Paradoxically, the aim of the organisations most vociferous in extolling the virtues of free enterprise is to become a monopoly, to reduce competition, as long as they hold the monopoly. Let us go back for a moment to first principles. As a trainee straight out of university I was faced with the question in a training group: "What are we in business for?". 'Making cars' and other variations on this theme were rejected. The aim is to make money. This is usually softened to 'the profit motive', but it means, simply and brutally, "we will do anything which is legal to earn as much money as possible with the means at our disposal". This means that moving out of car production into, say, property development is O.K. if it increases profits. Making money is the first priority, which means that all other priorities e.g. safety have to come second, or worse. There can only be one first priority. A commercial organisation pays the lowest wages it can get away with according to the demand and supply at the time. Forget the corporate spin about 'looking after the workforce' etc. This is just about longer term survival: doing what is necessary to ensure the survival of the organisation, to survive in order to continue to make money. So anything which is not consistent with this will not happen unless a higher force intervenes i.e. the state. In the case of labour state intervention is in such areas as the minimum wage, maternity leave, redundancy etc. We all know what an uproar there was from the commercial world at the introduction of the minimum wage. The reason for the uproar was simple: it increases costs and reduces profits.
Capitalism is seen, according to the free market thesis, as the best way of increasing the prosperity of the people. This is its justification. There is a fundamental flaw in this argument. As we have seen above, if an organisation's first priority is to make money, then why should it voluntarily give up any of its profits? It will do this only if it sees that giving up part of the profits now will increase profits later by more than the amount given up. It has nothing to do with the prosperity of the people. It even has nothing to do with the prosperity of the organisation's own people. So it is not free enterprise which increases the prosperity of the people: it is the curbs on free enterprise which do this, curbs which overwhelmingly can only be exercised by the state. But according to economic orthodoxy for the last twenty or more years state interference is bad. Bad! State interference is bad! Taxes are bad! Why? It tends to reduce the opportunity to maximise profits, it interferes with the first priority.
This is one of the worst aspects of globalisation. It is not that large commercial organisations are inherently bad: the economies of scale in the economic sphere are real. It is that global organisations, in their quest to maximise revenue, can threaten and pressurise states into lowering corporate taxes simply by saying "We will move our operations to country X unless you reduce taxes on business". These pressures, which are quite legitimate and logical at the micoeconomic level of an organisation, have a catastrophic effect at the macroeconomic state level. They reduce a state's ability to raise enough tax revenue to maintain the infrastructure. The U.K. proves this point with ever lower tax rates and a corresponding decline in public services. Every Western government is running scared of the multi-nationals taking their operations elsewhere, but in so doing each government is failing to fulfil one of its main obligations to its citizens: to provide basic services like water, power, education, health care. Because of the fear of increased unemployment and the misguided belief in "private good, state bad" dogma, public funding declines and the fraudulent introduction of privatisation increases.
Privatisation. There are several fundamental flaws in the flight into
privatising what used to be state-provided services:
There is a difference in principle
between providing basic services and providing discretionary goods and services.
The state cannot abrogate responsibility for water, power, education, health
etc. It has to carry the ultimate responsibility. It cannot just let the
service disappear. This was proved in the case of Railtrack. Private companies
have no such responsibility - it conflicts with their first priority. (Making
money, remember?) You cannot run for example a regular i.e. daily postal
service to remote areas and make money. No commercial organisation would
want this, unless its losses were subsidised by the state. Hospitals do
not generate revenue, except from the state or from the wealthy. But once
the state interferes in any way with the privatised companies operations,
e.g. with performance targets (another flawed concept) then the private operator
has all sorts of reasons to justify any poor performance: "if we were allowed
to get on with the job..", "all this red tape..." etc. The result is muddle,
money spent on watchdogs, endless meetings and so on. Money which could
be spent on the service itself.
The myth that only private companies can run large organisations effectively and efficiently. Where is the evidence? There is plenty of evidence that large-scale private organisations have a mixed track record. Railtrack again. There is no reason in principle why a private company can automatically be more efficient at running public services. Running a large organisation is to do with management skills, not the pressure to earn a return on capital. According to the privatisation dogma the Civil Service (certainly a large organisation) as a whole should be privatised. Would Ministers be happy with for instance a Branson-run Civil Service? Or even a Bill Gates Civil Service, no one can deny Microsoft's ability to make money. If not, what is the difference between the Civil Service and any other public service?
The elimination of risk. Private enterprise was based on risk: the term risk capital, the whole concept of a stock market where an organisation's monetary value can fluctuate at any time, for whatever reason. Note the howl of protest from Railtrack's shareholders when the government refused to allocate more money and the share price nose-dived. Such a howl would have been directed at Widgets plc's board if Widget's share value dropped. The losses would just have be endured, but there is a belief that investment in what were (and should still be) public services should be risk-free. This spreads to organisations as witnessed by the extortionate terms under which Gordon Brown has allowed private funding for hospitals. Desperate to stay within spending limits, so no immediate state funding, the political need to do something now anyway has enabled the private companies to obtain terms which are effectively a licence to bank a guaranteed return for thirty years. The term risk capital is ludicrous in this scenario. The elimination of risk has also spread to people in relatively strong bargaining positions: witness the chief executives who now extort fixed contracts so that if/when they personally fail in their jobs they can walk away with the odd million pounds or so.
The article of faith that the profit motive automatically reduces costs to the minimum, so maximising returns on capital invested. So, to take poor Railtrack again, minimising costs may have loomed large. At what point does this jeopardise the service as a whole? Remember that the logic of private enterprise to follow the path leading to the greatest return is not open to organisations such as Railtrack. It could not just go into property alone (property ironically being probably its greatest potential source of revenue). So the pressure to reduce costs becomes unreasonable. If the pressure to reduce costs does not directly cause rail disasters it contributes significantly to the odds of such events happening.
The myth that there is more money from the private sector. Given two organisations being run equally efficiently, public and private, the private one will plough fewer resources into the business as shareholders insist on a return on their investment: failure to "compete" in this respect simply results in the money supply drying up. A publicly-owned organisation does not need to haemorrhage resources in this way.
The world of private capitalism is now too volatile for its and the world in general's good. The stock market is a flawed process for at least two reasons. The growth of computer programs to buy and sell shares automatically causes disproportionate swings in buying and selling and is based on the ability to buy and sell instantly, irrespective of the possible future situation in the next few seconds let alone the next few hours, days, weeks and months. Secondly, the market is dominated by institutions such as pension funds, insurance companies etc. A short term requirement of one institution to shed investment has a disproportionate effect on the market which has little if anything to do with the real value and profitability of the stocks being sold. In addition, dealers need to be able to demonstrate their ability to stay up with the leaders, thus triggering the frenetic buying and selling on a second by second basis in order to display paper profits. This is why stock markets plunge 5% or more in a day, movements which are disconnected with the rise and fall in the actual economy. The stock market has become a gambling game in which short-term winners can pocket their winnings to the detriment of not only the short-term losers but to the economy as a whole. All this is done in the name of the sacred requirement of the free movement of resources but it has nothing to do with investment.
There is another very sad aspect to the dominance of private capitalism: the fact that the human race is still largely dominated by the instinct to compete. We have not yet evolved sufficiently to feel at the deepest level that competition is so destructive - for every winner there is a loser - and that cooperation can use resources more effectively and benefit everyone. I am reminded of the occasion in one company when I became aware that a project I was working on was also being worked on by another division. On informing the MD I was told to carry on to see which solution came out on top. What a waste of resources, similar to the flawed concept of the internal market in the NHS. In the nineteenth century, cooperation was recognised and the Cooperative movement itself and the growth of mutual and friendly societies provided alternatives. The present individual and corporate greed for instant returns has all but destroyed this more civilised approach.
It is not easy to see an alternative to private capitalism but its worst excesses can be curbed. A minimum time could be established between buying and selling shares. This could decimate parts of the financial world, but do they contribute to the economy in real terms? It would also favour those companies which are steadily developing, creating long term jobs, but which are not necessarily "glamorous" and which therefore struggle to obtain the necessary capital. The tax regime could be adjusted to favour those who genuinely invest in the longer term. Government money could be directed into public services run within the public sector within a regime which replicates the sort of return on capital incentives that drive the private sector, returns that are ploughed back. Management would be rewarded not only in line with the private sector on these measures but also on quality measures (not performance targets). It is not too difficult to create a process by which the public sector could not only be seen to perform well, but also to take a pride in what they are providing. It only takes the political will.
There is a need for Western culture to shed the "me first" attitude which has led to such an increase in the visible examples of corporate and individual greed, which are just the ones where the perpetrators have been careless enough, or brazen enough, to be noticed. There is the need to jettison once and for all the Thatcherite notion that there is no such thing as society and to encourage a sense of belonging, sharing and supporting, rather than competing. Above all, there is the need for Western governements, particularly in the UK and the USA, to acknowledge their responsibilty to ensure that essential services are provided sufficiently and fairly and not to leave this provision to the hit and miss jungle of the private sector.