In the run-up to the Conservative conference, the leader of that party’s group in the Assembly set out his plans for the economy. Now it might be argued that we don’t need to worry too much about what he has to say, since the probability of him ever being in a position to implement any of his policies is diminishingly small. On the other hand, although he has perhaps set out his views more directly, there are elements of what he has to say which have, undeservedly, become part of the accepted political consensus amongst the parties. For that reason, they deserve more scrutiny.
Take this one for instance: “It is the private sector in Wales that creates wealth and prosperity. The public sector, as important as it is in delivering high quality public services for all, moves the same money around.” Now I’ve heard much the same thing said by politicians of different parties; ‘private sector good, public sector bad’ is the sort of conventional wisdom which increasingly underpins both government policy and opposition policy. But is it true?
It probably depends on what is meant by the words “wealth and prosperity”. If it means GDP (or GVA if you prefer), then it’s nonsense. In essence, it really makes no difference at all to GDP whether a particular service is delivered from within the public or the private sector; it all gets counted.
Perhaps wealth means the wealth of the individual employees. But again, as long as they get the income every month and can pay the mortgage, whether the house (the main element of many people’s personal wealth) is paid for by a salary in the public sector or the private sector is neither here nor there.
And when those employees her money down to the shops and spend it, do the shopkeepers give a hoot whether their customers work in the public or the private sector? Of course not; and it makes no difference at all to the retailers’ wealth and income either.
There is one and only one sense in which I can think that the private sector “creates wealth” in a way that the public sector does not, and that is that the private sector generates profit which some individuals accumulate as private ‘wealth’. In short, it makes those who own and control the capital ‘wealthy’. But, and this is a point which people often seem not to understand, ‘making some people wealthier’ isn’t the same as ‘creating wealth’; in a very real sense it is just, to quote Davies in a different context, “moving the same money around” - in this case from the customers of an enterprise to the owners.
National wealth is usually defined as the total net value of all assets, goods and services owned by a nation; and in that definition, it really doesn’t matter at all whether ‘services’ such as education are owned and run by the state or by private individuals; they’re still counted as part of national wealth. That total national wealth can still grow (which is what ‘wealth creation’ means to me), however those services are owned and run. It is perfectly possible to have an economy where there is no private sector at all; such an economy would still generate wealth, it’s just that that wealth wouldn’t necessarily be concentrated in the hands of a few.
(I’m not arguing here that we should adopt such an economy, merely that such an economy is a possibility. If he’d argued that the private sector was a better way of increasing total national wealth, I’d have more trouble dismissing his argument; but he didn’t – he argued that it’s the only way.)
Whether services are run by the public or the private sector, they still need to be paid for. And in the grand scheme of things, whether they’re paid for by taxing people or by charging at point of use is also irrelevant. Both are merely “moving the same money around”; the idea that taxation somehow depends on there being a private sector making profits which can be taxed is another myth.
Ultimately, the idea that only the private sector creates wealth is nothing but ideological dogma which seeks to legitimise the redistribution of wealth from the many to the few. Like so much in the allegedly ‘post-ideological’ age in which we live, it’s an ideology shared by politicians of many parties. But there really is an alternative.