuels. Only the range of policies which have begun to be put in place over the past few years in Europe and elsewhere—long-run emission targets, a price on carbon, subsidies for renewable energy, incentives for energy efficiency investment and a regulatory framework to support the construction of smart grids—can put the global economy on a sustainable footing. A similarly global and strategic overview will be required to constrain the market forces which are currently leading to the unsustainable exploitation of land, water and marine resources.
Third, we would recognise that the present dynamic of income and wealth distribution in industrialised economies, particularly of the Anglo-American kind, tends towards greater inequality, and that this is socially unsustainable as well as unjust. Three kinds of policy approach to this are available. A familiar one, though still in need of reform, is the use of social security and welfare systems and the raising of the minimum wage. Self-evident, but still rarely used, is the redesign of taxation systems to make them more progressive—particularly with regard to taxing wealth, whose highly unequal distribution does the most to perpetuate social inequalities. A barely discussed option is that of spreading economic ownership. Policies to raise incomes after tax are necessary, but are not sufficient when the drivers of inequality derive from the ownership and control of productive capital. Policies to address inequality should therefore focus also on how ownership of publicly quoted enterprises can be more widely distributed, whether through employee ownership, partial mutualisation, government stakeholdings or the creation of a ‘community fund’—a publicly-owned unit trust with periodic citizen dividends.22
Fourth, we would acknowledge that in the provision of public services, institutions and their values matter. The ways in which services are configured and the motivation of those who provide them affect the quality of the services provided. Consumer choice is a good thing, which can raise standards and promote innovation. But it is not the same thing as the headlong marketisation of public services upon which the Coalition government has embarked. Far from creating diversity, this is serving merely to reinforce the extraordinary market dominance of a few private sector corporations (Serco, Capita, G4S and the like) which have become specialists in winning public contracts—the entirely predictable result of allowing market forces to operate.23 A policy approach which acknowledged the importance of institutions in service delivery would focus on creating a much more diverse ecology of providers, in the public, mutual and social enterprise sectors as well as the private, within a strong framework of collaboration and strategic direction which only the state can provide.24
Fifth, we would recognise the way in which a concentration of economic power can lead to the undemocratic exercise of political power. This is already obvious in the ways in which private sector contractors have influenced the marketisation agenda. It is clear too in the financial sector, where lobbying by the banks has hugely weakened efforts at regulation. The same process has inhibited reform in the energy and water sectors. The United States offers a grim warning of how corporate power can influence public policy: extreme vigilance is required to ensure that policy-makers are not merely responding to the needs and demands of market incumbents.