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There is no such thing as a free market
The Conservatives have spent years attacking the 'dependency culture'
allegedly created by state intervention and welfare systems, and broadcasting
the virtues of free enterprise.
Helen Simons agrees that there is a dependency culture in British society - but
one that acts to prop up capitalists and the free market with sweeteners,
backhanders and subsidies
When Margaret Thatcher published her post-election criticisms of the government
in the American magazine Newsweek, she emphasised the danger that,
after all her hard work in promoting free enterprise, the dreaded scourge
of state intervention was about to make a comeback under John Major.
Major was quick to reply. Addressing the faithful at the Institute of Directors,
he declared that, by electing him, the British electorate had in fact reaffirmed
support for the Thatcherite free market as against state interference:
'They want a Britain which recognises indisputably at last that free enterprise - not
state intervention and socialism - is the route to national health and personal
prosperity. That was the golden discovery of the eighties...it was the secret
for which generations had looked in vain. Now in the 1990s, I promise you
we will go on with the policies that have been so successful.'
Support for the free market and opposition to state intervention is a key
couplet of modern Conservative philosophy that Major is reluctant to abandon.
He understands that one of the Tories' true 'golden discoveries of the eighties'
was that they could make the market economy look dynamic by contrasting
it to their vision of blight and inefficiency under a state-sponsored 'dependency
culture'.
Major has softened the tone somewhat, avoiding the Thatcherite language
used to attack the 'nanny state' and benefit scroungers, but the message
remains the same. Implicit in the Tory election campaign's emphasis on cutting
taxes was the idea that the free market is good and breeds excellence, while
state intervention is bad and breeds mediocrity and dependence.
The Tories have repeated this message so often over the past 13 years that
some believe they have made a breakthrough in rolling back the frontiers
of the state. For example, Treasury statements often boast of the Tory success
in reining back public expenditure from nearly 50 per cent of GDP at the
start of the eighties to just over 40 per cent at the end of the decade.
Others point to the abolition of the GLC, the privatisation schemes or the
sale of council houses to illustrate the point.
The Tory Party's campaign against state intervention has certainly paid
electoral dividends. Many people are rightly sick and tired of the lousy
services provided by central and local government. They have proved open
to Tory arguments about the evils of state dependence and the relative virtues
of private initiative.
However, the fact that there is now a broad swathe of opinion opposed to
state intervention does not mean that free enterprise is really succeeding
in the nineties. Indeed, despite all the Tory boasts, the reality is that
slump-ridden British capitalism is now even more dependent on state support
than ever.
There is a 'dependency culture' in Britain that breeds parasites and losers.
But it has nothing to do with the millions forced to subsist on miserly
dole payments. If the Tories genuinely want to track down the scroungers
who leech off British society, they need look no further than their own
friends in the boardrooms of the City, commerce and industry. The real dependency
culture built into British capitalism is the system through which the government
and its allies prop up big business, to compensate for the failures of the
free market.
In order to explore this dependency culture, we need only take a look at
one of the free market miracles of the eighties - the Canary Wharf development
in London's Docklands. Before breaking all records for massive debt default,
the Olympia and York property development at Canary Wharf was portrayed
as one of the most potent symbols of Thatcherite economics.
For the Tories, the spectacular Canary Wharf Tower stood for all that was
superior about free market economics. This was the private sector leading
the way in urban renewal, where the state had failed. The Olympia and York
chiefs, the Reichmanns, were self-made millionaires. The buildings all shot
up in record time. In contrast to the shoddy designs put up by municipal
authorities, the tower and its surrounds promised to be sparkling and opulent.
At last private money and the free market had come together to create an
urban paradise. With such impeccable credentials it was little wonder that
the first foundation stone was laid by Margaret Thatcher to launch her campaign
for the 1987 general election.
However, the truth about Canary Wharf is a far cry from the Tory fairy tale.
Instead of embodying the principles of free market economics and the entrepreneurial
spirit, the development has from the outset been built on state subsidies
and backhanders.
LDDC scam
The property developers were enticed into the docklands by government giveaways.
Set up under the watchful eye of Michael Heseltine at the Department of
the Environment, the London Dockland Development Corporation was essentially
a scam to attract investment into a derelict corner of London with attractive
grants and subsidies. From the first, the government had to work overtime
to prop up and nurture the scheme.
Grants and incentives were forthcoming at every stage of the project. For
example, enterprise grants paid for up to 80 per cent of Olympia and York's
land clearance costs. The often costly affair of obtaining planning permission
was all but avoided as the government let it through more or less on the
nod. A special tax exemption scheme is reported to have reduced O&Y's
overheads by a third. To date rates are still being waived on the property.
Other inducements included government commitments to build road connections
to the City, the West End and the M25, and to share the costs of extending
the Jubilee line of the London Underground to the tower in the middle of
nowhere.
In fact, if all the government promises to O & Y are totalled, it adds
up to an estimated bill of £3.8 billion. That is an impressive sum,
especially when compared to the total estimated cost to private investors
of £8 billion (figures quoted in the Independent on Sunday, 11
August 1991).
40% let
The slump has exposed the Olympia and York empire as a tower built on sand,
credit and PR hype. The company has plunged into a record debt crisis. Yet
even though these champions of entrepreneurial endeavour have been exposed
as dodgy property speculators, the government remains desperate to shore
up its Docklands showpiece.
The first signs of trouble for O&Y were evident at the time of last
July's launch party for the Canary Wharf tower, when it became clear that
only 40 per cent of the available office space had been let. Party attender
Michael Heseltine stepped in once more to save the day. Not wanting to see
his flagship sunk before it had even set sail, Heseltine offered to help
with the rent by moving his entire department into some of the vacant space.
In March, the Reichmanns declared to the world that they could not repay
debts totalling over £11 billion - equivalent to the debt of a medium-sized
nation. Yet the Tories, normally so keen to deliver lectures on the importance
of thrift and good housekeeping, have continued trying to prop up the bankrupt
Canary Wharf project. Shortly after the debt was announced, the government's
allies at the Bank of England were on the phone to all of the major banks
stitching up a deal to keep the company afloat. There have also been renewed
rumours of more civil servants heading off to the Docklands to help with
the overheads.
In a way the Canary Wharf development does sum up all that can be said about
Tory economics. The entire survival strategy of uncompetitive British capitalism
now depends upon a stream of subsidies and other measures of state support.
A quick look at what's happening to some of the other eighties' success
stories reveals a similar picture.
'Big Bang'
The cut and thrust of the financial markets was presented as the most successful
part of Britain's free market economy in the late eighties. The Tory economists
claim that, once the City's stiff old constraints on dealers were removed
by the 'Big Bang' of 1987, market forces reigned supreme.
However, a more honest picture of the workings of the financial sector is
revealed by the various scandals that have hit the headlines in recent years - most
notably at Blue Arrow, Guinness, and the Bank of Credit and Commerce International
(BCCI). Far from thriving on the principles of free enterprise, the City
operates a dependency culture of its own, surviving through shady deals,
backhanders and illegal pay-offs. What is more, this is not just the work
of a few unsavoury characters; it appears to have the implicit go ahead
from the Bank of England.
At the Blue Arrow fraud trial, for example, it was revealed that the Bank
of England had been informed of peculiar goings on in the company's share
issue back in 1987. But the Bank decided to take no action. When, in 1988,
the Department of Trade and Industry was forced to investigate the mounting
rumours that the share issue price had been falsely inflated by Blue Arrow's
financial backer County NatWest, the authorities still tried to avoid the
scandal, insisting that NatWest investigate itself. As one commentator put
it, 'the Bank [of England] held County's hand during the affair hoping the
problem would be quietly managed away' (Sunday Times, 15 March 1992).
Similarly at BCCI, the Bank of England was extremely reluctant to rock the
boat. In fact, the Bank did everything possible to shield the fraudsters.
Despite the fact that the bank lost millions in 1986, and faced a drug indictment
charge in 1988, the Bank of England coordinated attempts to bail out BCCI
at every juncture. What is more it will be the Treasury that will foot much
of the bill for the final pay-off of creditors if BCCI is declared bust.
The fact that the Bank of England would persistently support such a corrupt
institution is testimony to how far the authorities will go to bail out
the big banks today - not because of any personal loyalty to the crooks at
BCCI, but because of fears that the whole shaky financial system might collapse
without such support. As Bank of England governor Robin Leigh-Pemberton
put it at the time, 'if we closed down a bank every time we had a fraud,
we would have rather fewer banks than we have'.
Perhaps the most popular image of the rolling back of the state since the
eighties has been the privatisation of public corporations. The selling-off
of chunks of public assets seemed to epitomise the enterprise culture. And
since the money the government raised through the privatisation deals has
been counted as 'negative state expenditure', it has helped to give the
impression that state spending is being cut back.
Despite appearances, however, the great state sell-offs have provided more
evidence of the capitalist dependency culture. Through the privatisation
policy, the government has effectively handed over valuable assets to big
business at a knockdown price.
All of the share offers have been considerably underpriced. Buyers were,
therefore, enticed into the market on the basis that there was a government
giveaway with every share, rather than by real market forces. In this way,
some of the most profitable corporations in the country - such as British
Telecom or the electricity boards - have been sold to the private sector
on the cheap.
Although the Tory government sold privatisation as a cornerstone of popular
capitalism that would spread share ownership among ordinary people, the
vast majority of the shares have ended up in the hands of the major financial
institutions. A policy presented as a triumph of the free market and a bonus
for the small shareholder has turned out to be a case of the state giving
billionaire corporations control over some huge private monopolies.
Some of the sell-offs were only possible because the government went further
still, offering secret 'sweeteners' and pay-offs to potential buyers. The
best-known example was the sale of the Royal Ordnance works to British Aerospace
(BAe). These state-owned munitions factories were sold to BAe in April 1987
for £190m. In the original sale price, the government 'estimated' the
land values of some of the factory sites at less than one per cent of their
real market value. As a result, the BAe asset strippers could quickly sell
off the land to developers and make a huge killing. Such an underhand device
may not look like an old-fashioned government grant to an ailing industry,
but the end result is just the same.
All of the Tory successes of the past 13 years involve similar stories.
Behind every new investment there is a government grant and a tax break,
just as every successful British businessman has been propelled along by
the invisible hand of the state.
Despite the claims of Thatcher and Major, the dependency culture is alive
and well within the ranks of the British establishment. True, state interventions
have been dressed up in a new language and packaging since the seventies.
But whether it is called enterprise initiative or state handouts to lame
ducks, and whether it happens through formal or informal channels, it adds
up to pretty much the same thing. The government of the day has subsidised
the market system. What is more, in the middle of the worst slump since
the war, state support is going to become even more vital to keep British
capitalism in business. And, as the Olympia and York crisis suggests, even
that will not be enough to keep some of the free enterprise flagships afloat.
Up and up
So what of the claim that the Tories have stemmed the tide of rising state
spending? They did appear to reduce the overall levels of state spending
in the eighties. They are right to claim that the level of state spending
as a percentage of GDP dropped by nearly 10 per cent between 1975 and 1988.
However, this is more a quirk of the statistics than a major breakthrough.
Real levels of state spending stayed broadly level throughout the period.
All that happened was that national output rose in the eighties, making
the same level of state spending a smaller percentage of total national
output. As output has fallen during the slump, so the trend of reducing
state spending as a percentage of GDP is reversed. For the past two years,
state spending has crept up. This is a trend that will be impossible to
reverse as more and more companies and institutions look to some form of
government assistance to bail them out.
The Tories' claim to have rolled back the frontiers of the state is a myth.
A quick calculation of their own figures shows that they now spend roughly
the same amount on dole payments to nearly three million unemployed as they
hand out to a few businessmen via the Department of Trade and Industry.
Even that figure excludes the informal government deals and backhanders
which have become such a lifeline for the unfree economy in recent years.
Reproduced from Living Marxism issue 44, June 1992
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