Leviathan or Moloch: The duty of government – one proposal (Part III) | Sam Volkers

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This article is the last in a three-part series by Sam Volkers, discussing the relationship between government and economic management.

You can read part one here, and part two here.


As I have mentioned before in a previous essay, a new economic system is needed. We need a system that rejects both our current system of neoliberal capitalism, as well as Marxism, and which can function as a middle way between capitalism and socialism. It should be a mixed-economy in which capitalist markets and private enterprise still exist but are managed by a strong state — in co-operation with social partners (3) and het maatschappelijk middenveld (4) — to ensure that the citizens and the nation reap the benefits from it and the excesses of capitalism are mitigated.

A new economic system should place a great emphasis on communitarian values and put the needs of families and communities first. It should provide them with the opportunities, financial stability and freedom needed to live fulfilling and happy lives. The new economic system should also be aimed at state-building and ensuring that our national sovereignty is protected. The economy should work towards the achievement of national goals that help to further the strength of the country and serve national interests.

In this economic system, the state has three main economic duties:

  1. Manage the economy and steer it in the right direction
  2. Create consensus between the different interest groups
  3. Protect citizens from the excesses of capitalism

First Duty: Manage the economy and steer it in the right direction

As the protector of the people and national interests, it is vital that the state uses its unique position in society to direct the economy towards national interests. For this the state needs to adopt a system of dirigisme. Britannica defines dirigisme as (Britannica 2013):

“Dirigisme, an approach to economic development emphasizing the positive role of state intervention. The term dirigisme is derived from the French word diriger (“to direct”), which signifies the control of economic activity by the state. Preventing market failure was the basic rationale of this approach. Dirigisme was introduced in France following World War II to promote industrialization and protect against foreign competition, and it was subsequently mimicked in East Asia. Dirigiste policies often include centralized economic planning, directing investment, controlling wages and prices, and supervising labour markets.”

Management of the economy in a dirigiste system comes in the form of indicative planning. Indicative planning is a form of economic planning that involves the state setting long-term goals and creating plans designed to reach these goals. Unlike a centrally planned economy, indicative planning works through the market (price system) rather than replacing it. To this end, the planning process specifically brings together both sides of industry (labour unions and management) and the state (Collins Dictionary of Economics 2005). To implement indicative planning, the state needs to create and economic planning bureau that works together with the different interest groups and social partners to reach national goals. An example of these national goals is the implementation of an industrial policy to rebuild and re-shore our vital industries. This form of economic management is also important during crises, when the state should make use of Keynesian inspired policies to get the economy back on track.

Since dirigisme and indicative planning go hand-in-hand with the social market economy (5) it is important to explain what the state’s role should be when it comes to the free market. The state needs to regulate the market and ensure there is fair competition and a level playing field for businesses — with a special focus on helping small-medium (family) businesses — for example by breaking-up monopolies and cartels. The state should only allow monopolies to form where there are natural monopolies, but then these should be state-owned enterprises (national champions). The state can also set prices for certain important goods, such as medication, to prevent them from becoming too expensive for citizens.

The state should also control vital-sectors of the economy — for example: infrastructure, public utilities, pharmaceutical manufacturing, production of military equipment, railways etc. — in order to ensure that these sectors are stable and do not fall into the hands of foreign competitors or private enterprises that are only out for profit. These state-owned enterprises should become national champions that work together in a close relationship with other economic actors on the market in an effort to protect national interests and create a strong economy. To prevent these state-owned enterprises from becoming large bureaucratic molochs, it is important to give a voice to all those who work in them and are affected by them, not just the bureaucrats in charge of day-to-day management. For this, co-determination is important. In the case of public utilities for example, the state should adopt a system of “social ownership”, meaning that it will not just be the state owning the utilities and making decisions, but also the locality and employees. In this system the board of representatives will be split up between local representatives, worker’s representatives and representatives of the state, and they all get to elect 1/3 of the representatives (Glasman 2018).

Besides managing the internal market, the state should also manage the nation’s commerce. The state should adopt a form of economic nationalism (something I will explain more in depth in a future article). It should protect the national economy against foreign competition. To do this, the state needs to manage the flow of goods, capital and labour across borders. It should regulate exports and imports, e.g. by using tariffs and/or import quotas, with a special focus on protecting domestic industries that are important to national (geopolitical) interests. The state should invest in these important industries — and the R&D, education and infrastructure that supports them — to ensure that they keep up with foreign competition, while also investing in the development of new industries and technologies.

Second Duty: Create consensus between the different interest groups

As the representative of society as a whole, the state should use its special position to bring together the different interest groups in society. The state should work together with the social partners (labour unions & employer’s organizations), het maatschappelijk middenveld (civil society) and other important interest groups, to create economic co-operation between these groups and unite them in a collective effort to reach important national goals.

For this co-operation, a neo-corporatist framework is needed. Neo-corporatism is a system in which the state brings together different interest groups (labour unions & employer’s organizations in particular) in a formal co-operation in order to mediate and prevent conflict and and to enhance economic growth. Neo-corporatism favours tripartite co-operation between the state, labour unions and employer’s organizations. Tripartism can best be defined as (Collins Dictionary of Business 2002):

“A system of co-operation between both sides of industry and the state. Tripartite institutions typically include representatives of trade unions, managers and owners, and government on the grounds that each has an interest in, and worthwhile contribution to make, to economic and industrial policy.”

If this system is implemented correctly, the state can ensure that the partners in the co-operation have a cordial relationship in which everyone gets their fair share, preventing class-conflict and fostering class co-operation. A good example of this system in action is the Poldermodel, in which state works together with labour unions, employer’s organizations and other interest groups to consult about important matters such as socio-economic problems, labour markets, the environment and healthcare. The system has benefitted the Netherlands, because it has created a stable social dialogue (6), reduced strikes and tensions between labour-management, and ensures that organizations are involved in the decision-making process (CNV 2018).

This cooperation between the state, labour unions and employers also needs to be introduced in the workplace. Just like in the public sector, the state needs to implement a system of co-determination following the German model (“Mitbestimmung”) that allows for workers to elect up to half of the members of a company’s supervisory board (the board that appoints and oversees a company’s board of management), and the formation of work councils that concern themselves with matters such as the implementation of employment laws and rights (Sullivan 2017). The state should also acquire shares in big private-enterprises that have a lot of strategic value for national (economic) interests, in order to gain more say over them and ensure that national interests are kept in mind during the day-to-day business of these companies.

Duty 3: Protect citizens from the excesses of capitalism

Although the capitalist free-market system has brought a lot growth, economic prosperity, innovation, and rising living standards, the spoils are not always divided in a fair manner, which has become increasingly clear over the last few decades. Since the 1980s our economy has grown at a rapid pace, but for many people their wages have stagnated (Koppes 2021) and costs of living have increased. More than 600.000 people in our country (the Netherlands) live in poverty (Bruins 2021), while many more families struggle with debt and can barely hold their head above water. The decline of the labour unions, the rise of the gig economy (7), and the outsourcing of jobs to foreign countries, have also put workers and their families in an increasingly difficult situation. These are just some of the excesses of free-market capitalism that have become an increasing problem during the past decades.

This is where the third duty of the state comes in: the protection of citizens from the excesses of capitalism. To keep the capitalist system fair and stable, the state does not only need to have a role in managing it and bringing together the different interest groups, but it also needs to use its power to actively protect and assist families, with the goal of creating a level playing field for them and ensuring that they can live happy and fulfilling lives. For this, the state needs to create a potent, but simple and manageable welfare state aimed at creating strong families and communities, that combines a strong government and social programs with communitarian values and individual responsibility.

The first priority of this welfare state is to ensure families the basic necessities of life: education, work, housing and healthcare. A good education forms the base of a successful life, as it creates a level playing field for individuals in the economy, which helps them get the job that suits them. The state should also ensure that there is enough good work for people. It should create jobs by combing different policies such as job creation programs, tax cuts for (small-medium) businesses, investments in economic growth and local industries, and the removal of red-tape regulations that prevent entrepreneurship. The state should also ensure that these new jobs are good jobs, by raising the minimum wage and implementing policies that protect workers, such as mandatory unemployment insurance, good pensions, allowing for labour unions to have a strong role in the workplace and negotiation of contracts, and good workplace safety regulations. The creation of good jobs will in turn allow individuals to start families. A family needs to live somewhere however, so the state — in co-operation with housing corporations — needs to create enough (social) housing for families to live in, and ensure that rents and house prices stay affordable. When families have found a place to live, it is also important that they stay healthy. To ensure a healthy population, the state needs to re-take control over the healthcare system and make it accessible to all by creating a National Health Insurance Fund (similar to the NHS), with a focus on preventive care and lowering or getting rid of co-payments. In addition to these four basic functions of the new welfare state, there also need to be several extra social programs that can help individuals, families and communities. Some examples of these social programs could be a universal basic income for individuals, a more generous monthly basic income for families, and assistance-programs for families that are in trouble with debt.

Besides having a generous welfare state, the government also has to manage other excesses of capitalism, with the most important being the protection of consumers and the environment. Consumer protection should be focused on ensuring that consumer goods are of a high quality, and that these goods do not pose a potential threat to consumers (e.g. by being made from toxic materials). Environmental protections need to be focused mostly on protecting the environment from the negative effects of industrial capitalism, preventening further climate change, and the conservation of the environment itself. Examples of these policies could be stricter regulations on polluting industries and banning the use of certain toxic chemicals.

The state should also foster the creation of strong communities by promoting volunteerism and providing help to these community initiatives where needed. It could do this by removing any bureaucratic red tape that stands in the way of these initiatives or by providing budgets for initiatives that are very promising. The state should also work together with charitable organizations and non-profits (e.g. churches or community organizations) in a collective effort to improve the lives of citizens.

Conclusion

Now that we have covered the history of the relationship between the state and the economy, (some of) the different reasons why the state needs to intervene in the economy, and my view of the ideal relationship between the state and the economy, it is safe to say that I fall on the side that views the state as a Leviathan that protects the interests of the people and country. Since the end of the debate about the role of the state in the economy is not, and perhaps will never be, in sight, I hope that I can add to this discussion with my article and future articles that elaborate on the points mentioned in this article.


Definitions:

1: Natural monopoly: A natural monopoly occurs when the most efficient number of firms in the industry is one. A natural monopoly will typically have very high fixed costs meaning that it is impractical to have more than one firm producing the good.

2: R&D (Research & Development): Research and development (R&D) includes activities that companies undertake to innovate and introduce new products and services. It is often the first stage in the development process. Definition found on:

3: Social partner: An individual or organization, such as an employer, trade union, or employee, participating in a cooperative relationship for the mutual benefit of all concerned.

4: Het maatschappelijk middenveld: The organizations that stand between the government and the citizen, such as the trade union movement, educational organizations, and agricultural organizations.

5: Social market economy: An economic system in which industry and commerce are run by private enterprise within limits set by the government to ensure equality of opportunity and social and environmental responsibility.

6: Social dialogue: Social dialogue is defined by the ILO to include all types of negotiation, consultation or simply exchange of information between, or among, representatives of governments, employers and workers, on issues of common interest relating to economic and social policy.

7: The gig economy: A labour market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs.


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