Why Cameron’s blind faith in the Big Society and markets to solve all our problems won’t solve anything, so where should Labour stand on society, markets and the state?

To put one’s faith just in the one of market (Thatcher), society or the state (Marx) will fail. Indeed even two components i.e. market and society (Cameron’s approach) is destined to fail. To succeed it must be a combination of all three of these components on which our nation must rely.

Firstly markets do have their benefits. The market will efficiently match demand with supply, provide choice, spur innovation through competition and, if competition is effective, prices will remain low and quality high. The market alone, however, has its faults. Competition creates winners and losers, profit-margins are highest when providing products for those with full pockets thus leaving poor quality or nothing at all for those without – fine when we’re talking about luxury goods (indeed a spur for those who aren’t earning enough for these luxuries to work harder) but not good when it comes to the essentials such as a healthcare or education. Libertarians would shout: “Food is essential, doesn’t the market work for food?” It’s a good point but food, on the whole, is cheaper to produce and provide than a leg operation or a year’s schooling so profit can be made even at affordable prices. Another downer for markets is that that investors demand ever higher return on their investments thus forcing down wages for their low-skilled workers, yet equally competition ensures talented workers can always take their talents elsewhere and indeed are often lured away by the offer of higher pay from a competitor desperate to use their abilities to improve their company performance. Nonetheless no Labour politician should be seeking to smash up the entire private sector in a lust for Communism, the positives of good capitalist markets, as I’ve outlined, not only out-weigh its downsides most of the time and wherever it doesn’t the state can intervene by setting minimum quality standards for products and break up monopolies or prevent them from occurring via the Competition Commission to ensure choice and low prices. Vince Cable was right when he said that capitalism, left untouched, will ‘eat itself’, in that the winner will take it all and form a monopoly, Labour must argue it is more pro-market than the Tories - by intervening to ensure more competition (to raise quality and lower prices) as Ed Miliband has begun outlining with regard to the energy market.

The state’s role can, should and indeed does go further than regulation of the market. The state should provide the safety net for individuals ensuring those who are failed by the market, or by society are given opportunity to thrive again – those not served well by markets in their pursuit of profit must not be left behind. The state must ensure that all who work a full-time week are paid enough to play a full part in society, whilst this is currently achieved through a mixture of the National Minimum Wage and tax credits as a top-up, a more effective way would be to raise the NMW to a ‘living wage’. Conversely government must support micro and small businesses to pay these wages through a tax credit – redistributing profits from the large corporations to pay for the staff at the corner shop. Essentially this would mean that part of corporation tax would be a tax on profits for the sake of ensuring competition.

The state must protect its citizens in health (NHS), crime (police), emergencies (emergency services) and terrorism/foreign attacks (Ministry of Defence). It will be a more effective state if it invests in preventative, early intervention policies – supporting new parents and educating all young people effectively to ensure they have the skills for employment or entrepreneurship and the skills for life – including an understanding of healthy living to avoid illness as far as is possible, an understanding of personal finance to avoid uncontrollable debt and an understanding of relationships and social skills that help improve mental wellbeing. These measures will help keep down crime, keep down spiralling costs of the NHS and keep down unemployment benefits and all the support that follows bankruptcy. These measures also support a more effective market – developing a skilled and talented workforce. Providing childcare to support parents to work more is obviously also a benefit to the market and as such the market should contribute to the state’s work in these areas via a percentage of corporation tax hypothecated (earmarked) for the purpose of the Sure Start, schools, colleges and universities budgets. I’ve written why I believe in hypothecated taxes previously but in short it makes people more likely to pay if they know what it’s paying for.

A state that effectively supports its businesses is a state that invests in infrastructure. Building high-speed rail and new branch lines makes labour more mobile and flexible – a positive for the market but also for the individuals providing ticket prices are subsidised for lower earners. A railcard, available to anyone earning under £25,000 (or more or less, depending on the scale of the subsidy you want - such specifics are not the issue for here and now) which cuts a percentage of season ticket costs off would help make rail a more viable option for low to middle earners and not only increase more environmentally friendly rail use but encourage more of these individuals to look further afield for employment opportunities. Should such labour mobility result from this scheme these investments would begin to redistribute income more equitably throughout all parts of the country, breaking the South East and London’s monopoly on wealth, as workers can commute to London from further afield and businesses can move to other parts of the country knowing commuters can come the other way too. Such redistribution would not be via the state and its’ cash transfers (in the form of tax credits or regional development funds) but through the market, albeit with a helping hand from the state.

Society’s role? The Big Society tries to do too much and fails, like unregulated markets or big state monopolies as opposed to ‘the good society’ which reacts to the work of the market and the state and fills the gaps. The bonds of family, friendships, neighbours can do what the state cannot afford and does so with a personal touch the state could never match. These gaps are where the market finds no profit. Here the Third Sector (charities, religious groups and social enterprises) can provide personalised, top-up support that builds on the safety net of the state and allows individuals to take advantage of, not fall victim to, the market. The state must also continue to support society – through Gift Aid and other tax breaks for charities, through support for funeral costs and through well-funded carer’s allowances to support those who look after elderly relatives and the disabled. The state should also work with charities and non-profit companies to provide services utilising the personalised touches and niche expertise they can provide. There is no doubt much more the state can do to support society and in this sense David Cameron should be commended for his focus on the Big Society, but society should not be lent on so the state can withdraw – the good society stands on the shoulders of a strong and supportive state, finds those who need extra help or are slipping through the net and delivers unto them the care and support they need.

There is a fourth component, and its one I have written about a lot recently – the individual and their personal responsibility. Many argue that an active state is anathema to personal responsibility, sapping the need to work hard by plying the idle and feckless with benefits. Whilst it’s true that some literally live off state handouts the situation is far more complex - low wages are no incentive to work especially if the idea of one’s personal responsibility to work hard and contribute hasn’t been passed on by hard-working parents. The benefit system certainly needs simplification and credit (no pun intended) where its due, the Government’s new Universal Credit goes some way in sorting out the perverse incentives that lead to people not working or not working as many hours as they could because their benefit entitlement trumps their wages, yet a living wage would still be more effective, though again, credit where its due, as will the Government’s moves to raise the income tax threshold to £10,000.

If it wants the state to become an enabling state, that supports personal responsibility whilst still providing a safety net; Labour must move away from policies of cash handouts to more substantial (and perhaps in the long-run more affordable) guarantees. Housing benefit was invented with good intentions, to help people who couldn’t afford rent – a liberal alternative to mass social housing yet its costs have soared since its introduction exploited not by dodgy miscreants at the murky bottom of our society (as the Daily Mail would have you believe) but by the market and its profit-hungry landlords. Whilst the Tories will now cap housing benefit in the belief that landlords will lower their rents accordingly, this will not happen because of the chronic housing shortage in the UK, just as with tuition fees, where there is demand the supplier will still charge the most they can get. The guarantee of a basic, state-built home should be restored (in other words mass social housing – though not necessarily all in one place like the estates of old). This brings a stable base for all from which personal responsibility can be built, with tenants paying for their rent to the Council or housing association on a monthly basis and those who can’t (for example the unemployed) protected by temporary reductions in rent (provided they look for work) and for those who are working but don’t pay up? A fine and future rents removed directly from their monthly or weekly income through PAYE, like a student loan. The state’s role should only be at the bottom of the housing ladder, again as a safety net; as people earn more and go over the local household earnings average they should be given the option of buying their home (without the need to build up a hefty deposit) or moving elsewhere (either way, into the private property market) – with any revenue from the sale of the social house ring-fenced for the building of replacement social housing stock. This a far more supportive and humane response than the Tories’ plan to time limit social house leases.

A stronger nation will emerge when the individual, the market, society and the state work in tandem, complimenting one another and avoiding the damage that an excess reliance on just one or two components brings. Labour must defend the role of a strong, active state but it must also realise it may need to utilise that state very differently to support both individuals and the market to thrive. Just because the state isn’t operating as efficiently as it could doesn’t necessarily mean it should withdraw from that particular area, it just means it needs to act differently. Labour must also remain cautious of the limitations of the state to avoid the failures of the past – respecting the qualities that society, the state or individuals themselves can bring to life and the nation.