ISBN 0 330 36943 1. “Captive State – The Corporate Takeover of Britain” by George Monbiot was published by Pan Macmillan in 2000 (this paperback edition in 2001). The last and only book (so far) we have reviewed from this author was “Heat” back in 2007. We genuinely liked “Heat” and it transformed our thinking about going post-carbon. It seemed that, even from back-of-the-envelope calculations, that we could divorce a modern European nation from fossil fuels. So, how does “Captive State” fit in? This came to our attention after reviewing “The Entrepreneurial State” by Mariana Mazzucato. Written 13 years earlier the Monbiot book helps explain how the State is failing to innovate. It has been taken-over.
Maybe 14 years ago I would have viewed this Monbiot book with greater cynicism. No doubt I would not even have read it. Who wants the views another wingy-moany-leftie journo with dogmatic anti-corporate views? Afterall what is the problem with private corporations having a greater role in public life? Surely they must be more efficient than the State at providing wellbeing? Now I would be wrong if there is no a lingering element of this in “The Captive State”. Some of the points Monbiot makes at the beginning and end of the book uses sweeping generalisations that start from the assumption that anything “corporate” = BAD. To be honest I really couldn’t care less if a firm of Solicitors sponsor a Police motorbike or if WHSmiths donates books to schools. However it is when Monbiot digs into some specific examples that he hits paydirt. Although now a bit dated, Monbiot has managed to expose how free-market and pro-big-business dogma has delivered less and cost us more.
It does leave the reader asking: if private enterprise delivers less then why do we do it? Well the answers appears to be two-fold. Firstly, as we said, there is simple dogma – the attitude that it ‘has to be made to work’ because it must be better. Somehow. This is the faith-based approach to economics and social policy. Then there is the more sinister revolving door between corporations and the state; every poacher has the job of gamekeeper…. Writes the author:
“A compliant state, willing to assist in its own redundancy, is an indispensable asset.”
The book opens with the beautifully written tale of the building of the Bridge to Skye. The story is so intriguing that it could so easily be the script to a Hollywood movie. The islanders were told that there was not enough state money, to build the bridge, so some private money was required. Their investment would be paid for by charging a toll for the crossing. On the face of it fair enough. However, all was not as it seemed. In fact, not only was European and local Government money available, it, in fact, paid for the bridge. The Bridge cost £25million to build of which £26million was paid for by the Scottish Office and the European Investment bank. At that you would have thought; ‘job done’. However, then private investors, contractors and a commercial bank added another £12million making the project 60% over financed.
Nothing about that makes any sense. Add to this the fact that the tolls were ruinously expensive and the nearest competitor, a government run ferry, was then withdrawn from service. The islanders smelt a rat. The rat was enormous. The Public Accounts Committee investigated and found that the bridge builders only spent £500,000 of their own money but would collect tolls worth £37million over 18 years. That’s is what you call rent-seeking. The government was so desperate to get the bridge built by the private sector it threw money at it. The investors knew they had the government over a barrel and screwed the state out of every last penny. The state did nothing short of build a bridge and then give it to private investors to run. For free. It was a licence to print money.
The very idea of private finance is that it should build public assets that the state cannot supply and do so more efficiently. The Skye bridge didn’t need private finance and is horribly inefficient in terms of its impact upon the local economy. It was a lose-lose from the state’s point of view. So, why did they do it? Dogma. Since they believed that private investment had to be better than state investment then this just HAD to work. It was done to prove a point. Yet it proved the opposite. Those of us interested in “reality-based economics” are simply appalled by this utter lack of common sense. The bridge was not good value for money. The state must never allow itself to be bullied this way.
The book then turns its attention to the NHS – always a favourite cause of the left. Since as long as I can remember the NHS has been in “crisis” and the government was privatising it. But still it soldiers on. This is not to mean that strange things are not happening. Is it costing us more and more money? Is it being run inefficiently? Well maybe.. But not as badly as some of the “Private Finance Initiatives” (PFI) the government has used to fund hospital building programs. Although Monbiot may be cherry-picking, the fact that he can supply one example of how wasteful and expensive such schemes can be is quite enough. He supplies more than that…
Monbiot cites examples where the NHS simply needed to renovate an old hospital. But the government said there was no money. So they needed private finance. The only way that private investors would get involved would be if they made truly stupendous profits. So rather than renovating an old hospital for peanuts – which isn’t profitable – the private companies insist upon tearing down old hospitals, consolidating them and moving them away from prime inner-city sites. They then sell off the surplus land. Boom! You end up with less hospital beds in a hospital in the wrong place and you end up paying more for it. The examples in Coventry, Swindon & Edinburgh would make most people sick.
“…the consortium of four companies was due to reap £990m from a project which, had it been publicly financed, would have cost the public purse £180m.”
In that example Edinburgh ended up with 200 fewer hospital beds. On what planet is that a market efficiency? It would seem to all but the most hardened Ayn Rand fan that the private sector should be in competition with the state to provide better value for money. If it can’t then what are we trying to achieve?
The suspicion of many is that it is all part of a grand scheme to force down quality to drive us all into private hospitals paid for by healthcare insurance. Certainly that is the American model. The problem with the model in the USA is that it is the most expensive in the world. The free market is a horribly inefficient way of supplying basic healthcare. Again, any pragmatist would seek to avoid the American model for healthcare like the plague.
“The only way in which the private companies can make the money they need is for the National Health Service to give them subsidies.”
Which leads us to our next point. There is no point in using theories of market efficiency if the market cannot operate without state subsidy. In this case it is our taxpayer pounds that are simply being put into the pockets of investors. This is socialism for the rich and capitalism for the poor. The private sector is draining money out of the NHS. We end up with less at a higher cost. Insane. This isn’t even a free market because the state is not allowed to compete in it:
“There was, of course, a certain discontinuity between rhetoric and reality. While small firms were left to sink or swim in stormy waters of unmediated competition, large companies enjoyed the benefits of an endless supply of life rafts from the government.”
A point also made very well in Chomsky’s “Making the Future” which we reviewed earlier. Note of course that Monbiot is writing in the year 2000 some eight years before the financial crash and bank bailouts.
So, apart from a few really bad examples, is the Private Finance Initiative (as operated by Conservative and Labour Governments in the UK around the year 2000) good value for money? Again, the answer appears to be “no”. You might get more in the short term but you are robbing Peter to pay Paul. It just means that we have less money in future. The longer term effect is to drain funds from the Exchequer. The British public shoulders all the risk and expense in order to generate private profits. We aren’t talking about toy making here. These are the provisions of, what our society has repeatedly confirmed as being, public goods: transport infrastructure and basic healthcare. On road-building we learn this:
“…when various hidden costs were taken into account the private roads turned out to be two and a half times more expensive than public roads.”
There is a very good reason why these are so expensive. The Government can borrow money at a much cheaper interest rate than can private finance. So why have a private sector then? Why not just Communism? Well, of course that is absurd. Central planning in every aspect of the economy would be ruinous. We are only talking here about generally agreed “public goods”; infrastructure services that the state is more efficient at providing than the private sector is. Only dogma preaches that there is no such thing. Pragmatism shows that, while pushing the boundaries of the state might be a good experiment, when you find it doesn’t work any more you stop pushing. In the UK we keep pushing. Why?
Note here an undertone of resentment in the book about the incoming Labour government. In fact this resentment bubbles over into a quote on the front cover. Private Finance Initiatives were invented by the Conservatives. Labour criticised them as being inefficient and they said they would scrap them. However, as soon as Labour got into power they had a curious change of heart and put PFI on over-drive.
Never trust a politician.
The book moves onto examine how the state interacts with property developers. This is an area where local authorities own land and have control of planning permission. This is a licence to print money. In hard times who can resist? This throws up a highly pertinent problem. Those who wield power in development tend to big, powerful, corporations. The victim is often the little guy. The corporations have rights that people do not have. This can lead to injustice. Poor people have polluting roads driven through their neighbourhoods. Small businesses have their premises bulldozed to make way for big out of town stores. This is leading to an economic environment where only the big survive. It is a downward spiral. A race to the bottom. It removes competition and undermines the market. Concerning the St Mary’s development in Southampton Monbiot observed this about the planning consultation:
“…the community had no money, and therefore it counted for little.”
“…the planning system […] tends to discriminate against local people and in favour of development corporations.”
Here again we have to task, what is the role of the state? If it is simply social justice it isn’t doing very well. But what are the other costs of letting big companies get what they want, versus what communities need? This is an issue of resiliency. A society whose fabric is built around the car and driving to out of town shopping centres is one that has no community. It is one that would fail in an economy of high energy prices and economic stagnation. We are investing in the paradigm of today in the pursuit of short term profits at the cost of community wellbeing in the future.
But who can resist? We discount the future. So we end up with:
“…a huge and spectacular development […] the antithesis of what most town planners, urban design specialists and the government’s Urban Task Force advocate as progressive city development. Car-dependent and characterless it threatens the smaller business…”
Thus we build infrastructure based upon a belief that tomorrow will be exactly like today. We would hope that the state would be independent arbiters of what is right and sustainable for people, but Monbiot questions this. He supplies many examples where developers can get the decision they want by simply throwing enough money at the council.
Fast forward to today (2014) and we live in a era where Planning is dominated by the perspective of “preference for sustainable development”. However, we have been here before. I rolled around laughing at this gem:
“…demonstration projects, which would show how construction can create ‘a better and more sustainable environment’ […] included a drive-through McDonalds, five giant superstores, a Rugby Cement Works, a new motorway and part of a nuclear power plant.”
It all goes back to a point I have made forcibly before in this blog (see “The Undefinable Word” from July 2013): environmentalists do not have a monopoly in their interpretation of what the “environment” is. Monbiot makes this mistake later in the book where he repeatedly suggests that the British Government’s [then] ‘Department of the Environment’ is meant to protect the environment. In reality the ‘environment’ is just something “out there”. A concept. Something to be manipulated. They may even have a written mission about protecting the “environment” but since this doesn’t mean anything then they do as they wish.
So we move onto a topic many of us, involved in local food, are quite familiar with: the dreaded supermarket. It still amazes me how Supermarkets destroy jobs. Well, it doesn’t really amaze me at all. That is how Schumpterian “creative destruction” works. Supermarket supply chains are uber “efficient” in a narrow technical sense in that they have economies of scale. They offer a lot of choice in a small space and do it dirt cheap. Of cause that is done by employing as few people as possible and by taking customers away from smaller shops. It only works on the condition that it destroys jobs. What really amazes me is that when a new supermarket comes to town everyone talks about how many jobs it creates: citing one report Monbiot writes:
“The ninety-three stores the researchers studied were responsible for the net loss of 25,685 employees, every time a large supermarket opened, in other words, 276 people lost their jobs.”
“…every £50,000 spent in small local shops creates one job, whereas £250,000 needs to be spent in superstores for the same result.”
He goes on to point out that the supermarket seizes trade “from the economically less efficient – and socially more efficient – employers in the independent sector“. What I have struggled to get my hands around is this thing – the “socially efficient”. How do we inject the concept of social efficiency into our economic and planning processes when the world speaks only the language of economic efficiency?
Ironically for the period the Monbiot is writing about he shows that supermarkets were also more expensive to shop at than their small rivals. A simple comparison between prices in the UK and Europe drives this point home. They were profiteering being three times more profitable in the UK than comparable companies in France, Germany, Italy and Spain.
It is now well known that supermarkets abuse their monopoly position with suppliers. Yet the Office of Fair Trading refused to take action based upon the assumption that cheap = good. The elimination of competitors might force up prices eventually but such “wider costs to society” were ignore. Such was the official dogma of the time. Costs had to be externalised. Someone else would pay for that. Some day.
Monbiot follows up his expose of the supermarkets with an examination of the UK food chain. Specifically he looks at GM foods and finds something interesting which I will quote here at length as it shows just how the nexus of compliant state and coporations undermines the market thus undermining consumer welfare:
“In 1999, for example, demand for organic food in Britain outstripped domestic supply by 200 per cent, and was growing exponentially. Demand for genetically engineered food was approximately zero – in fact there was sustained consumer pressure for GM ingredients to be removed from food wherever possible. One might have imagined that if the government were to invest in agricultural research, it would favour those sectors in which demand was unmet, rather than those in which existing supplies could not be sold. But in 1999 government funding amounted to £52m, while its funding for research into organic farming totalled just £1.7m.”
We could update that story today and substitute the words “fracking” and “nuclear” for what the government is paying for and that which the public has no demand for. The public want renewables. But big oil and big nuclear are so much more profitable. What you and I want in this democracy counts for nothing. Your voice is proportionate to the size of your wallet. The wallets of large corporations are much bigger than ours hence they have a bigger vote. It is the best democracy money can buy.
Monbiot then, appropriately moves his attention to science in the academic sector. He examines how blue sky research has been pushed out in favour of research pertinent to boosting profits in specific industrial sectors. In this area Monbiot’s case is somewhat less persuasive. Apart from some arm-waving and angst he doesn’t demonstrate that our brand of commercially-orientated University research is doing the economy any harm. True the big companies (the “wealth creators” as the director of a company of consulting engineers wrote) have been known to get rid of some troublesome academics. That isn’t a good thing but these may just be minor examples. What is more disturbing though is the potential for the “distortion of the research agenda” as in this example:
“Five times as much money is spent in British universities on research into oil and gas as on research into renewable sources of energy. […] Renewable energy, which is an emerging industry, requires a great deal of research as it approaches take-off phase. Oil and gas extraction, a mature industry, could be expected to need far less.”
Of course this is misleading. The oil and gas industry was several thousand times bigger than the renewables industry back in the year 2000. So this ratio is not that bad. But it does betray a certain willingness to hold onto profitable sectors long after they have been demonstrated to have over-whelming externalities. Witness the money still being thrown at the oil and gas (fracking) industries today. The cost of extracting fossil fuels has to go up exponentially in an era of peak oil. Part of those costs include R&D. This is because our economy is addicted to cheap fossil fuels. It will take a lot of work to break that. But Monbiot is right, we should spend vastly more on what is to replace oil and gas if we knew it needed replacing for the public good. And we know it does.
Another good example of the failure of free market economics in the provision of human wellbeing:
“Expensive cures for non-lethal diseases in the First World are pursued enthusiastically, while the search for a malaria vaccine has been neglected. Poor farmers in remote parts of the world are offered costly technological solutions to their problems, rather than strategies they can deploy with their own resources.”
So we turn to trade agreements. Chomsky calls these “investor-rights agreements” and Monbiot demonstrates why in this book. Such trade may well benefit corporations but they externalise appalling costs upon society. These costs are unsustainable, not only in theory, but also pragmatically. Our freedom is at stake:
“…the World Trade Organisation [..] had become the means by which corporations force governments to open their borders to the crudest forms of exploitation. By conflating the protection of human beings and the environment with trade protectionism, by setting maximum standards for world trade rather than minimum ones, by overriding any national or international law with which they conflict, trade agreements have become the greatest threats to representative government on earth.”
I might not use such forthright language but I am afraid to say that Monbiot is right. The market is our servant not our master. Our democratic sovereignty is rendered void by the machinations of these so-called “trade agreements”. Trade has nothing to do with. Monbiot writes about NAFTA thus:
“…the US government promised that it would create 200,000 new American jobs a year. Four years later, government departments conceded that only 1,500 new jobs had been generated by the agreement, while 204,000 had been lost as a direct result of its implementation.”
This is the same result from investing in supermarkets isn’t it? The promise of something that, by definition, it cannot deliver. Jobs are a political football. Our market efficient economy is designed to eliminate jobs and deliver vast profits for the smallest number.
So, finally Monbiot ends his journey with an examination of various story strands he was not able to follow up in more detail. One of these is our government’s love of cutting “red tape” of which Monbiot points out that:
“…regulation is all that prevents companies from dumping their costs onto society.”
Hence the efficient market thesis falls apart where the externalities outweigh the enhanced profits. The reason the government tries to eliminate smoking is due to costs to the taxpayer through the National Health Service. Those are easier to measure. Others less so. An example was Health and Safety enforcement. Cuts resulted in:
“…a 25 per cent decline in health and safety enforcement notices in 1997. Perhaps unsurprisingly, the change was accompanied by a 20 per cent increase in deaths and injuries in the workplace…”
We might ask for a cost benefit analysis of this but this will be of little consolation to the loved ones of someone mangled at work. Monbiot points out the awful reality of the situation. Whereas Company Directors have a duty to boost share price and dividends for shareholders (and this can be enforced through the courts) they are practically immune to prosecution when they kill their employees. Is this the kind of world we wish for? When the Health and Safety Executive did examine industrial accidents they were five times more likely to look at those occurring on farms than in mining. Maybe this is (as Monbiot suggests) that small companies are easier to prosecute than big ones?
“In Britain, a human life is now worth an average of £18,000: it is often cheaper for companies to kill their workers than to improve their safety records. The truth, unpopular with business leaders, is that red tape saves lives, while deregulation kills.”
What value human life? Our obsession with the ‘efficient’ free market is blinding us to the value of human beings and the communities in which they thrive. We as individuals are worth nothing, but the corporations remain superhuman:
“By playing nations or regions off against each other, the companies can effectively auction their services, securing hundreds of millions of pounds of taxpayers’ money which might otherwise have been spent, for example, on hospitals or schools. State benefits for individuals might be diminishing, but the corporate welfare state is booming.”
[Our emphasis.] We are engaged in a race to the bottom when it comes to taxing corporations. Hence the tax load is shifted from those who can better afford it (corporations) to individual people. What is depressing is that as soon as the ideologues in Westminster start to detect that this mechanism has stopped working they chose to deploy MORE of it in a desperate attempt to kick start the economy. We have chased the white rabbit down a hole into Wonderland.
We interpret the endless failures of the free market as a reason to apply even more free market disciplines. But we don’t have a free market do we? We have state capitalism. There is a revolving door between the elites of Westminster and the elites in the City, in banking, in mega-coporations, in the oil and gas trade. They monopolise our lives and we let them do it out of some hope that it would make us richer. It has failed and it belittles us all. We are all the poorer for the captivity of the state. Eventually even corporations must succumb to this undeniable logic. The only way they can survive is to make themselves bigger and bigger. Where will it end? The end game, surely, is disaster?
We enjoyed “Captive State”. It is clever, poignant, sometimes funny, sometimes tragic, but always beautifully written. It occasionally veers off into the direction of Monbiot’s own ideologies. Sometimes he uses extreme examples of corporate abuses in the USA and attempts to extend them to the UK. What has happened in the US is of course only a warning of things to come. Mostly the author has stuck to his narrative and used a powerful evidence base to propel it along. The fact that this was written fourteen years ago means it has lost none of its power. We regularly read Monbiot’s columns and although we don’t always agree with him his intellect remains unassailable. He is often right. That fact alone is a damning indictment of where state capitalist dogma has got us under the cover of free market idealism. Read this book.