There now seems to be universal agreement on the proposition that nothing will be the same again. There also seems to be universal disagreement on how different things will be. Strange Days have certainly found us. One of the strangest things is how Rishi Sunak promises hundreds of billions of pounds in rescue package handouts without once being asked ‘how are you going to pay for it?’ Of course, when Corbyn proposed free broadband the ‘how are you going to pay for it?’ screams were heard the length and breadth of the land – often enough from Labour supporters who stood to benefit most from the measure. Now, with everybody who can do so working from home, and with lockdown and isolation the order of the day, free broadband doesn’t sound so daft…
So we are seeing interventionist policies on an unprecedented scale, and the last decade’s attempts to shrink the state appear to be doomed. What are we going to see once the crisis has passed? A few more decades of state-shrinking austerity, justified by the need to pay down the debt? Will the electorate stand for that three-card-trick once more? If presented with no credible alternatives it might, just as long as the NHS is left out of the equation this time around – it will be a long time before anybody votes for inadequate health provision.
However, a real and sustained bonfire of the dogmas might leave us with a surprising long term solution to all of this: an expansion of the state might lead to an ethically sustainable way of shrinking it:
- The government will be forced to pump hundreds of billions of pounds into the economy in order to sustain it.
- Much of this support can be repaid in the form of equity ownership.
- The expanded state thus has an opportunity to build a massive Sovereign Wealth Fund, managed by a National Investment Bank with a strong balance sheet.
- The medium to long term returns from this new SWF can be used to reduce the state’s need to levy taxes.
- Hence, paradoxically, an expanded state leads to one that shrinks.
I have summarised the case for this course of action here.
Why Do People Hate This Idea So Much?
It undermines, quite fundamentally, the tribal political loyalties of right and left, exposing their quasi-religious irrationalities. Nobody likes that vertiginous sensation of having all their unexamined assumptions challenged and shown to be false.
- From the right the idea is reprehensible because it gives an important role to the state. In fact, t redefines the role of the state in a way that gives it a dangerous permanence: always there to manage the interface between public and private sectors. Why should that be such a terrible thing? Because it strikes at the heart of a deeply embedded (so deeply embedded that most on the right understand neither its rationale nor its origin) superstition – the idea that the cake is fixed in size, and any expansion of the state must, therefore, diminish the share of the owners and those who have been persuauded to espouse their cause.
- From the left the idea is reprehensible because it implies a refutation of the superstition that capitalism will collapse as a result of its own internal contradictions. And this really is nothing more than a superstition. I have compared it to the Jehovah’s Witnesses’ belief in Armageddon, predicted to be nigh whenever things take a turn for the worse, but never actually arriving. Again, this superstition is deeply embedded (so deeply embedded that most on the left understand neither its rationale nor its origin) and manifests as an ideological hygiene issue – surely the tools of capitalism (markets, ownership of stocks and shares open to the public) cannot be used pro bono publico without infecting their users with the virus of greed?
- The pressure to return to a ‘Business as Usual’ status quo will be there, but there is a countervailing pressure in favour of fundamental change. This struggle can be seen in miniature here in the stand-off between banks and the government.
Out of Darkness Cometh Light
Like an alcoholic who has had to hit rock bottom before admitting there is a problem and seeking treatment, our political economy has had to confront a profound mortal threat before changing its way of doing business. The power and responsibility of the state has been re-established, not out of dogma but out of the need to survive. The glimmer of light at the end of this long dark tunnel might just be the possibility of a Welfare State 2.0, a radical rethinking of the proper role of the modern state. If we can retain and re-affirm the state’s responsibility for the welfare of its citizens, while understanding that the state can move beyond the mechanism of mere taxation in order to finance the fulfillment of that responsibility, we will have taken a great leap forward. If we can then manage and grow the state’s wealth through enlightened investment strategies, establishing a benign sybiosis between the public and private sectors, then we will have established the conditions for a Welfare State 2.0.