Wednesday, 29 October 2014

Moving the money around

In the run-up to the Conservative conference, the leader of that party’s group in the Assembly set out his plans for the economy.  Now it might be argued that we don’t need to worry too much about what he has to say, since the probability of him ever being in a position to implement any of his policies is diminishingly small.  On the other hand, although he has perhaps set out his views more directly, there are elements of what he has to say which have, undeservedly, become part of the accepted political consensus amongst the parties.  For that reason, they deserve more scrutiny.
Take this one for instance: “It is the private sector in Wales that creates wealth and prosperity.  The public sector, as important as it is in delivering high quality public services for all, moves the same money around.” Now I’ve heard much the same thing said by politicians of different parties; ‘private sector good, public sector bad’ is the sort of conventional wisdom which increasingly underpins both government policy and opposition policy.  But is it true?
It probably depends on what is meant by the words “wealth and prosperity”.  If it means GDP (or GVA if you prefer), then it’s nonsense.  In essence, it really makes no difference at all to GDP whether a particular service is delivered from within the public or the private sector; it all gets counted. 
Perhaps wealth means the wealth of the individual employees.  But again, as long as they get the income every month and can pay the mortgage, whether the house (the main element of many people’s personal wealth) is paid for by a salary in the public sector or the private sector is neither here nor there.
And when those employees her money down to the shops and spend it, do the shopkeepers give a hoot whether their customers work in the public or the private sector?  Of course not; and it makes no difference at all to the retailers’ wealth and income either. 
There is one and only one sense in which I can think that the private sector “creates wealth” in a way that the public sector does not, and that is that the private sector generates profit which some individuals accumulate as private ‘wealth’.  In short, it makes those who own and control the capital ‘wealthy’.  But, and this is a point which people often seem not to understand, ‘making some people wealthier’ isn’t the same as ‘creating wealth’; in a very real sense it is just, to quote Davies in a different context, “moving the same money around” - in this case from the customers of an enterprise to the owners.
National wealth is usually defined as the total net value of all assets, goods and services owned by a nation; and in that definition, it really doesn’t matter at all whether ‘services’ such as education are owned and run by the state or by private individuals; they’re still counted as part of national wealth.  That total national wealth can still grow (which is what ‘wealth creation’ means to me), however those services are owned and run.  It is perfectly possible to have an economy where there is no private sector at all; such an economy would still generate wealth, it’s just that that wealth wouldn’t necessarily be concentrated in the hands of a few. 
(I’m not arguing here that we should adopt such an economy, merely that such an economy is a possibility.  If he’d argued that the private sector was a better way of increasing total national wealth, I’d have more trouble dismissing his argument; but he didn’t – he argued that it’s the only way.)
Whether services are run by the public or the private sector, they still need to be paid for.  And in the grand scheme of things, whether they’re paid for by taxing people or by charging at point of use is also irrelevant.  Both are merely “moving the same money around”; the idea that taxation somehow depends on there being a private sector making profits which can be taxed is another myth.
Ultimately, the idea that only the private sector creates wealth is nothing but ideological dogma which seeks to legitimise the redistribution of wealth from the many to the few.  Like so much in the allegedly ‘post-ideological’ age in which we live, it’s an ideology shared by politicians of many parties.  But there really is an alternative.


Anonymous said...

I agree with you about public v private sector moving the same money around, however you have not mentioned the 'third' sector. Those who favour the private sector rely on the argument of 'market forces' to define efficiency. Those who favour the public sector rely on the argument of 'public accountability' to define efficiency. The problem arises when public money is handed over to a 'third' sector institution an gets the scrutiny of neither public accountability nor market forces. This is a particular issue in Wales as much of the funding from the EU for regeneration and economic development is channelled through the 'third' sector, whether it be in housing, environment, social care or training. In fact it appears that the 'third' sector in Wales is a magnet for those to exploit funding to line their pockets, often in rural areas migrating from England in some kind of charitable crusade to help the colonial natives, and in urban areas the administrators of administrative affairs for the poor or oppressed, who by reason of failing to gain success in neither the public nor private sector, find a long term niche of income from pocketing grant money and become professional 'facilitators' in phoenix, sometimes corrupt unaccountable third sector bodies, which questionable tangible returns.

John Dixon said...

"you have not mentioned the 'third' sector"

No, I haven't. Not an intentional omission as such, but not really relevant to the basic point that it isn't only the private sector which creates 'wealth'. That isn't to say that I disagree with the thrust of your comment; just that it isn't really on the same subject.

Anonymous said...

If taxes were lowered there might well be less public services. And if not less, certainly much more efficient. And if there is less public services there more chance that people can actually get to spend their own money on things that they want/need, not that others think they or the nation needs.

The real problem is that there is too much money moving around in the public sector, no-one is accountable for it and no-one knows what it all should be spent on, but spent it is.

Reduce corporate and personal taxation to a flat 10%, spent it on law and order, defence and a social safety net. And let everything else wither away.

The economy would be transformed overnight. As would the feeling of people empowerment and personal responsibility. A healthy nation is a wealthy nation. And, as we all now know, health has everything to do with mental state as opposed to physical.

It's time for a revolutionary transformation.

John Dixon said...


Much of your comment is opinion masquerading as fact. You are, of course, entitled to hold such opinions and to argue for them (although I see little by way of argument here, merely assertion). But a future where the rich get richer and the poor get poorer is not my vision of the future.

Anonymous said...

06:27, Surely no-one would wish to see the 'poor' getting poorer. Equally, no-one would wish to see these 'poor' having children that grow into even poorer adults themselves, adults that then go on to have their own children .....

Surely this merry go round has to stop. But I don't hear anyone standing up and shouting that it has to stop. All I hear is people clamouring for more money from the rich to pay for all these poor. How sick is that?

Incidentally, as the rich have got richer in society so too have the poor got 'less poor'. We may have many more poor (because of the effects of the above) but let's take credit for these being the least poor they have ever been. Indeed, I suspect yesterday's poor might view today's poor as decidedly rich!

Perhaps we should encourage the rich to get richer and richer still because it certainly isn't the poor who are losing out.

John Dixon said...

If the total amount of resources is finite - and it is - than some can only be rich at the expenses of those who aren't. The rich are rich because they've seized more of the available resources; it's not a case of "clamouring for more money from the rich to pay for all these poor" but of ensuring that the unfair appropriation of resources ceases.

Anonymous said...

Hey, here we are talking about money, not natural resources. More money can be printed at any time. In today's parlance this is known quantitative easing.

As for the rich 'having more', surely those that have a desire to accumulate and those that have the necessary drive to accumulate should so be allowed to accumulate. Just as those who wish to smoke all day long and drink all night long should be allowed so to do.

The rich are rich because they have a desire to 'get rich' and a work ethic that drives them to this end goal. Others have other desires, some ending up rich by accident and others ending up poor by accident.

Who cares. The important thing is, we have no real poor. Yes, poor in education, poor in skills, poor in language, poor in thought, poor in opportunity, poor in so many other ways. But not poor in terms of basic needs.

And, in truth, few would want to work harder or differently or without enjoyment or fulfilment just to have what others have. This is fools thinking.

John Dixon said...

"here we are talking about money, not natural resources"

Really? You may be (although I doubt it), but I certainly wasn't. Re-read the post - it's talking about wealth not money; and more specifically about the way in which wealth is or isn't 'created' in an economy. The post alluded to the need to define what 'wealth' is before we can really decide how it is created; it sounds like a simple thing to do, but it's actually rather elusive.

Money isn't the same thing as wealth at all - if it were, then the world's treasuries could abolish poverty overnight by turning on the printing presses. We might sometimes use money as a way of measuring relative wealth at a point in time; but it isn't, and never can be, a measure of absolute wealth; adding money to an economy doesn't make it any wealthier.

Actually, I don't think you're really talking about money either; I think you're really talking about the personal wealth which money is used to measure. But what is personal wealth? Surely it is just a cypher or proxy for ownership of, or access to, resources? If not that, then what?

"The rich are rich because they have a desire to 'get rich' and a work ethic that drives them to this end goal."

Surely even you must recognize that there's a little bit more to it than that?