Public Sector: the Battle to Come

OK: so everyone is discussing the Audit Commission's warning of massive public sector cuts to come and Matthew Taylor's call for early contingency planning by senior managers. Stumbling says there's no chance of them not being divisive, because the public sector lacks a coherent incentive structure; FlipChart tends to agree that it's going to be bloody, if only because intelligent public sector reform is just so difficult.

JKA, in a post I'd advise all non economists like me to read, makes crystal clear the sheer scale of problem we face sustaining the banks. Weighted for risk, our national exposure via effective ownership of the three semi-nationalised banks assets roughly equates to a full year's GDP. The level of risk these banks face seems terrifying, even now. We're betting the national mortgage on being able to sustain these institutions so there surely won't be much left over to pay for emptying out bins, healing the sick or buying new school books...

But Paul Mason is looking at things from a different angle in the light of today's announcement of quantitative easing aka printing money. He acknowledges the real possibility of the global economy collapsing into competing trade blocks and, by implication, Depression. But he also does something which few other commentators seem willing to do at the moment: he asks what if the measures being currently taken actually work?

"Well we'll be in a highly state-ised economy, with government holding everything from stakes in car companies, train operating companies, builders; a massively expanded public sector and hopefully a better developed green tech sector; and a lot more public and social housing." (my emphasis). So there might, just possibly, be more to play for than the Audit Commission can currently discern.

This view is of a piece with Comrade Mason's long term opinion that we're in a Minsky Moment, when capitalism has to reform itself to survive. He even quotes Minksy on how this might work at one point:

"As socialisation of the towering heights is fully compatible with a large, growing and prosperous private sector, this high-consumption synthesis might well be conducive to greater freedom for entrepreneurial daring than is our present structure". (Minsky, HP John Maynard Keynes, New York 2008, p164-5)"

Now all this sounds very, very like an updated version of the old Alternative Economic Strategy (AES), minus the import controls and with the additional of an international dimension and a green perspective.

For younger readers I should explain that the AES was the Horror From Which Mrs. Thatcher Saved Us - the road which wasn't taken out of the collapsing Keynesian corporatism of the 1970s. The road which I as a young man thought we should have taken. Left social democracy, possibly as a bridge to something more.

I so want Mason to be right. But there's a missing ingredient: popular engagement. We used to talk about this in terms of planning agreements and workplace democracy. I think Stumbling's worrying away at different version of the same issue when he constantly returns to the question of ownership and co-operatives. I think his comments about incentives in the public sector need to be understood in this light. You can't fundamentally restructure an economy and society solely from the 'top-down' - you need a critical mass of people to feel a sense of ownership in the change. Finding ways of unlocking that potential is the key to a coherent Left response to this crisis.

Even in Mason's best case scenario, the country is going to have to invest more and consume less. Imports, especially perhaps from the Far East, will be more expensive. The word 'austerity' hovers uncomfortably in the background when I think about this. People won't put up with this without a quid pro quo, some sense we're all in this together. Which is one reason why, however difficult it might be, that we do need a show trial or two: just to demonstrate things really have changed. Fred Goodwin's pension and a cap on bankers salaries suggest themselves as possible candidates for such a demonstration effect.....cuts in front line services do not.