The state and the economy

Slide 1: 

The state and the economy We must create institutions and policies that can restructure the economy

Relationship between the state and the market? : 

Relationship between the state and the market? What is the relationship between the state and the market? Do we need to rebalance the relationship? Is the current crisis somehow an outcome of the deregulation of the financial markets?

Slide 3: 

Re-regulation?

Re-regulation? : 

Re-regulation? We need to question if what is required is re-regulation, a systematic form of state intervention both in the financial markets and in other sectors This argument is based on the assumption that the recent past has been an era of neo-liberalism where the state had a small and undistinguished role in social and economic life In reality, the state already has a formidable presence in the economy, and has had for a very long time.

The state and the economy : 

The state and the economy In every major economy, we have seen very large government budget deficits in recent decades The public sector has played a crucial role in the creation of new jobs Many of the financial policies now linked to the global recession are part-and-parcel of this state involvement in the economy: low interest rates encouraging consumer spending the housing boom The state has not been a neutral observer but an active promoter of these things.

Slide 6: 

Expansion of state regulation

Expansion of state regulation : 

Expansion of state regulation The state is not a stranger to regulation While there has been some deregulation in some sectors, in the financial and banking markets for example, there has also been an expansion of state regulation in a whole number of areas in various different ways – including in finance and banking The rise of corporate governance imposes many petty rules The world of business is far more regulated than ever before.

So, what can the state do now? : 

So, what can the state do now? It must play a fine balancing act: Must restructure economic life and establish the basis for future growth (most governments claim to recognise this) Must deal with political pressure to maintain jobs and living standards. There is a contradiction between these two imperatives But most policymakers are reluctant to spell out the difficult decisions that have to be made in relation to this contradiction.

Slide 9: 

Promoting consumption?

Promoting consumption? : 

Promoting consumption? One attempt to overcome contradiction between future growth and current living standards is by promoting consumption Belief that, somehow, if state expenditure is increased, the economy will be stimulated leading to prosperity and economic growth This is naïve - more money to clapped-out car industries isn’t going to do very much for the future, nor will it even help the workers employed there in the long run because their living standards will be compromised.

Slide 11: 

State v Market?

So what kind of state do we need under these circumstances? : 

So what kind of state do we need under these circumstances? Wrong to counterpose the state to the market. State has an indispensible role to play in creating the conditions for global recovery Not by becoming an even greater regulator, nor by printing money Need a strategic approach: diversify away from consumer spending and financial services to a restructuring of the economy To do this, the state will have to focus on at least five things:

Slide 13: 

The state will have to focus on at least five things:

Slide 14: 

Science and innovation

Slide 15: 

2. An industrial policy, broadly defined

Slide 16: 

3. The improvement of infrastructure

Slide 17: 

4. The creation of a more productive and reliable energy sector

Slide 18: 

5. The encouragement of new, productive start-ups rather than on saving older industries

Slide 19: 

Problems with the state

Problems with the state : 

Problems with the state Problems with the market are obvious But the state is far from perfect - public sector is far from being as efficient as it could be Key problems: rise of risk aversion and the evasion of responsibility Tendency to outsource state’s authority Some see contracting out responsibilities as a good thing – ‘reliance on private initiative’ Really refusing to accept responsibility for the fact that it cannot provide proper services.

Slide 21: 

Outsourcing the state’s authority

Outsourcing the state’s authority : 

Outsourcing the state’s authority Independence of Reserve Bank e.g. allows evasion of responsibility for economic decisions

Slide 23: 

Historic responsibility for the defence of the nation – now security often outsourced e.g. private security guards at courts, police stations etc

Outsourcing the state’s authority : 

Outsourcing the state’s authority Excessive use of consultants to deliver Decision-making is done at arm’s length; responsibility is avoided.

Short-termism : 

Short-termism State has become very short-termist and one-sidedly tactical - far too subject to political calculations Finds it difficult to make hard choices Few politicians are e.g. prepared to say that the public sector will have to be cut back massively although this is likely.

Slide 26: 

Decline of a public-sector ethos

Decline of a public-sector ethos : 

Decline of a public-sector ethos It guided state actions in the past: professed neutrality, objectivity, disinterestedness and professionalism Eroded by an army of consultants coming in and out on a short-term basis and BEE self-interest Distinct, institutional consciousness no longer exists

Decline of a public-sector ethos : 

Decline of a public-sector ethos Civil servants are always moving on - few have an espirit de corps that is essential to any institution if it is to be effective You need a fairly conservative state institution in order to be experimentative - stable foundation on which to build or difficult to be innovative because you are constantly having to redo the things you did before.

Slide 29: 

The state lacks any creative impulse to innovate

Lack of any creative impulse to innovate : 

Lack of any creative impulse to innovate Consequence of this is that state lacks any creative impulse to innovate Constantly setting up quasi-state organisations whose mission is to innovate, to provide ‘blue-sky’ thinking Yet most of these do not say or propose anything risky or interesting Instead they churn out the same jargon and ideas time and time again.

Very inefficient public sector : 

Very inefficient public sector It cannot teach children how to read and write in a systematic way Health Service is highly inefficient given the amount of money that is spent on it Cannot develop rural areas Will not be overcome any time soon.

Slide 32: 

Conclusions?

Conclusions? : 

Conclusions? You can’t counterpose the state to the market There are states which are weak or strong, smart or stupid Markets are by no means always robust – they are in major need of overhaul

Conclusions? : 

Conclusions? We all need to help to bring about a state with new policies that are more worthy of the twenty-first century and which is better able to meet our needs The state can’t contain the most destructive effects of the global crisis – it can’t save the economy

Conclusions? : 

Conclusions? Don’t try to save the economy – restructure it! What does this mean for us?