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Corporate welfare
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They promised a small state. They gave us a weak state

While the 2008 financial crash finally exposed the infantile economic theories behind neoliberalism, most of its political claims remain unchallenged.  Key among these is the belief that somehow successive neoliberal governments have been “rolling back the state.”

Ripping up so-called “red tape,” cutting taxes and providing ready access to finance were all supposed to generate the healthy, vibrant economy of the future.  The economic argument was that a large public sector in some way “crowded out” the entrepreneurial private sector, whose talents and dynamism were needed to lift the economy out of the doldrums of the 1970s.

This was always a spurious claim given that many of the technological innovations that helped spur economic growth in the 1980s and 90s were the product of state-funded research and development.  Steve Jobs may have been a visionary, but the technologies that his engineers squeezed into a smartphone were originally created for the US military.  Tesla may one day contribute to overcoming climate change, but if it wasn’t for Elon Musk’s skill at obtaining billions of dollars’ worth of US research and development grants, Tesla would have disappeared years ago.

In any case, even the most private of private sector businesses depends upon such things as publicly-funded infrastructure, education and healthcare services to provide it with a trained and healthy workforce and with the means to transport its components and finished goods.  Moreover, economies like Germany and Japan (prior to its slump) where government, unions and business worked together in partnership seemed to fare better than supposedly free market economies like the Britain and the USA.

Even after the 2008 crash exposed the folly of trickle-down economics, cuts to regulation and using financialisation and debt to deindustrialise an economy, politicians like David Cameron and George Osborne continued to chant the mantra of the small state.  After the EU, USA and UK governments indebted themselves to pay for the follies of an unfettered banking system, these politicians rushed to blame excessive state spending for the post-2008 economic woes.  What was needed, they told us, was a round of tax cuts, further deregulation and a swathe of austerity cuts to social security and public services.

One consequence of this very deliberate policy was seen all too graphically in the Grenfell Tower fire where upward of 80 people died of austerity.  Less obviously, it is playing out in the alarming number of key workers who are simply packing up an walking away from essential emergency and public services like policing, firefighting, health and education.  Crucially, outside of the (largely rigged) financial markets and the unsustainable housing bubble, economic growth has stalled – only a growing population and the inclusion of the proceeds from drug deals and prostitution have kept the official GDP figure positive.  Per capita GDP has dropped consistently along with real wages  since 2008.

In other words, we have a growing body of social and economic evidence that demonstrates that austerity cuts for the public and tax cuts for the very wealthy simply do not deliver in the real world.  Against this, though, at least we do not have to tolerate a large and inefficient state with the excessive tax bill that this would inevitably involve…

Well, actually, we do.  Far from “rolling back the state,” successive neoliberal governments have been growing it while contracting it out to corporate interests – in effect, privatising the profits while socialising the losses.  The full extent of “corporate welfare” in the UK is hard to pin down.  An early attempt to calculate it arrived at a figure of £93bn per year.  This would include much of the unnecessary and ineffective work carried out by corporations like ATOS, A4E, Capita, Serco and G4S.  However, while it is possible to calculate the full amount paid to such corporations, it is hard to separate out how much would have to be spent anyway.

The important point is less to do with the amount of corporate welfare (which in any case excludes the billions spent on bank bailouts) and more to do with the fact that it exists at all.  The reality is that neoliberalism simply never got around to shrinking the state.  In 2015 UK pounds, the cost of the UK public sector grew rapidly after 1988 – the lowest the Thatcher government managed to shrink it to:

Source: UKPublicSpending.co.uk

In terms of the tax that we are obliged to pay for the state, the same process of acceleration took place.  When we take all direct taxes rather than just income tax into account, we are paying substantially more tax today than we were back when Margaret Thatcher first came to power:

UKPublicSpending.co.uk

This probably understates the problem because of the tearing up of capital restrictions by neoliberal governments.  Throughout the post-war years, national governments could control the amount of money flowing across their borders.  One consequence of this was that corporations were relatively easy to tax.  With the end of these controls, multinational corporations have found lawful (but morally questionable) means to move capital offshore in order to avoid taxes.  The result is that every year a greater proportion of direct taxes falls on the shoulders of smaller businesses and ordinary employees who cannot replicate the tax arrangements of the big corporations.

More important than cost, however, is the question of what we might think of as “value for money.”  In a piece for the Financial Times criticising the original £93 billion corporate welfare figure, Giles Wilkes concludes that:

“The loose logic and hasty mathematics behind this £93bn corporate welfare number are a pity, because they mask what is still an important debate. While there is far too glib a distinction between the corporate sector and the rest of society, it is true that less scrutiny is applied to corporate reliefs than normal spending.”

From the financial crash itself through to the Grenfell fire, we have seen scandal after scandal after scandal resulting from a failure to oversee state spending, cuts to regulation and straightforward profiteering by privatised energy and transport companies.  The common denominator being that increasingly beleaguered taxpayers have been paying ever higher taxes to cover the costs of state-funded corporate largesse.  And the sad truth is that when it comes to the bottom line, we simply do not get what we were supposedly paying for.  Regulations do not work; lives and livelihoods are threatened; and the supposedly “efficient” private sector turns out to be more expensive than publicly-funded not-for-profit alternatives.

The fundamental promise of neoliberalism was low taxes and a small state.  The reality is that it has brought us high taxes and a weak state.  As we face the realities of the post-2008 economy, with growing climate, energy and resource constraints, it is time to confine this discredited ideology to the dustbin of history.

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