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The Useful State

by Robert Misik Wednesday, Sep. 16, 2015 at 5:02 AM

With slogans like "Less State, More Private," the state was run down for years. Neoliberal ideology managed to present it as a bureaucratic monster. Banks were bailed out. In the emergency, the most wicked neoliberal becomes the state fan. The history of innovations shows the state takes risks


By Robert Misik

[With slogans like “Less State, More Private,” the state was run down for years. The state is the most important motor for innovation and economic competitiveness. This article published on July 10, 2015 is translated from the German on the Internet, Robert Misik is a journalist and independent political analyst based in Vienna and won the Austrian State Prize for Cultural Journalism in 2009.]

After thirty years of ideological barrage, the state doesn’t have a good name or reputation. Neoliberal ideology has managed to present it as a bureaucratic monster that lives off “the economy” with high taxes, dubious economics and waste. This is condensed in the simple slogan “Less State, More Private.”

In the popular gutter press, the anti-state slogans fell on fertile soil. Here politicians and civil servants are represented as lazy idlers who blow “our money.” That the state often faces many citizens as a bureaucratic monster in whose net one is caught or is encountered as a gruff official or policeman makes it easier to move it in a bad light.

All this is rather absurd when you consider managers of banks and businesses immediately called for the state when the water reached their necks. Very selfishly, the taxpayer is roped in to save his own manager job and the impacted state. In the emergency, the state has the task of preventing a total collapse. In an emergency which means beyond the normal case, the wicked neoliberal becomes the state fan. “We are all Keynesians when we sit in foxholes,” said Nobel Prize winner Robert Lukas, one of the leading neoliberal economists at the peak of the financial crisis. He alluded to John Maynard Keynes’ economic theory said to be dead for decades that emphasized the importance of the state in economic life. In normal times, the state beautifully trimmed and as passive as possible should stand on the sidelines ready to leap in case of catastrophe.

The simple dogma “The economy is done in the economy” – that private enterprise businesses ultimately ensure employment, growth, investments and innovation – is false in normal times. Still we hear again and again that brilliant tinkerers in start-ups – computer inventors like Bill Gates in their legendary garages where they found innovative businesses and then became world market leaders who carefully worked out economic ideas that lead to growth.

Mariana Mazzucato, a research economist in Great Britain, was a new star of economics by showing in detail how false is this picture. This picture is not true for the real core of economics – the development of new products and revolutionary innovations, Mazzucato said. Nothing is more false than regarding the state as “sluggish” and “heavy-going” and businesses as “competitive” and “innovative” – even if we are still drilled in this today.

The whole history of great innovations from the railroad revolution to energy production and from nuclear energy to the massive exploitation of water power shows convincingly that the massive mobilization of resources and the basic research leading the way were rendered by the state…

This is true for the great innovations of the recent past and present like computer technology and space travel. There is a systemic reason for this, Mazzucato explains. Great technological revolutions devour an incredible amount of capital. Whether profits arise some time or other is usually unclear. This is much too risky for private investors. Only the state can take such an enormous risk. The state is not slow and businesses are not entrepreneurial; the opposite is true. Businesses are much too cautious. Only the state which is much more “dare-devil” than businesses takes such risks. Businesses are generally fixated on the profit in the next quarter. “Even in boom phases there are many risk-laden areas where private businesses are timid and the state leads the way as a pioneer.”

Mazzucato’s impressive message is: forget the start-ups! Their role is systematically exaggerated!

Apple Corporation which Mazzucato describes in detail is exemplary for all this. The firm is regarded a classic example of the innovative genius of free enterprise. However the exact opposite is true. “Not a single technology in the iPhone was not financed by the state.” Computer technology was developed in laboratories of combined state and private research in the 1960s and 1970s. Micro-processors, semi-conductor technology, everything was based on state basic research and state-orchestrated innovation. As everyone knows, the Internet originated out of a mega-project of the US Defense Department. The Touch-screen was essentially developed in British laboratories committed to defense-related technologies like GPS-satellite technology. The private enterprise work lies in the final configuration, the ingenious design – and the marketing that persuades us we cannot survive any more without all these things.

Although all these facts are known (or at least could be known), nearly all of us have a false picture of the state and businesses in our heads which is the result of ideological blindness or delusion. A successful innovative capitalism always needed a strong, activistic state. The more complex the tasks and societies, the more a strong activist state, a combination of state and entrepreneurial activism is necessary, good businesses and a financially well-endowed state that acts intelligently.

There is a rather simple reason why businesses that owe their economic success to the state want to make us believe this success is primarily the result of their economic brilliance. The myth legitimates their attempts to pocket the largest piece of the wealth. Those companies that profit extremely from state research and innovation and from state training of their skilled workers then shift their corporate headquarters to tax havens. This completely legal form of tax fraud leads to a multinational like Amazon, for example, paying 3.2 million in taxes despite sales of 8.7 billion euro in Germany (less than 1/25 of 1% of its sales since 1% would be 80 million!). How much the shrewd money-shifting actions of big multinationals cost globally is “hard to estimate but the damage is several times the cost of private tax evasion” in the words of economic researcher Gabriel Zucman. Zucman who grapples with tax avoidance puts the costs to states at 130 billion euro annually.

The legitimation of such practices assumes an ideological operation that turns reality upside down. They want to persuade us wealth is produced by private enterprise businesses and then unjustly appropriated by the state via taxes. But in reality the wealth is produced socially and then appropriated privately by business advisors, managers or shareholders.

By the way support for low-tax policy for businesses is not the only selfish reason why the profiteers of neoliberalism run down the state. As the second reason, privatizations should be carried out in which public assets move into private pockets at giveaway or cut-rate prices. These highly corrupt processes are regular predatory attacks in which neoliberal politicians and “big business” divide the spoils. All this occurs in the background while those on the front stage sing the beautiful song that the state cannot be economical and businesses in private hands are much more efficient.

The relation of the state and big business should be symbiotic but is increasingly parasitic. Apple as well as mammoth pharmaceutical companies and other techno-giants transform research and technological innovations speeded up with tax funds into private profits but tell the same taxpayers “innovation and economic growth are owed to individual geniuses” (Mazzucato) and organize their global production so their profits only fall in tax shelters. Hiding the real innovation history, Mazzucato says, helps withhold part of its profits from the state. Thus its financial success is dubious and requires blinders and ideological myths.

The state is chronically run down but is vitally important for the success of businesses. In a very direct way, the state conducts basic research for innovation by developing practically all the components so businesses only have to combine them. However the state is important in another, more indirect way. It provides for the infrastructure that businesses need (a business with its products could not do much without streets on which customers depend and good schools that form the view of businesses are an “investment in human capital” that they do not have to pay for themselves.

The state looks after a good consumer climate with the many other tasks it carries out. For example, a social policy that gives receivers of low and medium incomes a larger part of the cake through redistribution stabilizes consumer demand because these social groups consume a larger share of their income than the top earners. For the same reason, strong unions have a useful economic function. This is similarly true for the most generous unemployment benefits or state measures against unemployment (like financing short-time work in case of crisis). All this prevents every depression in the economy from having an immediate effect on purchasing power which would only intensify the crisis.

For all these reasons, “trimming” the state would be nonsense. This is not even possible in reality in developed economies. Thus the state share – the sum of all payments in a society that pass “through the hands of the state” – is around 38% in the US, 44% in Germany, 50% in Austria, 34% in Switzerland and 45% in Great Britain. These differences are probably an expression of statistical deception. Since the health system is organized as private enterprise in the US and Switzerland, it is not counted in the state share. If the health system were added to its costs, the share would be around 45 to 50% similar to Germany or Austria. States with a lower state share are not among the most successful nations. The Sudan with 12% and Uganda with 18% are extremely “trimmed” states. Whoever thinks the state should keep out of the economy could test this and move to such a state for a few months.

The state prevents individuals from being exposed completely unprotected to the raw wind of the market. The state can certainly be a danger to freedom when it tends to the authoritarian or to bureaucratization. But as a democratic constitutional state, it is also the only guarantor of freedom that has been discovered up to now.

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