This post is a followup to a blog post I wrote a few weeks ago – ABCD, social capital and all the rest of the neoliberal narratives to undermine progress (November 12, 2020) – where I discussed the trends in government policy delivery and regional and community development thinking, which have emerged in the neoliberal period and attack the idea of government. These approaches claim that
only through the development of social capital and a reliance on local initiatives, free of government interference, can communities reach their latent potential. These ideas have led to the scrapping of regional development planning (replaced by new regionalism), outsourcing of welfare policies (replaced by social entrepreneurship) and other madcap approaches (like ABCD). Our public service bureaucracies have bee converted from service delivery agencies into contracted brokering and management agencies (to oversee the outsourcing and privatisation of public service delivery) and have, often, been filled up with characters who are borderline sociopaths. The point is that it is not the ‘state’ that is at fault but the ideologues that have taken command of the state machinery and reconfigured it to serve their own agenda, which just happen to run counter to what produces general well-being. Today, I continue to analyse that theme and outline what needs to be done to rebuild our damaged public sectors.
I get it that some progressives have been lured into the social capital trap.
They have seen the way in which modern public service bureaucrats, who serve the interests of the elite classes rather the advancement of general well-being, dish out treatment to communities who need nurturing rather than rules-based bullying.
The conclusion they reach is that the only way forward is to build local capacity and take matters into their own hands.
So the lure of ‘social capital’ and self-determination is strong.
And that sort of attraction then leads to an embrace of ‘market-based’ allocations, because, by definition, these avoid dealing with these bureaucrats.
And, as a consequence, the neoliberal pattern is established.
Avoid the state, disable it, and solve important problems independently of it.
If this sort of thinking then runs into Modern Monetary Theory (MMT) logic, there is tension.
Once the MMT light bulb goes on, there is no escaping the fact that the mainstream macroeconomics that is built up to justify all the social capital nonsense is exposed as being fraudulent.
And as that awareness unfolds, it becomes obvious that the reconfiguration of the state machinery to deliver public policy – the outsourcing, the almost unlimited use of consultant buddies to write vapid reports about nothing, and all the rest of it – was an ideological device designed to transfer real income from workers to those at the top-end of the income distribution.
So why not extend that awareness to realise that all the rest of the narrative about the wonders of social capital, ABCD, etc is just part of the same smokescreen.
The Third Way is no way!
The tension then is that the lived experience of these sociopaths in bureaucracies who enforce the neoliberal rule have left scars and progressives who come to realise that there are no financial constraints on national, currency-issuing governments cannot make the next step to realise that spreading the word about MMT also requires we reclaim the machinery of policy, rather than just think of the government as a funding source for community-led action.
Many progressives – the ‘tax the rich to fund hospitals’ crew – do not even get to the MMT light bulb moment.
So part of ‘reclaiming the state’, is to reclaim the way in which the state operates.
The macroeconomics of the reclamation is clear.
But how progressive forces expunge the neoliberalism from the state machinery is another challenge.
The point is that the two go together.
A suspicion and hatred of the existing state bureaucracy that leads one to reject government policy implementation in favour of ‘market’ or Third Way solutions is not going to yield progressive outcomes.
The Third Way appears to embrace both corporate and not-for-profit commercial behaviour in its proposals to achieve social objectives and/or seek cost-cutting efficiencies or revenue diversification
The third way solution package locates the key to the ‘problem’ of dependency within the aspirations of individuals in local communities, largely detached from the state and certainly detached from the macroeconomy.
In doing so, and by default, it proposes microeconomic market solutions to what are essentially macroeconomic problems.
In this way, its economic assumptions are indistinguishable from the neoclassical approach. To suggest that what works in a microeconomic context will deliver similar results if applied to the entire economy represents a fallacy of composition, the primary lesson learnt from the Great Depression.
Furthermore, we contend that its microeconomic assumptions are problematic.
There is an extensive literature that points to:
1. Commercial venturing by local, non-profit organisations typically are prone to goal deflection, which leads to ethical compromises.
2. The entrepreneurial activities and abilities of individuals appear to take primacy over the social dimensions of the mission.
For example, how does a social entrepreneur allocate resources between profit-making and welfare-providing activities?
Moreover, many progressives have fallen prey to the neoliberal argument that entrepreneurially generated profits via commercial activities are required to cross-subsidise welfare provision because fiscal outlays need to be tightly constrained in order to record surpluses.
It is hard to escape the conclusion that ‘markets’ are unable to advance social requirements, especially where people cannot afford to pay.
Those who are attracted to Third Way constructs, but who then encounter MMT (and accept its insights) then have a problem.
They realise that the state has all the financial capacity it needs to fund community developments.
But the distrust with the bureaucrats that have dealt out the punishment hiding behind the ‘government has no money’ lie still pushes them to localised solutions free of government.
One idea that was popular among Third Wayers was the so-called ‘community pooling’ model, where the government transfers for health, education, housing, training and employment and social security payments, which would normally be paid to individuals as part of their rights of citizenship, are captured by some local entrepreneurs/community organisations, pooled and then allocated according to the priorities of these organisations.
So all the MMT understanding in this instance would lead to is seeing the government as a venture capital provider to underwrite, among other things small-scale capitalist production, which the data shows is subject to massive failure rates.
We then get the problem of moral hazard.
The government in this instance would be obligated to ensure the entrepeneurial venture does not fail completely.
In turn, the local organisations face distorted risk and return choices because they can effectively ignore downside risks of any investment or activities.
Endemic market failure would result in a proliferation of wasteful investments.
The process of (re)municipalisation
I read an interesting book recently – The Future if Public (published on May 12, 2020 by the Transnational Institute, TNI).
The book documents one initiative that is part of the fight against privatisation and outsourcing.
The authors consider that – (re)municipalisation – is a “powerful force for change”.
… the reclaiming of public ownership of services as well as the creation of new public service
And it is growing rapidly in more than 2,400 cities across 58 countries, at the time the book was published.
TNI argue that:
… public services are more important than ever in the face of the climate catastrophe, mounting inequalities and growing political unrest. The COVID-19 crisis too has made painfully clear the disastrous effects of austerity, social security cuts and privatised health care systems, but it has also demonstrated that public services and the people who operate them are truly the foundation of healthy and resilient societies. Years of privatisation and austerity have choked off democratic control and sufficient funding to this foundation. As privatisation fails, a growing international movement is choosing (re) municipalisation as a key tool for redefining public ownership for the 21st century.
The book is a collection of narratives that document the “diversity of (re)municipalisation efforts, which “expand democratic public ownership to all levels of society” and are “opening up new routes to community-led and climate conscious public services”.
The point is that this is not a Third Way approach to community development.
It is state-centred and seeks to reconfigure the state policy delivery machinery.
How does it work?
1. Termination/non-renewal of private contracts.
2. Public acquisition.
3. Insourcing/bringing services back in house.
4. Avoiding all forms of privatisation – “including ‘public-private partnerships’ (PPPs), ‘private finance initiatives’ (PFIs), outsourcing, corporatisation, ‘right to choice’, forced competition and market liberalisation.”
1. New public service programs (perhaps even a Job Guarantee).
2. New public organisation – cleaning out the neoliberal influences in the bureaucracy.
The antagonists to (re)municipalisation, include private corporations and financial markets who have made a killing from the hollowing out of the state process.
Not only have the contractual arrangements delivered massive income flows to the owners of the privatised firms, but lawyers, management consultants, strategic planning companies, and all the rest of the network of parasites that bleed public spending dry have benefited from this neoliberal era.
And the revolving door phenomenon has seen regular flows in and out of government from the top end of corporate life – influencing policy, extracting massive salaries and privileges.
The trend has infiltrated our higher education sector, where the managers, are paid ridiculous salaries for enforcing regimes that increasingly seem to be disclocated from the interests of the academic staff.
TNI find that citizens are fighting back though.
They find that “remunicipalisation is still going strong in sectors like energy and water. We also discovered vibrant remunicipalisation and municipalisation trends in unanticipated sectors like telecommunications.”
There is now a “growing network of progressive green municipalities is tackling climate change and rising inequality using strategies that feature (re)municipalisation.”
Often, a failed privatisation requires the state re-enter the fray.
TNI report that:
Bankruptcies and corporate collapses reveal the truth behind privatisation’s false promises of efficiency and innovation; many privatisation deals are economically unviable. Outsourcing contracts and public-private partnerships are often designed to prioritise profits and dividends over service quality.
That alone tells us that all the claim about risk being shifted to the private sector – to justify the high profits they earn from the privatised activity – are just false.
If there is an essential service involved, then risk shifting can never happen. The state will always have to ensure the service is maintain, irrespective of who owns it, which leads to immense distortions of the risk and return process among the private firms involved.
This is a general version of the ‘too big, to fail’ claim about financial corporations (banks, etc).
Privatised firms also unwilling “to deliver services to areas, communities or user groups that are not profitable enough, cannot afford to pay or are more expensive to serve” and distort contracts accordingly.
The evidence, to date, as (re)municipalisation examples increase is that:
1. “lower costs of operating the services”.
Privatisation is expensive – profits have to be generated, “substantial fees are paid to consultants and lawyers”, outsourcing then invites price gouging as the outsourced firm outsources to other firms, etc
2. “investment in the improvement of the service and environmental protection”.
3. Vastly improved working conditions for the “workers that provide public services”.
This last point is important.
Once the mission of the state department is reconfigured and the management philosophy changes, we see workers enjoying “enhanced and markedly improved” conditions.
The role of the trade union also becomes central to these progressive shifts in the workplace.
Neoliberalism demonises the unions or coopts them to agree to undermine workers’ conditions.
The latter case is evident in Australia where union bosses of a union covering the lowest paid and most vulnerable workers have done dirty deals with management in recent years, which have reduced the pay and security of its workforce in return for largesse and spin-offs to the leaders.
4. “A significant number of de-privatisations are making a positive impact on local economies by delivering secure employment and attracting new business and research centres.”
5. “(re) municipalisation has resulted in improved democratic control under public ownership … increased accountability, transparency and information disclosure to the establishment of participatory governance in public corporations.”
6. Importantly, “(Re)municipalisation can reverse precarious work.”
One of the things the pandemic has exposed is the problematic nature of precarious work, which has risen in coverage as a result of the outsourcing and privatisation.
TNI say that “by cutting jobs, eroding working conditions and undermining collective bargaining, privatisation is a powerful driver of precarious work.”
The evidence is that by taking back contracts, government bodies can offer “better pay and improved working conditions” and reduce user-pays fees, where appropriate.
I am investigating these options at present and will report back when I know more.
The point is that abandoning the state because the barbarians have taken it over is no solution to community problems.
Local bodies do not have the capacity to solve systemic problems.
The financial and organisational machinery of the state is required for that.
And the solution is not to abandon the state but to purge the barbarians and their failed policies.
(Re)municipalisation is one such activity that works to this end.
That is enough for today!
(c) Copyright 2020 William Mitchell. All Rights Reserved.