After my day in the sun as a poet, I am back to being an economist. I have been researching operational issues relating to how a society can take back control and Reclaim the State, as part of the work I am doing for our follow up book (with Thomas Fazi) that I hope to get out next year sometime. The current book Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) is very conceptual. The Part 2 follow up will be conceptual in part but also operational. How to do it rather than what needs to be done. More specifically, I have been examining public procurement policies and how they have been captured by neoliberal interests to benefit capital at the expense of broader objectives (regional development, skill development, productivity growth, investment, employment, wages growth, etc). Over the last 3-4 decades, the way governments spend their money (contracting etc) has changed dramatically and governments have been bullied into acting as if they are ‘profit-maximising’ firms with no other agenda when making multi-billion dollar market purchases. However, in Britain this might change if British Labour are elected. Jeremy Corbyn announced this week that he was going to dramatically change the way the British government spends if he is elected. His ‘Build it in Britain’ strategy will scrap the narrow, neoliberal approaches to public procurement policies and instead use the spending capacity of government to advance broader goals. So while it might end up that a contract to a local firm requires higher government outlays, if that contract also delivers other benefits to the nation (as above) then the local firm would not be disadvantaged. Under the current ‘value for money’ hype local firms cannot ‘compete’ in many cases and these broader benefits are thus not generated. I see the ‘Build it in Britain’ strategy as an exercise in sensible logic and a major statement that the neoliberal command on British Labour is in retreat – for now anyway.



Jeremy Corbyn announced this week that he was going to rather dramatically change the way the British government spends if he is to be elected.

I don’t mean the technical apparatus that surrounds spending by a currency-issuer.

Rather, he is to change procurement practices in favour of British industry.

On Tuesday (July 24, 2008), Jeremy Corbyn gave a speech at the EEF Technology Hub in Birmingham – Jeremy Corbyn’s ‘Build it in Britain’ speech at the EEF Technology Hub.

The EEF’s Technology Hub is “UK’s premier facility for training and development for apprentices and professionals in manufacturing and engineering.”

The Birmingham area has, of course, historically been a major centre for British manufacturing.

So it was appropriate that the Labour leader chose this place to launch his ‘Build it in Britain’ strategy, which will significantly boost the British economy and insulate it from some of the Brexit losses.

As an aside, Birmingham (Handsworth) is also the home of Steel Pulse, one of the best reggae bands around. Their first album Handsworth Revolution released in 1978 is a classic. Track 6, Ku Klux Klan is one of my ring tones on my mobile phone!

So what is Build it in Britain?

First some context.

Context

One of the hallmarks of the neoliberal period has been the way that powerful vested interests have co-opted the capacity of governments to serve their own agendas and compromise broader welfare goals.

As we explain in our current book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) – this strategy has taken many different forms.

One of the ways in which the ability of governments to serve the interests of the many has been compromised and limited has been in the way in which public procurement practices have changed.

Public procurement relates to the purchase of goods and services by government and its instrumentalities from non-government entities. In other words these are market transactions.

In the past, public procurement practices were capable of providing a multitude of outcomes that could not be distilled to a narrow goal of getting the cheapest supply available, irrespective of where the goods and services were coming from and who were supplying them.

In other words, governments considered things like local employment effects to be important aspects of their contracting processes on top of price dimensions.

For example, prior to the 1990s local governments in Australia had significant latitude in terms of their procurement and contracting practices.

One of the benefits of this more flexible regulative environment was that local governments were one of the implicit buffer stock employers who could absorb some local excess labour relatively quickly in times of economic stress.

These workers were able to quickly access jobs in parks and gardens, waste disposal, and other areas of municipal activity and responsibility.

Workers knew they had a reasonable chance of getting jobs on the local council when local private employment was contracting.

Local governments were not the only buffer stock employers (this capacity was spread throughout the public sector – on the railways, road construction, state housing construction, postal and telecommunications, etc) – but they were an important reason why Australia was able to maintain truthful employment (unemployment less than 2 per cent) in the postwar period up until the late 1970s.

As the neoliberal era unfolded, these capacities came under attack from private industry lobby groups and wealthy shareholding interests.

Procurement practices were targeted and arguments made that government purchasing decisions should only be made on narrow efficiency grounds relating largely to price.

As a result we entered a period that persists to today where our government agencies are limited in how they can spend their money to fulfil their elected mandate.

In 1995, the Australian government introduced the so-called ‘Competition Policy Reform Act 1995’, which was a significant part of what has become known as the National Competition Policy.

The ‘competitive’ mantra dominated government procurement as a result of this initiative.

As an example, following on from our earlier discussion, local governments now had to tender out mark many of their activities to private contractors, which precluded them from acting as a buffer stock employer.

The so-called ‘public benefit test’ became significantly weakened under this regime.

There is a very interesting paper from 2013 in the Cambridge Yearbook of European Legal Studies (Volume 15) entitled – Neoliberalism and the European Public Procurement Regime – written by Peter Kunzlik (you need library access to read it, sorry) which traces the way the procurement practices in the EU have supported the expansion of the neoliberal ideology in the that group of countries.

He traces the evolution of neoliberal thinking back to the 1930s where he identifies what he calls “embedded liberalism” as emerging.

Kunzlik writes that this doctrine:

… ordained that the state should pursue a ‘laissez-faire’ approach and should not interfere in the market, except to protect market institutions such as property and freedom of contract and exchange.

He correctly notes that the Great Depression put a break on the expansion of these ideas because it became obvious that state intervention to generate economic activity via fiscal policy was necessary and to do nothing would have destroyed the democratic political order.

He notes that “some on the political right who had clung to the ideology of laissez-faire” kept the neoliberal flame burning (Hayek, Mont Pelerin Society, University of Chicago) but until the 1970s their views were “marginalised in the face of sustained prosperity.

The rise of neoliberalism in the 1980s, as advanced nations were trying to cope with the oil price shocks and their aftermath, came in the form of Monetarism which attacked government intervention head on.

Eric Hobsbawm wrote in his 1995 book – The Age of Extremes: 1914-1991 (Abacus Press) that (pages 409-10):

The battle between Keynesians and neoliberals was neither a purely technical confrontation between professional economists, nor a search for ways of dealing with novel and troubling economic problems … It was a war of incompatible ideologies. Both sides put forward economic arguments … Yet economics in both cases rationalized and ideological commitment, an artery or overview of human society.

Thomas Fazi and I cover that history in detail in Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) and, partly, in my own 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale.

The result of this struggle for political supremacy was that the “three core beliefs” (to use Kunzlik’s terminology) of neoliberalism became dominant in policy design.

These are:

1. “The State as a Threat to Economic Freedom … state regulation of the market is essentially coercive and curtails the economic freedom of individuals and firms, and should therefore be constrained”.

2. “The Superior ‘Efficiency’ of the Free Market”.

3. “The Market as a Constraintupon State Action and as a Guarantorof Neoliberal Freedom and Efficiency”.

A core application of these ‘beliefs’ is the prominance of ‘free trade’ arguments, which intend to establish deregulated regimes which limite the “nation state’s ability to engage in social experimentation”.

Kunzlik notes (in a quote from John McGinnis’ 1996 book – The Decline of the Western Nation State and the Rise of the Regime of International Federalism) that while economists have dressed these free trade arguments up in “Ricardo’s theory of comparative advantage” and have claimed their intent is to enhance “prosperity” for all, the:

… more fundamental consequence of free trade in global markets … is political … [They] … Restrain the government’s ability to redistribute wealth and hamper enterprise …

Legal frameworks are then implemented – so-called “superior” laws – “that can constrain the ability of governments to ‘interfere’ in the market and … curtail economic freedom”.

They are designed to reduce government discretion and tilt the benefits of government intervention towards capital at the expense of labour.

Part of this agenda has been to “expand the realm of the market, thereby opening up new fields for private profit-making and capital accumulation.”

This refers to the “‘marketisation’ of activities that were previously considered to have an expressly public character and which were therefore traditionally undertaken by the state itself rather than by private enterprise for private profit”.

The new regime is required that all these activities should be subjected to so-called ‘market discipline’, which requiredthem to be “delivered by private firms in pursuit of profit and subject, whenever possible to competition.”

So we saw privatisation, outsourcing, and the rise of public-private partnerships as part of this process of capturing the benefits of state intervention.

The latter two examples of ‘marketisation’ – outsourcing and PPPs – thus directly impacted on public procurement practices and their regulative frameworks.

The interesting aspect of all of this is that while the mantra of the neoliberals has been small government, the reality has been that the size of government relative to the economy (and by this I mean it’s command of productive resources) has not diminished significantly over the neoliberal.

As Kunzlik notes “European voters nonetheless demand public services such as decent state schools, hospitals, old-age pensions, social security, transport and communications infrastructure, policing and national defence.”

We might add, citizens everywhere still demand these things.

In other words, the combination of the maintenance of government responsibilities for the provision of these services, and the imposition of the free market ideology and its operational marketisation, has provided an absolute goldmine for capital.

Whenever you hear one of the top-end-of-town demand a cutting government spending you can be sure it’s not in an area that they have ongoing contracts with the government under any one of these marketisation scams.

Kunzlik thus talks about the “ideological importance of public procurement”, in the sense, that it is in this contracting phase that capital extracts as much as it can from the public purse.

The tensions have always been there in relation to public procurement practices.

1. It is clear that state is conflicted because while neoliberalism demands it act as a ‘profit maximiser’ in its purchasing decision, we demand it serves our interests, which extend well beyond the narrow neoliberal criterion for optimality.

2. The government is not a small consumer among an infinite number of consumers, so the perfectly competitive neoliberal market that is the model the economists use to establish their principles of efficiency is absent.

So there is no real competition at all.

3. Kunzlik notes that “he fact that the state is geographically bounded means that the ‘non-economic’ policies that public purchasers may seek to pursue may give preferential treatment to domestic firms, thereby impeding market access for foreign firms as regards public contracts”.

Exactly.

These tensions are why neoliberals have sought to force narrow procurement policies on governments so that broader goals are suppressed.

Governments have been bullied into behaving as if they are ‘profit maximising firms’ in their procurement policies under all the “value for money” hype that our politicians keep chanting to make out as if they are doing all this in our interests.

This is why they have sought to push procurement regulation into “international rules-based systems” to constrain “government discretion”.

This is why we see the hideous ‘investor dispute mechanisms’ in free trade agreements which permit the possibility that private profit concerns to overriding the legislative authority of nation state governments.

Kunzlik traces the history of procurement policy in the EU, which I will note deal with here.

The summary of his research is that the regime that the European Commission has developed:

… conforms to the preferred neo-liberal model of international (or in this case supra-national) regulation … Critically, it operates by imposing constraints upon the discretion of contracting authorities and entities at every stage of the contract award process … the remedial system entitles private parties to challenge the decisions of public purchasers in the national courts of the EU Member States … the EU regime operates by extensively curtailing the purchasing discretion of public bodies in the Member States, neoliberal arguments have been advanced, and are currently being advanced, to curtail that discretion further …

So when Jeremy Corbyn stood up on Tuesday to deliver his “Build it in Britain” speech he was making a very big statement that challenged the core ways in which neoliberal regime has become entrenched.

Build it in Britain is a fabulous proposal

Jeremy Corbyn told his audience that:

Labour is setting out a genuinely new economic direction for our country … Our new economic approach is necessary because for the last forty years a kind of magical thinking has dominated the way Britain is run … We’ve been told that it’s good, even advanced, for our country to manufacture less and less and to rely instead on cheap labour abroad to produce imports while we focus on the City of London and the financial sector … A lack of support for manufacturing is sucking the dynamism out of our economy, pay from the pockets of our workers and any hope of secure well-paid jobs from a generation of our young people … Because Labour is committed to supporting our manufacturing industries and the skills of workers in this country we want to make sure the government uses more of its own money to buy here in Britain … That spending power alone gives us levers to stimulate industry, to encourage business to act in people’s interests by encouraging genuine enterprise, fairness, cutting edge investment, high-quality service and doing right by communities …

He then listed an array of contracts that have been awarded by the British government which have not been in the interests of the nation as a whole.

1. Shipbuilding contracts – £1 billion contract to an overseas builder when British shipyards have the capacity to deliver first-class outcomes with all the subsidiary positive regional benefits that would flow from the activity.

2. Offshore contracts to France to supply British passports whereas previously “workers in Gateshead were making them”.

3. Train carriage contracts to overseas suppliers.

4. NHS contracts (over a £ billion) to overseas suppliers.

5. Defence contracts (£1.5 billion) to overseas suppliers.

To address these anomalies, the Labour leader proposes to:

1. Introduce “new procurement rules so that government supports jobs and industry” – thus abandoning the narrow neoliberal approach to ensure there are broader national goals being served.

2. “Investing in infrastructure to support companies here in Britain”.

3. “increasing investment in education, skills and lifelong learning through the National Education Service that we will create”.

If British Labour does continue down this past then Britain has a chance of escaping the negative consequences of Brexit and revitisaling its own industry and improving the employment prospects of its workers.

Larry Elliot noted in his UK Guardian commentary on the plan (July 24, 2018) – Corbyn’s Build it in Britain plan isn’t radical – it’s what other countries do – that the neoliberal procurement approach:

… has been a colossal failure. Britain’s growth model – flexible labour markets, a laissez-faire takeover code, debt-fuelled consumer spending and an indifference to the fate of manufacturing – is broken. Living standards have flatlined. Wages have grown in the past decade at their slowest rate in 200 years. Productivity has stalled. The ready availability of cheap labour has meant there is little incentive for firms to invest in new capital or staff training. As the CBI has reported, the lack of investment means that British industry runs into supply bottlenecks as soon as there is a modest pick-up in demand.

Exactly.

Jeremy Corbyn’s rejection of the free market approach is just plain simple logic.

Conclusion

Overall, I consider this to be a very bold and constructive move by the British leader to really distance the Labour Party from its Blairite neoliberal past and to outline a strategy where the capacities of the nation state will be used to advance the interests of the many rather than the few.

However, as a negative note, I cringed when I read in his Speech that he estimated that an outcome of his new industrial strategy will be to fuel:

… the tax revenues that fund our public services and the NHS, rebuilding communities and increasing living standards for all.

There is clearly some intellectual development required yet before the British Labour leadership jettisons the neoliberal dogma that it has become trapped in since the mid-1970s.

That is enough for today!

(c) Copyright 2018 William Mitchell. All Rights Reserved.