Memo to Dave

The Economist this week publishes a special report into what it calls state capitalism: commercial businesses returning profit to the state owner. As usual, the report is well balanced and illuminating. Under the title of the Visible Hand it is also interesting to see a nod to Adam Smith.

The report in particular looks at emerging markets, revealing that the state has the largest stake in the 150 largest companies in China for example. The Big Society Green Paper (available for £11.99 at www.bigsocietygreenpaper.org) makes the point that the UK has too many exit routes for capital, aside from the other problems created by our western version of capitalism. The emerging market version seems increasingly to control the flow of capital, and especially of profit, but this is of course not helpful to innovation and growth.

In the Wealth of Nations however Adam Smith proved that increasing wealth is more important than the speed at which a nation grows. This seems to have been forgotten and Smith is looked upon by modern economists as most of us would look at a mad elderly aunt. The Green Paper contends that his principles have not changed, that there is no such thing as a free market and that keeping profit and finding modern ways to evidence the wealth of the nation will be better for us than a totally 'free' market with capital permanently leaving our shores whenever it chooses.

The current free market is rigged in favour of those with the capital and it is just as bad, just as imperfect as an incarnation of Adam Smith's capitalism, as any state controlled economy. The cronyism and inefficiency is perhaps just better hidden. This all needs an urgent overhaul and social enterprise is the key ingredient in your toolkit. Not co-operatives alone, and certainly not employee owned businesses, but real businesses run by social entrepreneurs for the benefit of the country or a particular community.

Social enterprise is the ideal half-way house between state capitalism and a 'free' market, enabling national wealth to be created and retained. A full plan is in the Green Paper but it would be good if you could spend a moment this week reflecting on the bigger picture. UK Plc had its best years long before the arrival of the free market. We got away with some blatant protectionism and did well ourselves by controlling emerging markets. We are now disinvested, making healthcare and pensions promises that will be unaffordable some time in the next 30 years, and have very little in the way of structures for building permanent national wealth.

There is a way to reverse this and to revitalise and modernise our economy to bring it out of depression and the people with it. A bottom up state market, controlled by social enterprise and perhaps contributing to pensions and healthcare funding, will energise and engage people even without directly giving them shares in it. It will drive innovation and capital and it will do so in that unique social enterprise way - caring, ecologically sound, inclusive, widely distributive. If you are looking for a way to make a lasting mark on Britain you will find it in social enterprise and you might even call it a Big Society. In the Green Paper however it is described as a Big Commercial Society and it would create a completely new and better deal for the people of your country.

Memo to Dave

Hi Dave

Paul Krugman has written an insightful piece on defeatism within the Depression. http://krugman.blogs.nytimes.com/2011/12/27/the-defeatism-of-depression/?smid=tw-NytimesKrugman&seid=auto. I actually see it as depression within Depression, and one with a huge human cost.

Krugman is right, people do get blinkered into thinking that there is no other way and it is a bit scary when he points out that it was WW2 which really dragged the world out of the last enduring slump. A demand driven recovery is obviously the way forward, but an organic one that makes and invests profit, not another bubble and certainly not a global conflict, is what is needed. The thrust of Krugman's piece is that if only government would let go of its prejudices the depression could be fixed within months.

I am not sure about that, it is not prejudices which hold back the UK, and possibly not the USA either. It is deeply ingrained systems which enable the rich 1% to use the effort and money of the 99% to print themselves more cash. It is the attachment to capitalism which requires examination and I am a capitalist. At the moment too much capital leaves the system to easily and for too little risk. The free market is now a free for for all for the elite. In the Unofficial Big Society Green Paper (available to buy at www.bigsocietygreenpaper.org) I have worked to outline an alternative way forward which would preserve the central functions of capital within our system. There will be others.

It would be great if you could begin 2012 by renouncing your admirable but irrational attachment to the status quo and commission a thorough examination of the alternatives before it is too late. The UK has a unique set of challenges and the myriad policies being rushed through fit neither our needs or each other.

A period of reflection and strategic planning would be invaluable and might reverse the depression within the Depression, if not the Depression itself. Whilst I am sure there isn't a quick or painless solution, I am equally sure that unless we start doing the right things, and quickly, decline is inevitable. The UK has to behave more like a business. That means investing for the future, living within our means and energising the population to success through a clear strategic plan. The alternative is a bigger and bigger black market (paying less tax), more people excluded from society and an eventual breakdown of that society along with a complete loss of our global position.

Gareth