STRONG GOVERNMENT IS AN ESSENTIAL COMPONENT OF HEALTHY SOCIETIES.

But government needs to collaborate with other stakeholders, not dominate them.

Collapse of the Soviet Union

The collapse of the Soviet Union in the late 1980's finally put to rest any ideas that an omnipotent state could oversee a vibrant economy or a healthy society. The Soviet system was brutal, inefficient and lumbering. It squashed any life spark out of its population. Russians had been accustomed for centuries to venal and brutally repressive regimes, but the vassal states of Eastern Europe had folk memories of a better time, and it was not surprising that the rot started at the periphery.

Triumph of democratic capitalism?

The collapse of “Communism” (though the Soviet system had virtually nothing to do with Marxist philosophy) was the signal for an outbreak of self-congratulation in the United States - it was clear to most Americans that “freedom” and the American Dream had triumphed. The woes and collapse of a centralised bureaucratic system sparked and fed the flames of the developing free market ideology that had some of its roots in the department of economics at the University of Chicago. Market fundamentalism received a huge boost under the administrations of President Ronald Reagan and Margaret Thatcher in the UK. As the US was by far the dominant world power, ideas originating in the US gained huge traction across the world, nowhere more than Britain, where the Thatcher administration set about freeing up markets, privatising most state assets and deregulating vigorously. The London financial markets, known as the “City” were deregulated and a banking and financial boom commenced.

Democratic capitalism becomes market fundamentalism in Britain and America

Free market ideology thus triumphed, and the power of its ideas, pushed by myriads of free market institutes and academics; influenced the behaviour of politicians, business people and the media to the extent that the efficacy of the market became axiomatic. Questioners were dismissed as deranged or socialists.

“Government” becomes a dirty word

A key tenet of free market thinking was that of limiting the power and reach of the State. Government was seen as bureaucratic, interfering and potentially corrupt - less government was good. Governments should limit themselves, to protecting the property rights of market participants and national defence. So the notion of government as the enemy of freedom has been pushed hard by free-marketeers and fuels the agendas of right-wing politicians to this day.
Just examine the thoughts and actions of the UK Conservative Party in government and listen to the agendas of the US Republican Party.
The von Mises Institute, an organisation set up with the purpose of promoting free market ideals, provides its readers with the thoughts of Ludwig von Mises on government, exhorting them to incorporate his quotes when setting up their own free market websites. For example:
Daily experience proves clearly to everybody but the most bigoted fanatics of socialism that governmental management is inefficient and wasteful. There is no remedy for the inefficiency of public management.

What has free market thinking delivered?

Free market ideas have been given full scope to prove their superiority for at least 30 years. And they have been the bedrock of the policies pursued by international financial bodies like the IMF, which established the free-market “Washington Consensus” and vigorously pushed for free markets to the detriment of developing nations.
But by far the best “laboratories” for testing free markets in operation have been Britain and the United States. So what can we say of the results of the Great Free Market Experiment so far?

The results:

• Economic growth no faster than the long term trend rates starting in the 1930's. Recovery from latest bust far slower than even that of the Great Depression of the 1930's
• Increasing signs of instability, booms and busts, especially in the deregulated financial markets, causing hardship and problems in the wider “real “economy.
• Marked and growing increases in inequality, leading to economic hardship amongst the poorer one-third of the population and increasingly the middle earners as well
• Social deprivation, poor education for the excluded minority, social, economic and geographical separation of rich and poor
• Poor health outcomes for poorer people, crime problems in deprived “Ghettos”
• Increasing frustration amongst the wider population in the financial system, banks, corporations, politicians and now, democracy itself. Politicians not trusted. Government seen to be heavily influenced by rich elites, leading to tax evasion, political agendas dominated by the narrow interests of finance and business
• Governmental ineffectiveness, leading to deteriorating infrastructure , social programmes, education for the more deprived and a reduction in fundamental scientific research
• Decreasing industrial investment caused by short term profit taking by financial institutions and many corporations.

Weak government and free markets have not worked as their advocates claimed

So, it can be strongly argued that very lightly regulated markets, such as advocated by the dominant free marketers in the US and Britain, have failed to produce the Utopia that their ideologues claimed would result.
It is important to understand the reasons for this, which are not difficult to understand and are rooted in an appreciation of basic human nature. They are simply as follows:

• In a world where there are few constraints on the accumulation of wealth and power, some individuals and institutions will tend to succeed better than the average. It is completely normal for them to seek to increase their wealth and use this to accumulate power to protect their interests and extend their power
• Thus powerful elites are formed, which will use all available means to secure their positions against external threats. They “buy” politicians to ensure low tax, weak regulation of the economy and minimal government. Government becomes an ineffective participant in the economy
• So wealth begets more wealth, power begets more power; inequality gets out of control and becomes rampant, causing economic inefficiency, social strife and a range of health and crime problems.

Thus the whole of society becomes stuck in a downwards spiral of reduced economic effectiveness and social decay. And that is exactly the situation that the UK and US are in today.

The problems with concentrated power

This analysis needs to be broadened somewhat, because power can reside in more than one kind of elite. Power in the hands of a bureaucratic centralised autocracy is bad power - the interests of the majority will suffer. Equally power in the hands of a rich elite, will cause similar effects - the interests of the majority will be subordinated to those of the power elite.
The key is the nature of government, which is the only agency in a democracy elected to represent all the people.

How to control the populace

1. Force

A big issue is how control is exercised to maintain the power elites' interests
Under the Soviet system power was maintained by coercion, violence and control of the media, production and distribution. Dissidents were eliminated by violent means or by sending them to Gulags in Siberia, which amounted to the same thing.
Under the So-called “democratic” capitalist free market system, power is maintained by more subtle means (actually this system is not democratic at all, but Plutocratic, in the sense that political power is only attained by the use of vast amounts of money).

2. How to keep the populace docile in a “democratic” Plutocracy

The answer is clear - by changing the idea of citizenship and casting the populace as consumers rather than citizens. This idea originated in the United States in the 1930's with the rise of the extensive use of psychology in advertising. If the population at large could be persuaded to regard themselves as consumers; and their self-worth became equated with the ownership of Things and pursuit of desirable “lifestyle”; then people would work hard to consume, prosperity would flow and they would be politically docile and happy. Thus the post-war “American Dream” of a property owning democracy, with access to private housing, automobiles and all manner of gadgets became real - and persists as a dream today. In Britain, Margaret Thatcher pushed the idea of a “property-owning democracy”; with hard-working people free to accumulate private property as the ideal. Premier John Major blatantly sold his Big Idea, the “Citizens” Charter, which was simply a consumer protection device, nothing to do with true citizenship.
Thus large swathes of the populace have been enslaved by consumerism and turned away from any serious thought about politics, which simply became “Which party will deliver more wealth”?
Those who didn't or couldn't join the bonanza were consigned to the communal dustbin and denigrated as idle and worthless benefit scroungers - or if they resorted to other means to accumulate goods, banged up in jail. Thus the US has one of the largest prison populations in the whole world, and Britain in Europe.

Are there better ways than concentration of power?

Of course.
They lie in a different way of thinking about Society and especially the role of government.
If this seems idealistic, it is not, it is represented by the political systems of a large number of countries. In these societies, the norm is collaboration and co-operation between the most important stakeholders. Anglo-Saxon societies are characterised by social disintegration, low trust between individuals and institutions representing different interests and rampant competition as the norm. Thus politics is a game played by violently opposed parties which will go to almost any lengths to beat the despised opposition. Political parties come to represent separate and competing interests which never come together to solve problems. This, I think, is a fair representation of the state of America, split down the middle by ill-will towards the “others” and driven by dogmas that seem insane to most European observers.

Collaboration between government and other stakeholders

The most famous examples of societies that value government as full participant with other institutions representing the major stakeholders - employee bodies, industry associations and local government - are in the Nordic countries. These are consigned to the garbage bin by free-market bigots as “socialist” and therefore dangerous. But the fact is that they are socially more cohesive and healthy than Anglo-Saxon rivals, and economically prosperous and stable.
And the crucial fact is that they and other successful countries like Germany, value strong government as a full participant in the economy and society, not as the enemy of freedom and progress.

A leading business leader's view from Sweden

Here are extracts from an article by Swedish banker and businessman Daniel Sachs. His views tally with comprehensive research about the Nordic Model.

“Openness to change is a core aspect of the competitiveness of the Nordic economies. In fact, adaptability is even more important in small, open, export-oriented economies such as Sweden.
... What the Nordic experience shows is that individual incentives can be soundly balanced by solidarity on a societal level. Solidarity makes good economic sense. Solidarity - that is risk-sharing - is a key ingredient in being open to change.
I realise that this insight flies in the face of what many Americans believe. But they no longer “own” the openness to change idea. In fact, one of the more puzzling developments of our current era, the ability of US society to absorb change has slowed tremendously. In the US debate, the key charge raised against the Nordic model is the level of taxation- here the state share of GDP is very high. But, befuddling Americans, economic growth in Scandinavia is robust, and unemployment is about the same as in America and lower than in most other European countries.

Why are we ready to put up with a higher level of taxes? Is it because I like living in a society that puts a strong emphasis on equality of opportunity? Is it because I like living in a society that has strong social cohesion and fairness, an open society where everybody has the right to free healthcare and schooling? Is it because I enjoy the fact that, despite a certain prosperity, I cannot buy better schooling for my kids or better healthcare than someone with less means? Or is it because it benefits my business?
The answer is “all of the above”

And this flows from how the relationship between openness and risk-sharing works. The “haves” share their personal gains with the “have-nots” through taxes that finance comprehensive benefits.
Our ambition is not only to provide a safety net if a citizen stumbles because of a job loss, but also to invest in human capital so that the citizen is less likely to fail -to invest in making individuals successful actors in a modern, globalised society.
Our “individual investment society”, as it is sometimes called, together with a clear sense that if people fail they will be taken care of, leads to a greater willingness to undertake risk and therefore greater openness to structural change on a society-wide basis.

Nordic countries have remained open to because free trade policies have gone hand in hand with collective mechanisms for risk-sharing.
I would argue that adaptation to globalisation has been made less painful than in many other Western countries, for the reason that the gains from globalisation have been reasonably widely distributed. Because of our tax policies, we don't end up with a universe of winners and a large group of losers.

The importance of trust

Sweden's wide distribution of economic benefits also helps create social cohesion. There is a clear sense that we are in this together, that we share the benefits, also the burdens. In turbulent times, this has very clear value.

These aspects of the Nordic Model - the relationship between state and individual, generous social protection, freedom of the individual and high levels of trust - all help to foster risk-taking and openness to change. But the other reason why, as a businessman, I like the Nordic model is that high levels of trus, fairness and transparency also mean that transaction costs are low. Corruption is low.

So, fairness, equality of opportunity and openness to change are fostered by collaborative societies in which all make a full contribution to economic health and the rich support improvement in the prospects of the poor.

Intelligent economies depend on economic and social policies that foster support, education and flexibility. And societies that demonstrate these characteristics support strong governments working in collaboration with other stakeholders to forge and enact economic and social policy. That way, the common interest is forged.
Market fundamentalists, stuck as they are on notions of “freedom” competition and winners/losers should get wise to better ways. But alas, bigots are immune to evidence.