Politics, Power and the Economy - by Mike Ballard

above: The author, Australian Labor Party member Mike Ballard

 

Politics is the power to control or make other people do things in some way or another. Power is the first principle of politics.

Left and Right in politics: The major subtext revolves around the question of who is to own wealth:

Where you stand on the left/right political spectrum relates to the division of control and/or ownership of property. Property usually comes in two different forms: land (aka Nature) and capital. Property is what most people call, "the economy". Property in this sense is not your underwear, your cat, your glass, your room or your personal belongings in general, including your car and home. Property is for example: a factory, an apartment complex, a TV station, a supermarket corporation, a small business, a coal mine, a pizza franchise, a petrol station, a bank. These places, unlike your home or your cat, are where wealth and more property are created.

Property is created by everyday people like you and me. Even if it is just land, property in this sense is the mutual recognition amongst people living in a society that this or that is owned and/or controlled by this or that person or group of people and is suitable for sale. The recognition that property is for sale is codified in laws of the State. Ownership and control of the property people create and own is political because it involves "The First Principle" of politics: the power to control people or make people do things.

Most property these days is created by employing labour and using its skills to produce commodities for sale with a view to profit. Employers hire workers to use their skills to produce goods and services, which they then own and sell as commodities for profit. In combination with the natural resources which exist and are owned as property and the various pieces of land and buildings owned by landlords, these goods and services constitute the wealth of society.

The wealth of society is measured by dollars. This means that a lot of useful activities and things are not counted as important i.e. they are not valued in money. For example: parenting has no exchangeable value, because that activity doesn't make anybody else money or, doing the dishes around the house or, mowing your own lawn. However, outside the home, a group of workers may sell what they are able to do to an employer who owns a pizza parlour. The employer buys their skills and time. This becomes their wage or salary in short, their way of making a living. Once their time and skills are purchased, the workers engage in the labour associated with making and delivering pizzas. The profit created by making and delivering the pizza belongs to their employer. The wealth, which is represented in the wages which the workers get from selling their skills and time to the employer, belongs to them.

Who has control over the wealth produced by workers is the question which defines peoples' political stance as being on either the left or right. The political position of the right is that the wealth employers accumulate should remain in their hands, to do with as they please. On the other hand, the leftist position is that the people who produce wealth should be allowed to at least havesome ownership and/or control of the property they produce.

Most societies have a mix of ownership for this property/wealth. The government decides who gets what in this mix or, to go back to our first principle : the government has the political power to control or make other people do things in some way or another. In most modern societies, the government is based on the "rule of law". In democratic republics, the rule of law and the laws themselves are created and administered by elected politicians along with their appointed officials in the government's bureaucracy : for instance, the Ministry of Defence or the Ministry of Education or the judiciary e.g. the Supreme Court. In some democratic republics, some of the judiciary is elected by the people.

Democratic republics get the power to govern from the governed themselves. Everyone is supposed to be "equal under the law". The laws are made by politicians elected by the people and largely enforced by the acquiescence of the people to the law. This is known officially as, "The Rule of Law". It differs from the old "Rule of Kings", where the aristocracy was above the law--as they were officially sanctioned by God e.g. "Dieu et mon Droit". When anyone breaks the law, they are supposed to be met with the force/power of the government, that is, the people the government employs to enforce the law: the police, prison workers and the military. So, politicians represent the people who elect them. But first, they must be selected. The selection of politicians to run for office is a fairly complicated and expensive matter, but this is where the left/right control of wealth begins to tell as people who have control of more wealth, tend to be able to amplify their voices in the selection process more than people who do not have as much wealth.

Politicians and the political parties tend to represent either the right or the left. The key word is "tend", as none of the political parties or elected politicians are ever absolutely left or right. Politicians of the right will tend toward political decisions which end up being in the interest of the people with wealth/property, allowing them to retain control and ownership over what they have legally accumulated. Politicians of the left tend toward passing laws which result in a greater sharing of the wealth between worker-producers and the people who own the wealth which is being produced. Simply put, the further left a politician goes, the more wealth she or he will want to divert back to the poorer sections of the community and by extension, the working producers of the wealth. The more right the politician is, the more he or she will refrain from proposing or passing legislation which interferes with wealth holders. The rightist justification will usually be framed in a manner which makes it seem that more of the community will eventually benefit, if these property holders do more of what they do best : employ workers to create more wealth.

How does this left/right axis work out for us in everyday terms?

Let us consider taxes. Taxes constitute the money (the wealth) which governments take from employers and workers to hire the police, purchase land for schools, keep the military paid and pay the garbage collectors and health care workers in States where there is a functioning public health system. The question is: who should pay the taxes to fund these government services or should there be government services at all?

The left position would tend to keep these services in the hands of government and put the question of who should pay the taxes to support them in the hands of the representatives the people elect, but always with a tendency to have the more wealthy sections of the community pay proportionally more of the tax which is needed. The right position would tend toward keeping these services in private hands or pushing them there, if they're currently under public influence, to make them profitable and not part of the governmental system at all. For example, the more right position would be for education become a profit making business, whereas the more left position would be for education to be publically funded by taxing wealth and funneling that wealth back to the education industry. As a compromise between the left and the right, the government might settle on a position whereby both public and private schools are funded to some degree by taxes collected from the public as is the case in Australia at present.

Ultimately, the question of right and left boils down to, "Who benefits"? This is the second principle of politics. The right says that the best society is one where the legal owners of property are allowed to use their control to hire workers to make more wealth. The left says that the best society is one where the owners of wealth produced by workers are legally made to share their property with those producers.

Practical everyday questions and applications of left and right:

Do those people who work for wages and salaries benefit by seeing more of their wealth or their employer's wealth being taxed away to fund government services like: schools, roads, hospitals and fire protection?

Do the people who own property benefit by seeing more of their accumulated wealth being taxed away to fund government services like: police, military, prisons, roads and hospitals or should that burden be put in the marketplace for commodities to be rationed on the ability to pay?

What actually is necessary in a society, is a matter which revolves around the control of wealth and property. Who owns and controls property's disposal and who has the power to make the decisions in order to benefit larger or smaller portions of the society as a whole "by making people do things?"
Who controls these decisions and whom do those decisions benefit? The more these decisions benefit the vast majority of the people, the more the society is leftist. The more legislators direct the control and ownership of wealth toward the legal owners and away from the vast majority of wealth producers, the more the society is rightist.

"Who has the authority?"

The third principle of politics is based on the answer to this question, which is also intertwined with the two other principles of politics. If politics is the power "to control or make other people do things in some way or another" and is related to, "Who benefits" from the distribution of the wealth in the society then, who is it that has this power?

Answer: it is the people who control and own the wealth produced in society. To the degree that power and authority over the wealth of society is shared equally, the society is more democratic and self-managing. To the degree that the control and ownership of that wealth is concentrated in fewer hands, the society is less democratic, more authoritarian and bureaucratic. Another way to put this is to say, the more that political power in society flows up from the majority, because of their conscious desires for self management, autonomy and sovereignty, the more democratic the society is. But, the more political power comes down on the majority from individuals above them in order to manage them, "for their own good", the more bureaucratic and authoritarian the society is.

The way these three principles intertwine and intersect make each nation different. For example: one
nation can be leftist to the degree that it shares the wealth created within its borders more or less equally, but at the same time, it can be authoritarian/bureaucratic in the way that wealth is controlled. It is also possible for a country to be rightist to the degree that wealth created by worker producers is concentrated in a few hands and not shared, but still democratic to the degree that those people living within the society are free to choose politicians to represent them and free to criticize these politicians--civil liberties remain in force. Other possibilities include societies which are both rightist and authoritarian-bureaucratic or leftist and self-managing and democratic.

If it makes things easier, think of basic politics as a graph, like the one below. In the graph, you would map libertarian socialism in the bottom left hand corner and libertarian capitalism in the bottom right hand corner. Fascism would be in the upper right hand corner and bureaucratic socialism in the upper left hand corner. Liberal capitalist democracy would be to the right of the centre point and the liberal social democracy on the left side of the centre point and up and down as the bureaucratic or democratic tendencies would allow.

The Mixed Economy is Back - and it's Here to Stay - an essay by John Quiggin

above: Respected Australian economist John Quiggin

In this our first entry for the 'Movement for a Democratic Mixed Economy' website, economist John Quiggin argues the case for a mixed economy.  In the face of the Global Financial Crisis the time to dissent against neo-liberal misassumptions and ideology is now... 

For much of the 20th century, the general movement of economic policy in capitalist societies was towards an expanded role for the state, including an expansion of the scope and extent of public ownership of industry. The term ‘mixed economy’ was popularized by British economist Andrew Shonfield to describe the economic system of the postwar era.

This system was not a compromise between comprehensive state socialism and free market capitalism, as is often supposed. Rather, in seeking a market system actively managed by governments the mixed economy transcended this dichotomy. It was, and remains, unlike the vaporous offerings of Tony Blair and Bill Clinton in the 1990s, a genuine ‘Third Way’.

At its best, the mixed economy was a substantially more democratic mode of organization than the system of globalised laissez-faire it replaced, and that has been resurgent in recent decades. Under laissez-faire, the property rights of capital owners override the democratic presumption that people should have a say in the major decisions that affect their lives. In a mixed economy, major providers of infrastructure are, or at least should be, responsive to public concerns about, for example, the environment or equity in employment.

This potential was not always realised. Some public enterprises were unaccountable fiefdoms run by their managers or by narrowly-based unions. Overall, though, public enterprises of the mixed economy era displayed a concern with the public good that has been lost in the subsequent era of corporatisation and privatisation.

From the 1980s onwards, the mixed economy came under sustained attack from advocates of privatisation. By the 1990s, books like The End of History and The Lexus and the Olive Tree proclaimed the final and irrevocable victory of market liberalism. But after many failed privatizations, and the failure of global financial markets, necessitating a massive government bailout, it is time to reassess the issues.

The long-run case for privatization is based on the idea that the allocation of investment will be better undertaken by private firms than by government business enterprises. This claim in turn relies on the assumption that the evaluation of risk and returns undertaken by investment banks, with the assistance of ratings agencies, and the availability of sophisticated markets for financial derivatives will be far superior than anything that could be obtained by, for example, using engineering calculations of the need for investment in various kinds of infrastructure, and seeking to implement the resulting investment plans on a co-ordinated basis. The global financial crisis has shown that, for most of the past decade, market estimates of the relative riskiness and return of alternative investments have been entirely unrelated to reality.

The crucial claim is that privatization always yields net social benefits and therefore that, other things equal the price for which a public asset can be sold will exceed its value in continued public ownership. This claim has never had much empirical support. Rather it has been taken on faith as a consequence of the efficient financial markets hypothesis.

For many privatisations, the sale price is less than a reasonable estimate of the present value of future earnings under continued public ownership, discounted at the real government bond rate. That’s because of the ‘equity premium’ demanded by private investors to bear the systematic risk in returns. The equity premium is the difference between the average rate of return to equity (share capital) and the rate of interest on government bonds. Since equity is riskier than bonds, economic theory predicts that it should attract a higher return on average, so the existence of an equity premium is unsurprising. But the equity premium is much larger than it should be under standard assumptions about risk (in the economics literature, this is called the ‘equity premium puzzle’).

According to the efficient financial markets hypothesis this is a non-problem. If private capital markets are efficient, the private sector cost of capital and not the government bond rate is the appropriate rate for evaluating the returns to public assets and. Provided the private sector is at least as efficient in operational terms, the efficient financial markets hypothesis yields a general presumption of superiority for private ownership.

The global financial crisis has shown that private financial markets are far from efficient. It is reasonable to conclude that the public sector really does face a lower cost of capital, so privatisation has to be assessed on the case by case basis of whether private owners can make sufficient operational improvements to offset their higher cost of capital.

The failure of the case for comprehensive privatization does not imply acceptance of the opposite extreme position in favor of comprehensive public ownership, or that privatization is never justified. There are large areas of the economy, such as agriculture and retail trade, where public enterprises have rarely operated at a profit. No fiscal benefit can arise from public ownership of a loss-making enterprise. Relatively modest reductions in profitability arising from the constraints associated with public ownership are sufficient to offset the benefits of a lower cost of capital.

In particular, arguments about the cost of equity capital are irrelevant for small unincorporated businesses, where there is no reliance on outside shareholders to provide external equity. Such small businesses typically face a high cost of external capital, relying primarily on bank loans. However, the higher cost of capital for small businesses, relative to both government enterprises and large private corporations, is offset by the efficiency advantages of combining ownership and control.

The idea that we must choose between pure laissez-faire capitalism and comprehensive socialization is part of what might be called the Great Forgetting of the lessons of the mixed economy. The mixed economy was not, and is not, a simple compromise between incompatible extremes. Rather it has given rise to an effective, and productive interaction between the private and public sectors. The balance of that interaction will change over time, sometimes requiring privatization of public enterprises and sometimes extension of the public sector through nationalization or the creation of new government business enterprises.

The existing theory of natural monopoly and market failure provides an indication of the areas where public ownership is likely to prove beneficial, as does the observation that, across many different countries, the areas of the economy that have been allocated to the private and public sectors have been broadly similar. The boundaries have shifted from time to time, but, broadly speaking, public provision has been most common in capital-intensive natural monopoly industries, and in the provision of human services such as health and education.

The case for public ownership is strongest in where market failure problems are likely to be severe. In the case of infrastructure industries, several market failures are important. First, because of the equity premium and the associated problem of short-termism, private providers of infrastructure may not invest enough, or in a way that maximizes long-run benefits. Second, infrastructure facilities often generate positive externalities that are not reflected in the returns to the owners of those facilities. For example, good quality transport facilities will raise the value of land in the areas it serves. Finally, there are problems associated with the natural monopoly characteristics of many infrastructure services.

As regards human services such as health and education, there is a large gap between the reality of providing these services and the theoretical requirements for market optimality is so great that economists have struggled to apply economic analysis to these activities. Among a wide range of difficulties, the biggest problems relate to information, uncertainty and financing. The value of health and education services is derived, in large measure from the knowledge of the providers (doctors, nurses, teachers and others) and their skill in applying that knowledge to benefit patients and students. By contrast, the standard economic analysis of markets begins with the presumption that both parties are equally well informed about the nature of the good or service involved. The asymmetry of information is intimately linked to the fact that the benefits of health and education services are hard to predict in advance, or even to verify in retrospect. This in turn creates severe problems financing through market mechanisms such as health insurance and student loans. One way or another, substantial government involvement in the financing of health and education is unavoidable. Once governments are paying some or all of the bill, the most cost-effective solution is often direct public provision.

Conversely, the case for private provision is strongest where the efficient scale of operations is small enough to allow a number of firms to compete and where markets function well, rewarding firms that innovate to anticipate and meet consumer demand, and eliminating those that produce inefficiently or provide poor service. In particular, in sectors of the economy dominated by small and medium enterprises, where large corporations cannot compete successfully, it is unlikely that government business enterprises will do much better. My home state of Queensland provides historical support for this claim, having experimented, unsuccessfully, with state-owned butcher shops, hotels and cattle stations early in the 20th century.

There will always be a range of intermediate cases where no solution is obviously superior. Depending on historical contingencies or particular circumstances, different societies may choose between public provision (typically by a commercialized government business enterprise), private provision subject to regulation, or perhaps some intermediate between the two, such as a public-private partnership.

Unlike most of the ideas discussed, the failure of the ideology of privatization has already been reflected in ‘facts on the ground’. Most of the emergency nationalizations undertaken during the crisis will ultimately be reversed. But the idea that public ownership is always a policy option, and sometimes a necessary choice, cannot easily be banished from public debate. The mixed economy is back, and it’s here to stay.

Readers of John Quiggin may be interested in the following essay on 'The Democratic Mixed Economy' by Dr Tristan Ewins as well ;  Discussion Welcome

see here:  https://democraticmixedeconomy.blogspot.com.au/2013/10/what-is-democratic-mixed-economy.html