First, the successful trajectory of the Anglo-American economies from the mid-1990s onwards was not based on their wholehearted embrace of the free market economy, but on their acceptance of unsustainable levels of private debt, much of it held by relatively poor people who were in no position to maintain high debt levels. This was funded by a combination of over-priced housing markets and markets in secondary financial risks that were erected on false assumptions about market behaviour. The housing markets were actually sustained by various measures of government action, so were not examples of the ‘pure’ market. The secondary markets, as we know, eventually collapsed, requiring enormous state bail-outs to prevent a collapse of the whole western banking system. The crisis has now been redefined as a public debt crisis, in order to keep everything in conformity with neo-liberal ideology. But the truth remains that this was a crisis of a private debt system maintained by poor economic theory and a good deal of state support.
Second, it is not true that capitalist economies perform better the closer they come to ‘pure’ markets. The successful economies of advanced capitalism are based on a combination of a market sector and a non-market sector oriented towards certain kinds of activity, especially the knowledge and care sectors. ‘Non-market’ includes both the public sector and activities funded by various non-market forms, such as charitable foundations. Government and foundations provide a cushion against extreme exposure to markets that many activities in both the knowledge and care sectors of the economy need if they are to function at a high level. Knowledge work (including research of all kinds) needs time to develop, which is not provided by a ‘pure’ market system, especially one driven by the extreme short-term horizons of financial markets. Care work (including the whole health sector) is often not profitable, except when provided for wealthy elites alone; but the modern two-gender labour force requires a large amount of this kind of work performed in the formal economy.
The Nordic economies, whether governed by the centre-right or centre-left, have demonstrated the fundamental truth of this contention – with their large numbers of employees in the care and knowledge sectors, their high proportions of public spending, and their success in the advanced sectors. The USA does not have the same profile, but when account is taken of the vast role of the military budget in sustaining advanced research, and of charitable foundations in sustaining the great universities, it too can be seen as a country that dilutes the market in some of these fundamental areas.
A move to a ‘purer’ market economy, as is now being illogically demanded by powerful political and economic elites as the main response to the financial crisis, would threaten this balance. It would not hit the USA so much, as debates about ‘public versus private’ leave out the military sector and fail to notice the charitable sector. So a major new neo-liberal shift would not damage the balancing institutions of the USA. But for Europe it would be disastrous, as it targets precisely our areas of strength.
The idea of the ‘mixed economy’ used to mean one in which certain industries were state-owned and others were in private hands. That model declined with privatisation, but largely unnoticed a new kind of mixed economy has emerged, with three parts:
- Knowledge, care and all their related activities have developed with a mix of provision, spreading across state, charitable and private sectors, providing a distinctive base and character to the world’s most successful economies.
- Outside that, there is a market system that uses the stability provided by these other forces to develop new products and to deploy a large and diverse labour force.
- Different again, at least in the Anglophone countries, has been a financial system firmly located in the private sector, but heavily dependent on state support to protect it from its own recklessness.
Neo-liberals are now seeking to destroy much of 1 in order to allow 3 to continue. Instead, we need to be letting 3 go as dangerous, and therefore further strengthening 1 as the means for giving 2 the stability that it clearly needs in facing the uncertainty of the market. The choice is not between public services and the market economy, but between two candidates for supporting the market economy: public and charitable knowledge and care services, or a state-dependent financial system.