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 Nick

Dear Nick

Your recent comments about a John Lewis economy set me thinking. Thinking that you should stop thinking. Of all the harebrained wannabe vote-catchers this takes the biscuit. It will not endear you to voters and it certainly won't win any friends in business. Most importantly it won't fix the economy either.

Despite your ill-researched comment (JLP is a trust, the staff do not own shares), there is evidence that employees with a shareholding in their employer are actually more productive, rather than being 'as good' as you allege. That said, the motivators of those employees are unlikely to be purely financial, and you would need to analyse why they joined the firms and industries that they did alongside what it is that motivates them to over-perform. It is daft and simplistic to assume that giving employees a share in any firm will create anything other than additional paperwork for the employer. Without any other regulation it is also likely that the employer will reduce salaries to allow for any dividend which may be payable.

Overall then this is unworkable and pointless, just an attempt to put a Liberal flag in a corner of the Big Society. That said, it is a laudable aim, in certain circumstances. Capturing the benefit of a more motivated workforce and population is a big theme of the Unofficial Big Society Green Paper, which I am sure, from your comments, you haven't read. You can see more at www.bigsocietygreenpaper.org

In essence there is a way to create the benefits of employee share ownership, widely and deeply across society, without forcing companies to give up shares. Giving people shares, or policies, in a national insurance and pensions fund is one of the proposals in the Green Paper and whilst this fund could own shares in state and social enterprises, it could also hold funds on behalf of, and provide benefits for, the entire population. This would be a widely spread fund reducing the risk to individuals from a corporate insolvency but it would provide the same direct correlation between their efforts and their rewards that you seek from direct share ownership. In that way it would enshrine big society ideals whilst solving the inherent unfairness of the current system.

That has to be a plan worthy of consideration? If so, please let's have a think about it before we announce it.

Best

Gareth

Happy New Year

Hi Dave

I have read your New Year message and am, well, not convinced. Not that it was any worse than any of the others - you could have all got them at the same shop. I didn't expect any stunning new policies to have been prompted by the jokes from your Christmas crackers but I thought you might acknowledge that something new is needed. Or even that we would review our progress so far and do anything new that looked as if it could deliver more than the current policy set.

Unfortunately, the message from you seems to be to keep faith, to enjoy the Olympics and footie and try to forget that we are poor. If the rest of the world comes to visit we might be able to earn enough money from them to keep the wolf from the door for another year or two.

That's a long shot and will see you out of government if not in the next 12 months then at the end of the coalition, guaranteed. People are bored. They know that capitalism has gone to too with its 'free' market and that government and capitalism between them are squeezing the substantial, tax-paying, population until it is entirely disillusioned with politicians and big business, of all colours and types. This is the way to disaster. Not just for the coalition but for the whole country.

The Big Society, and its commercial twin social enterprise, are not going to singlehandedly drag us out of the mire without some help from you. The Big Society must equal Little Government. The stunning rise in overall taxation over the past 15 years has been largely to drive ever more state spending, much of which is with foreign companies. No other country willingly hands over as much of its turnover and therefore profit as we do. That is why we are shrinking relative to the rest of the world.

I am sorry to harp on about it but the Unofficial Big Society Green Paper took a long hard high level look at our strategic direction and found it flawed. We need more investment, we need a proper national balance sheet, and we need proper national insurance and pension arrangements which are affordable and fair. Creating these, and funding them by the dismantling of the many machines and layers of government, is what will solve our problems.

If you have not done already please read the Green Paper (www.bigsocietygreenpaper.org). I sent you one in early December. It shows how social enterprise, in a new and strategically constructed form, can help to solve all of our problems. Done in the right way, and genuinely for the benefit of the largely silent, tax-paying majority who fund this country, it will energise and engage the people far more than any sporting success or any temporary bubble of income which we gained by spending billions on hosting sports events. It will cure our budget deficit and solve the pensions and healthcare funding crisis.

If you seize the moment to offer people a New Deal as in the Green Paper you will ensure that the feelgood factor of the summer is not transient and you will give the investment in those events a clear cut opportunity to provide a greater legacy than prettying up parts of the East End. A true legacy which enhances national wealth and builds a big society for generations to come. One which tips the poison out of the chalice that we are about to hand to our children, and affords the opportunity to refill it with clean, healthy water.

So please, for 2012, give social enterprise a real chance at capitalism's top table, re-take control of our spending and strategically create a real legacy based around growing national wealth and a truly big Big Society. One in which we all understand our role and the scale of the opportunity.

Happy New Year!

Gareth