Labour and Conservatives debate the free market and the role of the state but there is no right answer

UK Prime Minister Teresa May delivered a speech in London on 27 September that called for greater support for the free market.

It came the same day as UK Labour Party leader Jeremy Corbyn said a future Labour government would intervene more actively in the British economy.

John McDonnell, who could be his finance minister, had previously told the annual Labour Party conference that he would review all contracts placed under the UK’s private finance initiative and that the railways, the water industry and parts of the energy transmission and distribution system would be taken into public ownership.

The statements by the leader of the UK governing party and its principal opponent have been described as representing a clash of opposites.

In fact, they have more in common than is widely supposed, even with Corbyn – for decades a left-wing dissident in his own party – as Labour leader.

May’s speech referred to capitalism just once. It was the free market subject to proper regulation that she lauded.

Corbyn’s proposed extension of public ownership will have a marginal impact on the scale of nationalised industries in the UK.

Labour’s main policy is to increase taxation to finance spending on health and other public services and borrow more to finance infrastructure.

In reality, both parties are grappling with the issue that has confronted governments everywhere for as long as the state’s existed.

And that is: what is the proper role of the state?

The UK Conservative Party has tended to argue for the state to do less rather than more. But no Tory leader has called for the denationalisation of the NHS or the ending of state funding for school education.

Conservative governments have financed infrastructure and provide support to British companies, though it’s done with less enthusiasm than Labour.

Labour on the other hand has in practical terms resiled from extensive state ownership since 1945. From the 1950s, it has favoured public spending and regulation over nationalisation. New Labour under Tony Blair was a champion of PFI in its various forms.

The proposed state ownership of railways, water and parts of the energy industry are about reversing what was done in the 1980s when Margaret Thatcher was prime minister. It’s not about doing something new.

In many parts of the world including the EU, state ownership of these industries is uncontroversial.

The debate is in reality about the margin and where the state has gone too far or not far enough. Labour tends to want government to do more and business to do less. Tories like it the other way around.

Economics2030 argues that the rise of services makes this debate redundant. Only people create value and it’s better they are allowed as much freedom as possible to interact freely with others when they do it.

That’s an argument for less state control and regulation and it’s logically indisputable.

On the other hand, people can’t create value unless there’s sufficient supportive physical and social infrastructure. That encompasses housing and roads as well as systems of governance including the legal environment.

The more freely available this infrastructure is available and the more it’s free, the more value is created by people.

In the absence of non-state actors willing to invest for low or no returns, only government can do that.

That’s an argument for greater state control. It’s also a reasonable conclusion.

The dividing line between what should be left to the market and what should not is unclear. And as the dominance of industries that produce intangibles grows, it’s going to get even more fuzzy.

But it’s clear where the state’s priorities should lie: creating and administering things and letting people get on with working and living in an environment where we feel safe, secured and protected.

This is not about politics. It’s commonsense.

 

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