The enterprise con and the market
By Len Arthur at Mar 14, 2011
This posting covers the issue of ‘enterprise’ and Cameron’s attack in Cardiff on the public sector as “enemies of enterprise”. Now this may seem a minor affair and typical Tory posturing, which in part it is, but it does hide a very serious attack on the public sector and panders to a lot of illusions in the economic effectiveness of enterprise as classically understood. I would like to suggest that there are also real dangers here for our understanding of labour values and how we frame the debate about the economy: I have often heard Party members and politicians refer very sympathetically to the key and beneficial role of enterprise and small and medium size companies (SMEs).
First, the attack on the public sector. The Tory argument that the last Labour government was responsible for all our economic ills is not only wrong – this has been covered in previous emails – but is now wearing thin as in the recent YouGov poll 56% thought the coalition was “handling the economy badly”. Consequently, they are under pressure to reveal their plan ‘B’ which of course does not exist, as they ideologically believe that once everything is privatised and owned by their friends the hidden hand will produce nirvana for all of us. In the meantime we have to put up with their destruction as a necessary evil. However, they can’t say this so directly so they have to appear to come up with a growth strategy that fits this longer term agenda.
De-regulation of economic activity will be a key plank in this growth strategy myth and Cameron’s speech was the opening shot in preparing the ground. The right wing press has been banging on for ages about EU rules and Health and Safety legislation in the UK so his speech fits into the ground they have prepared and does not disturb the privatisation agenda. It is the old three card trick: what you hear is not what is meant. So now watch out for an attack on just about every aspect of the remaining legal protections for people in work from Health and Safety, through to equality, discrimination and trade union rights.
In the UK these are already some of the weakest in the economically advanced parts of the EU and the Tories will now start to ensure that they will become the worse. Why? Well of course we the workers must pay the cost of the bankers crisis by not only accepting real wage reductions but by ensuring that the employers’ aim of workers being flexible and compliant - both dependable and disposable – can be put into effect, driving down wage costs to achieve cheap production and higher profits. We should not accept these attacks and instead counter with demands such as the living wage, trade union recognition, protection of the right to strike, end to agency work and equality with all pensions, with private schemes coming into line with public schemes. The EU has a critical role in achieving this as most of our international trade is within the EU.
Second, we should be more critical of what can be called a ‘cult of enterprise’. It is a term that has a long history of being appropriated by the right to support neo-liberal and free market policies. I remember clearly in the 1960s and 70s there was an organisation called something like the Free Enterprise Association which campaigned against nationalisation and nationalised industries. Lying behind the popular notion of enterprise is the image of the male sole trader battling to make his business work against all the bureaucratic odds. Add in a white van and overalls for the manual business and red braces for the white colour business and you have the complete image. The one in fact Cameron evoked in his speech.
Even in economic terms how typical is this and what contribution does this type of business make to the economy? First of all they are important, but not quite in the way the image suggests and we’ll look at this later. Private UK organisations employing over 500, account for 43% of private employment and 43% of private economic turnover. There are about 4 million sole traders (self employed) in the UK making up 17% of the workforce and account for 7.4% of turnover. The balance is provided by organisations across a range in between and it is clear that private organisations larger than a sole trader account for 92% of turnover: a pretty impressive slice of economic activity. All these figures are from the BIS Enterprise Directorate SME statistic Table 1 http://stats.bis.gov.uk/ed/sme/
Now what about enterprise? Clearly in terms of real economic activity there is something else going on that contributes to growth. Let us give some little thought about what we could mean by economic growth. Marx, I would argue, started his analysis of economic activity by making a distinction between what he called ‘exchange value’ and ‘use value’. He went on to suggest that capitalism expands exchange value at the expense of use value as exchange value is measured in money and increasing control over the amounts of money is what the aim of profit is all about. Following Oscar Wilde, Marx is essentially saying that ‘capitalism knows the price of everything but the value of nothing’. Now in current thinking and terminology price may be determined by supply and demand but it is only one reflection of the utility of a good or service to us as consumers or as human beings.
What is being suggested here is that to us as human beings living in complex and civilised society, improved satisfaction of our needs can come through the purchasing power of our income but also through improved provision of goods and services we receive as social benefits provided to us collectively as a public good. The latter list is pretty long: roads; street lighting; water and sewerage; education; health service; social service; pensions; benefits; and in Wales free prescriptions and bus passes. You can get the picture and the list can be huge.
Adding value is a term used to measure market based economic activity, but I would argue that we as human being are interested in value being added both to what we can purchase with money and what we receive as a public good. Improvement in wealth is a broad concept and adding to that wealth can be done in both the private and the public sector. So I would like to suggest that we need to rethink the term enterprise and take it away from the classic sole trader stereotype and instead think of it occurring wherever workers use their judgement and creativity to introduce new innovations, in whatever sector. That means that public sector workers can be just as enterprising as the white van man. Public sector workers take a risk with their time, effort and dedication, which it is going to remain available as a public good just as the white van man my commit time, energy and some capital. Both should have equal recognition in the process of adding value.
So is it possible to draw a line between public and private, sole trader and collective worker? Actually no and I would say that the trend has gone dangerously too far to the role of the private. First, nearly all adding of value through production and innovation is as the result of collective effort. I’ve spent the last 12 years researching social enterprise, associative enterprise and cooperatives which are effective ways of running private businesses but based upon collective ownership and control. Even sole traders, depend on a network of other workers to be able to operative effectively or have one or two ‘bread and butter’ lines from large organisations that keep them going. The same applies in the public sector and even at leading edge high technology innovation in universities; cooperation has to be the name of the game, increasingly on an international scale and actually has a technical name ‘open innovation’. At this level universities interact with private organisations and it is very difficult to separate out who is the most enterprising or innovative as the product or service is a joint outcome.
There are two other reasons why the trend to the private has also gone too far. Many traditional sole trader new start ups which are lauded in economic development policy end up in the hands of large multinational companies once they are successful. The same happens when SMEs change hands on succession of ownership say when an owner dies or retires. I carried out some research about 10 years ago and found both in the US and Australia over a ten year period around a third of all SMEs changed hands. So considering a collective form of ownership among all the workers, is a way of anchoring the capital and organisation in the area where it started and where often so much public and political support has gone into getting it up and running in the first place. Cooperative enterprise is a serious way forward in the private area.
The other reason is the problem of market failure. John Cassidy who covered economics and finance for the New Yorker magazine has written a recent excellent book called ‘How Markets Fail’. I really recommend it for anyone interested in economic policy that deals with reality and not the myth of free market equilibrium or hidden hand. It is an extremely accessible book and not only explains the financial crisis but clearly spells out an alternative approach to economics that he calls ‘reality-based economics’ rooted in economic theory and writing over the last 150 years. He makes an excellent case for the limitations if not dangers of markets as economic regulators suggesting that not only is re-regulation required, but that the role of public good provision through the state should be fully recognised. I think it complements well an updated Marxist analysis such as that of David Harvey and Chris Harman, but from a traditional and classical economic perspective.
So what does all this mean? Don’t believe the Tories their support of enterprise is a three card trick aimed at removing protective regulation from all industry. And be very wary of supporting enterprise as an economic solution unless you are careful about what understanding of enterprise you are talking about There are other forms of ownership and control and they can be more effective. Finally, we should be proud to argue for the public sector, public good and the idea of public service.