Why do private-sector zealots choose to ignore the countless ways public money underpins daily life?

Free market capitalism is a con. The state is the backbone of modern British capitalism

Owen Jones
Wednesday 13 November 2013 18:52 GMT

Clutch your mobile phone close to your bosom, stroke it tenderly, and praise the Fairy Godmother of Free Market Capitalism that you’re not walking around with an obscene brick stuck to your ear, a breadstick aerial reaching towards the heavens. “Imagine what telephones would look like if the public sector had been entrusted with designing and making them,” as an opinion piece in the Telegraph had it this week, reflecting views widely held on the Right. “The smartphone revolution would probably be at least another couple of decades away.”

One tiny little flaw with this dystopic piece of counter-factualism: er, the public sector was entrusted with doing just that. Economics professor Mariana Mazzucato’s The Entrepreneurial State shows how – to take just one example – the Apple iPhone brings together a dazzling array of state-funded innovations: like the touchscreen display, microelectronics, and the global positioning system.

The governing ideology of this country is that it is the entrepreneurial private sector that drives human progress. The state is a bureaucratic mess of red tape that just gets in the way. But free market capitalism is a con, a myth. The state is the very backbone of modern British capitalism.

It begins with the state’s protection of property rights, which needs a costly legal system to protect. Patent law prevents companies having their products ripped off by rivals, and limited liability and insolvency law encourages investment by preventing shareholders being made personally liable for debts. As the economist Ha-Joon Chang has pointed out, in the early days of capitalism a businessperson would have to sell all their earthly possessions if they fell into ruinous debt, even facing the prospect of the debtors’ prison.

The state spends billions of pounds a year on research and development that directly benefits business: no wonder the CBI applauds “additional spending on research and innovation” that attracts business investment. Businesses depend on the billions the state lavishes on infrastructure, too. The CBI routinely demands more and more public dosh is thrown at roads and airport expansion. Our taxpayer-subsidised privatised railway network is a classic example of how our modern economic system works. The government splashes out several times more money than in the days of British Rail.

Recently, the House of Commons’ Public Accounts Committee denounced the Government for throwing a £1.2bn subsidy at British Telecom for building rural broadband. Fossil-fuel industries are granted effective subsidies, too, with generous tax allowances, and by leaving the state to deal with the costly environmental damage they inflict. A recent environmental committee of MPs found that nuclear power gets an annual subsidy worth £2.3bn, and arms exports benefit from government subsidies worth £890m a year.

Who do businesses depend on to train their workers? State-funded education, of course, and indeed there are those who advocate letting for-profit companies take over schools, which would mean taxpayers’ money subsidising shareholders rather than looking after children.

Many companies pay poverty wages, leaving the state to subsidise them with billions of pounds of tax credits, housing benefits and other in-work benefits. Businesses are even increasingly benefiting from free labour with the rise of so-called workfare, where they pay nothing to shelf-stackers and other workers, leaving the taxpayer to pay out derisory benefits instead.

Privatisation has proved a generous subsidy of the private sector, too, with £1 in every £3 of government spending on public spending going straight to profiteers. Like G4S, for example, which failed to provide the security personnel for the Olympics, leaving the state to come to the rescue. Or take PFI, where private contractors are paid to build schools and hospitals and lease them back to the state. The actual worth of the completed projects was £54.7 billion, but the taxpayer is projected to pay them £310 billion when it finally pays them off. And then there’s the financial system that all businesses depend on. It wasn’t free-market dogma that saved the banks: it was, of course, the state.

Free-market triumphalism is endemic among the British elite, but rarely challenged. It’s time to start exposing it for the sham it is. They demonise the state, but they are dependent on it. Perhaps they should be a bit more grateful.


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