The following exchange occurred in another thread and was immediately lost. That seemed a shame as it's got potential for a serious discussion, so I've copied the relevant posts in here.

Some interesting points - I have read Mazzucato's book and it does indeed raise some interesting concepts/theories - I am not sure how practical many of them are. The idea that the state is the route of innovation is flawed for me. If you look at drug treatment virtually every advancement in drug care has come from the private sector. Developments in serious medical machines, MRI scanners etc, have all come from the private sector. Engine technology particularly internal combustion and jet engines are driven by private enterprise. Computer technology/communication technology is again private.

Where the state helps is through universities where companies can fund blue sky research, it gives tax breaks for R&D and in organisations like NASA it does fund significant advances.

Capitalism cannot survive on its own it needs to be the wealth generator in a mixed economy. The problem where there is no significant personal benefit to innovation it will stall. Entrepeneurs are a breed apart and are life blood of any thriving economy - take that spirit away and society will suffer.

For me the big problem with capitalism is that free market economics has become an ideological cover for something which isn't really about improving markets. Its a bit like how right wingers always identify 'socialism' with the Soviet/Chinese/Eastern European model whereas people that identify themselves as socialists mean something very different.

Nowadays the term 'free market economics' has come to mean right wingers that argue for vested interests like big business, argue against government interventions in social policy areas like welfare, health, education, but are in favour of big government in terms of defence and law and order. But this isn't the economics of the free market.

The economics of the free market means removing barriers to entry so big businesses don't hold market power and aren't able to earn supernormal profits at the expense of consumers. It also means removing market power of employers so workers' wages settle at the level of the workers' productivity: they get the value they create, because they have alternatives and options of switching employer. The whole Marxist critique of capitalism where firms exploit workers by paying them less than the value they create is based on a position where employers have market power.

Also free market economics would involve government intervening to correct market failures: where there is a market failure such as information problems that prevent the market providing healthcare efficiently, then government can step in. Where there is an external cost that isn't taken in to account in market prices (eg pollution) then government comes in to correct it or where there is an external benefit that isn't taken in to account in market prices (eg the spillover benefit of research and development) then government can play a role in provision too.

The theory of the market system shows how when markets work properly society uses its resources efficiently and it also allows for the concept of redistribution of wealth (through lump sum transfers if you want to be efficient): thats what the first and second rules of welfare economics are about.

In practice the right wing Republicans and Conservatives that proclaim a liking for free market economics generally balk at the concept of competitive markets because they lead to "zero long run economic profits": in the end you get to a point where prices are driven down to the level where everyone breaks even and doesn't make profits at the expense of another party. Also it tends to be those types that argue for market distortions like tariffs or restrictions on immigration (movement of labour) in order to benefit certain groups, rather than allowing the market to work properly.

Is this not exactly where we are at the moment?

(Excellent post by the way)

lower case.


I saw a poster on facebook that said:-

"Good things come to those who work their arsés off and never give up"


As it originated in the US, I suggested they stick the poster in the staff room of a Walmart in the US and see their response.

In the days of Big Arnie, one might have mentioned Dianabol as having an influence.

or Joe Weider, who realised the help Arnie could provide his business. But there's someone else who followed the "Good things come to those who work their arsés off and never give up" ideal.

No. You missed the point about companies making super-normal profits. Paying workers based on the value that they create doesn't mean distributing all the profit back to them. It means an equitable distribution of profit based on what the company can realise by selling what the labour force creates for a profit, not selling for a profit and at the same time driving wages down regardless of how much profit is made.

It's been interesting to see calls from the CBI and even the odd Tory MP recently that firms should ensure they reward their workers appropriately so they are part of any recovery. If you wanted any indication they are not, then this has to be it.

By the way, I don't think they are being altruistic here but realise Labour have a point that whatever the economic figures say polling shows few believe that they are benefiting and unless that changes it could hurt Tory election hopes.

I also noticed that despite the CBI boss telling his members to pay the workers more this was short lived in that as soon as Ed M says he's going to ensure agency workers (on permanent contracts) aren't ripped off and are paid the same as directly employed permanent staff doing the same job, they oppose it.

According to today's [iCity AM[/i, the CBI is also warning government not to increase the minimum wage as a way of improving its own popularity.

As you say, its commitment to tackling the issue of low pay is, at best, lukewarm.

Expecting a large shareholder-owned company to act morally is, generally, futile.
Its raison d'etre is to make as much money for shareholders as possible and will put itself at a disadvantage, compared to its competitors, if it fails to utilise profitable options that may be morally repugnant to others amongst us.
In short, such businesses are, at best, amoral and we cannot expect different.

Hence, if we want to utilise the wealth creation of capitalism within a moral framework, then it is the job of government to regulate, i.e. impose popular morality by statute.

The alternative is to be nice to each other, not be slaves to artificial constructs like markets and not try to fleece all and sundry.

How do you determine what constitutes super-normal profits and how many businesses fall into that category?

Businesses will pay what they have to pay to attract the calibre of labour they require. To pay more would be foolish and render them uncompetitive unless the whole market followed suit. You wouldn't pay over the asking price for anything would you? There are limited things government can do without negatively impacting the competiveness of individual businesses especially if we want to encourage exports.

Businesses are already paying a 14% tax on employing people - why not simply remove that at lower levels and increase the minimum wage by 14%?

I agree re the feel good factor in the economy but a timely cut in income tax cut/increase in personal allowance will sort that.

Add in "realise money isn't everything" and we're on our way.