by johnnyFive

While it's from 2013, I just came across this post the other day. It's given me a lot to think about.

Most critics of neoliberalism on the left point to the dramatic reduction in the scale of government activities since the 80s – the privatisation of state-run enterprises, the increased dependence upon private contractors for delivering public services etc. Most right-wing critics lament the increasing regulatory burden faced by businesses and individuals and the preferential treatment and bailouts doled out to the politically well-connected. Neither the left nor the right is wrong. But both of them only see one side of what is the core strategy of neoliberal crony capitalism – increase the scope and reduce the scale of government intervention. Where the government was the sole operator, such as prisons and healthcare, “pragmatic” privatisation leaves us with a mix of heavily regulated oligopolies and risk-free private contracting relationships. On the other hand, where the private sector was allowed to operate without much oversight the “pragmatic” reform involves the subordination of free enterprise to a “sensible” regulatory regime and public-private partnerships to direct capital to social causes. In other words, expand the scope of government to permeate as many economic activities as possible and contract the scale of government within its core activities.

My reading of the author's proposed solution is basically to stop having these quasi-government institutions (either via public-private partnerships or regulations who serve primarily to wall off the market rather than protect people, e.g. telcos). He argues that in many areas, we need both a government run option for stability and a privately-run, much-less-regulated option to spur innovation. The example he uses is banks, saying that banks should be nationalized while hedge funds should be unregulated. I don't know if I'd go quite that far, but the idea is that this would allow innovation in the financial sector while eliminating the too-big-to-fail monstrosities, and allowing the rest of us to have at least some of our money in someplace with very low risk.

He goes on to say that, basically, privatization as it exists now is just a handout. It protects oligopolies while not really fostering innovation or cost savings, and that there ends up being just as much regulatory capture as there would be otherwise. Meanwhile, the government is often in no better bargaining position when it comes to dealing with poor performance, while still not getting the benefits of full-on competition. He then discusses a concept I found interesting, that of capitalism's "invisible foot" (to go with the invisible hand). He states that firms are less concerned about innovation when there's no competition (which is axiomatic), but that this isn't because they're worried about losing increased profits from a new product, but more that they're worried about obsolescence:

To sustain long-run innovation in the economy, the invisible foot needs to be “applied vigorously to the backsides of enterprises that would otherwise have been quite content to go on producing the same products in the same ways, and at a reasonable profit, if they could only be protected from the intrusion of competition.” [...] Incumbent firms have no fear of failure and can game the positive incentives on offer to extract rents while at the same time shying away from any real disruptive innovation. We are living in a world where rentier capitalists game the half-baked schemes of privatisation and fleece the taxpayer and the perverse dynamics of safety for the classes and instability for the masses leaves us in the Great Stagnation.

(Quoting World Bank researcher Allen Schick). We see this in a host of sectors, but particularly those markets that are expensive to enter. Again, things like telecos and power companies come especially to mind, as well as healthcare (just yesterday, I saw a story about the large amounts of money the government is paying health care companies to make up some of their losses).

I need to read and think about this a lot more, but at first glance I find it quite compelling.