By Sam Volkers
The Covid-19 pandemic and the corresponding global economic recession have set in motion a shift in economic and political thinking that would have been unthinkable only a few years ago. Where the European countries fought the 2008–2009 recession and the Eurocrisis that followed with a mix of bailouts and harsh austerity, the current crisis is fought with a hands-on approach by the state itself. Governments across Europe have re-asserted their control over the economy and decided to spend more instead of less. In France, prime minister Jean Castex announced the return of the Commissariat général du Plan, the country’s famous economic planning commission, while the Spanish government nationalized all private hospitals. In the Netherlands, the government also pledged to take a greater role in the economy, with even the VVD — well known for their small-government and liberal views — now arguing for a stronger role of the state in managing the economy. Now that the state has begun to make its — in my opinion long overdue — return in the economy, the debate between those that view the state as a Leviathan that protects the interests of the people and country and those that view it as a Moloch that demands the sacrifice of freedom and individualism has heated up again. To understand this debate, it is important to understand why the state is needed in the economy and what its role should be.
Short history of the relationship between the economy & the state
Before discussing why the state should be involved in the economy and what its role should be, it is important to first give a brief historical perspective of the relationship between the economy and the state in capitalist countries (non-capitalist examples such as the Soviet Union are excluded from this brief perspective as they deserve their own article).
Early economics & The Mercantilist Era
For as long as states and economies have existed, the former has influenced the latter. Early examples range from the public lands and mines in relatively laissez-faire ancient Athens, to the proto-mercantilist policies of Hendrik VII of England with which he aimed to break Flanders monopoly in the wool industry and in turn build up England’s own wool industry.
During the 17th and 18th centuries, the role of the state in the early capitalist nations of Europe expanded as the nations adopted mercantilist policies, with Britain and France being especially keen to adopt these policies in an effort to break Dutch hegemony. The mercantilists believed that a favorable balance of trade — exporting more than you import — was necessary for a nation to be wealthy and strong. In order to achieve this favorable balance of trade, states in Europe adopted policies not too different from those supported by Hendrik VII. To name a few: protective import tariffs, investments in infrastructure, state support for local industries, tax reforms and — in some countries — the establishment of overseas colonies (this last aspect is also one of the key differences between mercantilism and other forms of economic nationalism, such as protectionism and developmentalism, which did opposed colonialism). Some famous mercantilist thinkers were Jean-Baptist Colbert, who served as France’s First Minister of State between 1661–1683 and after whom French mercantilism was named (Colbertism), and Antoine de Montchrestien, who is often viewed as one of first political economists.
Adam Smith & the Industrial Revolution
This mercantilist status-quo would be shaken up when, on March 9 1776, Adam Smith’s book An Inquiry into the Nature and Causes of the Wealth of Nations was published. Smith rejected the mercantilist view of trade as a zero-sum game and argued that the invisible hand of the free market would be a better guide for the economy than any government management could be. In Smith’s view, the state’s role should be limited to providing national defense, public goods and ensuring that safety and justice prevail (this is of course an oversimplification of Adam Smith’s ideas, but this had to be done for the sake of brevity). Although Smith’s ideas were never fully implemented, with many nations — including Smith’s own country of Great Britain — combing his ideas with certain aspects of their old mercantilist policies (think of the Hamilton’s system in America), they did help usher in the industrial revolution.
The Social Question & Early managed capitalism
Although the industrial revolution brought a lot of economic growth and innovation, its spoils were not shared equally by all. While industrialists got rich, many of their workers lived and worked in terrible circumstances. These circumstances proved to be fertile ground for all kinds of radical theories, such as Marxism and anarchism. Although governments had already been used to helping stimulate and manage economic growth and commerce, they were not well versed on dealing with this new Social Question. Although hesitant at first, governments in Europe and the America’s slowly started the process of creating welfare states, such as seen in Theodore Roosevelt’s Square Deal or Bismarck’s welfare system.
Another issue that was created by the industrial revolutions was that of monopolization. Governments had trouble keeping up with economic growth and modernizations, and thus lagged behind in law-making and legislation. This allowed for monopolies to consolidate their economic power and use their financial treasures to influence politics in their own favor. Although this problem also existed in Europe, it was worst in the United States. There, during what would later become known as the “Gilded Age” (1870–1900), Robber Barons such as J.P. Morgan and John D. Rockefeller would consolidate their control over entire branches of the economy, and crush and/or extort money from smaller competitors, while using their money and influence to sway politicians to act in their interest. This would come to an end when the president, Theodore Roosevelt, began breaking up these trusts (monopolies), which would gain Roosevelt the nickname “Trustbuster” (Boswijk 2020: 59–61). Roosevelt also passed laws that ensured better working conditions and better quality of food and medication, while also supporting a protective trade policy and policies that ensured the protection and conservation of America’s environmental beauty.
This combination of trust-busting (breaking up monopolies), trade protectionism, labour laws, consumer protection, environmental protections and the creation of an early welfare state would serve as the beginning of a new era of managed capitalism.
The Great Depression, Keynes & the Post-War Consensus
The call for managed capitalism became even louder during the Great Depression of the 1930s. This global economic crisis would serve as another turning point in the relation between the state and the economy. As the economic crisis ravaged countries around the world, the people lost their faith in laissez-faire capitalism and would turn to supporting other ideologies, such as fascism and communism. To stem this radical political tide and fix their economies, leaders around the world realized the capitalist system needed to change.
It was during this period that the economist John Maynard Keynes published his magnum opus The General Theory of Employment, Interest and Money, in which he laid out his views on the economy and the state’s role in it. Unlike Adam Smith, Keynes envisioned an active role for the state in a capitalist market economy. Keynes argued that the state should manage the economy and raise government expenditure while cutting taxes to stimulate demand and pull the economy out of the economic crisis. Although this might create a budget deficit in the short-term, Keynes believed that in the longer-term this deficit could be paid back, because government spending has helped create new investments and stimulated consumption which in turn have led to an increase in production and jobs. This new economic growth means that the state can collect more taxes, which it can use to pay back the deficit (just like with Adam Smith’s ideas, this is an oversimplification of Keynes’ ideas for the sake of brevity).
After World War II — which had seen government management of the economy taken to an even higher level — Keynesian inspired managed capitalism became the norm in most Western nations. During the period (1945 — late 1970s) that became known as the ”post-war consensus”, governments across the West (and later also in Asia and some parts of Africa and Latin-America) would use Keynesian inspired policies such as deficit spending and forms of state planning in key sectors and regulations in the other sectors to keep the economy stable, while also expanding the welfare state on a grand scale. This is the period during which most countries saw the creation of, for example, universal healthcare systems, better labour regulations, pension systems and unemployment benefits. During this period, labour unions also became accepted and empowered as strong actors in economic affairs, often working together with the state and employer’s organizations to create a form of class-cooperation instead of the class conflict caused by laissez-faire capitalism and supported by Marxism.
This era would become known as capitalism’s golden age, because of its high economic growth rates, record low unemployment, rapid income growth and a rise of living standards to levels never seen before. For example, the average yearly GDP per capita growth in the rich and developed countries between 1960–1980 was 3,2% (Chang 2010: 80), while per capita incomes in the West grew with an average rate of 4,1% per year, with some countries — such as West Germany — having even higher yearly income growth (Chang 2014: 79). Living standards in general increased as well. People lived longer and more healthy lives, while also being introduced to new technologies such as washing machines, cars and new medicine, and higher education and healthcare became accessible for all people, not just the rich.
The Neoliberal Shift
The post-war consensus would come to an end in the 1980s. Its sudden decline came after two oil crises during the 1970s caused stagflation, a combination of stagnation and inflation. The post-war consensus was replaced with neoliberalism, first in the United Kingdom under Thatcher and in the United States under Reagan, but later also in the rest of the West and other parts of the developed world. In these countries, the state would shift from the aforementioned Keynesian inspired economic policies to neoliberal policies such as deregulation, tax cuts, cuts to government spending and a tighter control of the monetary supply. The role of the state would shift from being the protector of public and national interest to the protector and creator of new markets.
Although some of the neoliberal policies had success at first, they failed to recreate the growth rates see during the post-war consensus era, with the average yearly growth rates reaching only 1,4% per year (Chang 2010: 80). The new neoliberal system also caused a lot of economic and social problems, with many of the problems seen during the industrial revolution and Gilded Age — think of monopolization, weak labour unions, rising poverty rates, high economic inequality etc. — returning.
Another negative effect of neoliberalism is that it has caused a sharp increase in economic crises. First the 1997 Asian financial crisis, then the 2007 Great Recession followed by the Eurocrisis. Right now, we are facing another economic crisis, which, combined with the Covid-19 pandemic and the great geopolitical shifts of the last years, forces us to rethink how we view our economy and what kind of role the state should play in it.
Why is the state necessary in the economy?
When discussing what a possible new economic system should look like, and, more importantly, what the state’s role should be in this new economy, it is important to first discuss why the state should intervene in the economy in the first place.
Reason #1: The free market does not always create the best outcomes
The first reason why the state needs to intervene in the economy, is that the free market does not always create the best outcomes. The most prominent example of the free market not creating optimal outcomes is the situation called “market failure”. Marked failure can be defined as (Investopedia 2020):
“Market failure is the economic situation defined by an inefficient distribution of goods and services in the free market. In market failure, the individual incentives for rational behavior do not lead to rational outcomes for the group.”
Some of the most important examples of market failures are externalities, public goods and monopolies (Investopedia 2020).
Externalities are effects caused by the production of a good or service on other people or things that are not reflected in the market price of said good or service. Pollution is a good example of this. To mitigate the effect — or prevent the creation — of negative externalities, the state is needed. In the case of pollution, the state could, for example, use tax incentives to stimulate cleaner production methods or use punitive taxes to discourage using polluting production methods.
Another important form of market failure has to do with the supply of public goods. Public goods are goods and services whose use by non-payers can not be prevented once the goods are supplied (Chang 2014: 382). Think of infrastructure, such as bridges and roads, or services, such as national defense. These are goods and services that are vital for a well-run country, but because people can use them without paying, it becomes hard to acquire the funds that are needed to provide them. To solve this “free-rider problem”, it is necessary for the government to tax all potential users (usually all citizens and other tax-paying residents of the country) and use the tax-incomes to provide these public goods (Chang 2014: 383).
Then there is the problem of monopolies and oligopolies. Sometimes a business — or in the case of an oligopoly, a few businesses — becomes so large that it can dominate an entire market (for example the railway market) without having to worry about competitors. This is what is called a monopoly. If a business becomes a monopoly, it can set its own prices without having to worry about being outcompeted, because there is no competition. This often leads to high prices and low-quality goods and services. It is important to make a distinction between public and private monopolies, however. Where public monopolies (monopolies formed by a state-owned enterprise) are usually still beholden to the will of the people (high prices and poor goods and services can make a government very unpopular and lose them votes), private monopolies are big corporate bureaucracies that are beholden only to the interests of their shareholders — which rarely align with those of the people — and often use their power and money to influence politics in their own favor. The state can deal with monopolies by breaking them up into smaller companies, like Theodore Roosevelt did, or nationalizing them, which is often done in the case of so-called natural monopolies (1).
Reason #2: Some things are too important to be left to the market
As mentioned before, there are certain goods and services that are provided by the state from which nobody can be excluded access to (public goods), and which would be hard the profit from if provided by a private enterprise. The state does however also provide certain goods and services which could, in theory, be provided by private enterprise (for example the railroads or healthcare) in a way that generates profit for these private enterprises. The idea behind privatization is that, if a state-owned enterprise (SOE) is privatized, it will become just like other private businesses. It will have to compete with other businesses on a competitive market, which means it will have to innovate and create better and cheaper products/services in order to attract customers. On paper, this will lead to cheaper, better, and more efficient goods and services for consumers and profits for investors. Although this sounds good on paper, in reality, it does not always work out this way.
While some sectors of the economy have improved due to privatization, most notably the telecommunications sector, a lot of other sectors have not gotten better or have even become worse. In many cases, privatization has led to worse working conditions for employees and higher prices instead of lower ones. This has led to many of these goods and services becoming less available for those with lower incomes (Joop 2017). The reason why this happens is that, most of the time, state-owned enterprises are either natural monopolies, or in a sector of the economy where competition is near impossible. In the Netherlands, a good example of this problem can be found in the privatization of the railways (which was reversed in 2016) and the trains. The problem here is that the Netherlands simply is not big enough for multiple competing railway networks and train companies (NOS 2015), and this had led to a near monopoly by the now semi-private NS (Nationale Spoorwegen). This situation has not led to the NS becoming more efficient or lowering train fares — as private monopolies rarely do their best for these things — all the while they still rely on the state to provide them with financial support. Why does the state still give them financial support? Simple: the railroads and trains are simply too important for our country to go bankrupt. Another example of this is the production of pharmaceuticals. Right now the production of life-saving medication and vaccines, such as the vaccine against Covid-19, is in the hands of a small group of private enterprises. And although most of the R&D (2) in this sector has been paid for by the state, the state still has to bargain with these companies in order to get the vaccines. In essence, the state (and thus citizens) is giving money to these companies without having some form of control over how the money is spend or how the business operates. This might not be a problem in non-vital sectors, such as those that produce consumer goods, but in vital-sectors this can be a big problem, especially during times of national emergency. This is illustrated well when we compare the Dutch vaccination program with that of China and Russia, where the vaccines were produced by state-owned enterprises. Both China and Russia rapidly created their own vaccine and distributed it within their country as well as abroad, whilst the Dutch government still does not have enough vaccines months after the program began. This is why privatization does not always work: some sectors are just too important to be left to the market.
Reason #3: A weak state with little control over the market will lead to immoral behavior of economic actors
The 17th century British thinker Thomas Hobbes once said:
“Life in the state of nature is solitary, poor, nasty, brutish, and short.”
In the quote, Hobbes was talking about social relations in the state of nature, but it also accurately describes the harsh social and economic reality that is created if markets are left unregulated by the state. Although the free market is not by its very nature a bad or immoral thing, it can become so if the end goal — providing reciprocal services for the betterment of the people’s and nation’s welfare — is forgotten and money becomes a goal instead of a tool (Buijs 2019). This will allow for the immoral behavior of certain economic actors on the market to flourish, which will result in bad outcomes for workers, consumers, the environment, and the country as a whole.
If left unregulated big businesses will become monopolies or form cartels to consolidate their power. They will then use their dominant position to crush smaller competitors and squeeze their workers or outsource jobs to one-up their competitors and accumulate more wealth for themselves (think of the way Uber treats its workers and how that company has ruined taxi-markets worldwide). This will then lead to gross economic inequality, with a few owning everything while the many live in squalor. In some cases — such as during the Gilded Age — these big corporations and rich individuals will use their money and power to influence politics in their favor. They will try and buy the state. This is why the state has to use its power and prevent this from happening by banning the formation of cartels and breaking up the monopolies. The state should also use its position as arbiter of the common good to manage the disputes between capital and labour and make sure both sides get their fair share.
Another example of immoral behavior is the sale of harmful or fake products (e.g. tobacco, fake medication, drugs, cheap Chinese goods made of toxic materials) to consumers. These products can cause great harm to people, and society in general, and thus the state must fulfill its role as the protector of the consumer’s interests and regulate or ban — depending on the type of product — these products, while also spreading awareness about the negative effects they have on people and society. The state also needs to be aware of misleading advertising and other unfair marketing strategies that are used to trick consumers into buying products and deal with that accordingly.
Then there is the problem of environmental damage that some businesses will cause if they are not properly regulated. Although in some cases environmental damage is not on purpose, there are also cases where it is caused because of corporate disinterest in the local environment (e.g., a factory dumping its industrial waste in a river or using toxic materials because it is cheaper). Besides damaging the (local) environment, these practices can also have serious effects on the health and safety of locals, but it is often hard for citizens alone to put a stop to these practices, because businesses — big businesses and multinationals in particular — will always have more money and better lawyers than citizens. Therefore the state — being the defender of public interests — is needed. It can discourage these practices by using taxes or regulating these businesses (Chang 2019) or, if it is a serious problem, it can outright ban them.
Reason #4: Spend money to make money: Sometimes the government needs to step in and get things done
Some projects are just too expensive to be funded by individuals and private businesses alone. Often these are projects that are vital to economic prosperity — and sometimes even national security — but are not immediately profitable in the short-run. This makes it unattractive for investors and private enterprise to invest in these projects. An example of this can be a steel mill or some other form of manufacturing industry. Often, private firms and investors are not attracted to manufacturing industries, because of the high costs and little immediate short-term gains, even though these industries are vital for a prosperous and secure national economy.
The state, however, is not driven solely by short-term gains but also long-term gains. It also has more economic power and money than any individual or private enterprise ever will. In general the state is the biggest economic actor in any national economy, often accounting for between 30 and 50 percent of GDP. In the Netherlands, over 20% of GDP comes from government procurement (Chang 2019). This puts the state in the perfect position to solve these issues. It can offer financial support in the form of investments and subsidies to help private businesses in setting-up these projects, or it can carry out these projects themselves.
What should be the state’s role in the economy?
As I have mentioned before in a previous essay, a new economic system is needed. We need a system that rejects both our current system of neoliberal capitalism, as well as Marxism, and which can function as a middle way between capitalism and socialism. It should be a mixed-economy in which capitalist markets and private enterprise still exist but are managed by a strong state — in co-operation with social partners (3) and het maatschappelijk middenveld (4) — to ensure that the citizens and the nation reap the benefits from it and the excesses of capitalism are mitigated.
This new economic system should place a great emphasis on communitarian values and put the needs of families and communities first. It should provide them with the opportunities, financial stability and freedom needed to live fulfilling and happy lives. The new economic system should also be aimed at state-building and ensuring that our national sovereignty is protected. The economy should work towards the achievement of national goals that help to further the strength of the country and serve national interests.
In this economic system, the state has three main economic duties:
1. Manage the economy and steer it in the right direction
2. Create consensus between the different interest groups
3. Protect citizens from the excesses of capitalism
First Duty: Manage the economy and steer it in the right direction
As the protector of the people and national interests, it is vital that the state uses its unique position in society to direct the economy towards national interests. For this the state needs to adopt a system of dirigisme. Britannica defines dirigisme as (Britannica 2013):
“Dirigisme, an approach to economic development emphasizing the positive role of state intervention. The term dirigisme is derived from the French word diriger (“to direct”), which signifies the control of economic activity by the state. Preventing market failure was the basic rationale of this approach. Dirigisme was introduced in France following World War II to promote industrialization and protect against foreign competition, and it was subsequently mimicked in East Asia. Dirigiste policies often include centralized economic planning, directing investment, controlling wages and prices, and supervising labour markets.”
Management of the economy in a dirigiste system comes in the form of indicative planning. Indicative planning is a form of economic planning that involves the state setting long-term goals and creating plans designed to reach these goals. Unlike a centrally planned economy, indicative planning works through the market (price system) rather than replaces it. To this end, the planning process specifically brings together both sides of industry (labour unions and management) and the state (Collins Dictionary of Economics 2005). To implement indicative planning, the state needs to create an economic planning bureau that works together with the different interest groups and social partners to reach national goals. An example of these national goals is the implementation of an industrial policy to rebuild and re-shore our vital industries. This form of economic management is also important during crises, when the state should make use of Keynesian inspired policies to get the economy back on track.
Since dirigisme and indicative planning go hand-in-hand with the social market economy (5) it is important to explain what the state’s role should be when it comes to the free market. The state needs to regulate the market and ensure there is fair competition and a level playing field for businesses — with a special focus on helping small-medium (family) businesses — for example by breaking-up monopolies and cartels. The state should only allow monopolies to form where there are natural monopolies, but then these should be state-owned enterprises (national champions). The state can also set prices for certain important goods, such as medication, to prevent them from becoming too expensive for citizens.
The state should also control vital-sectors of the economy — for example: infrastructure, public utilities, pharmaceutical manufacturing, production of military equipment, railways etc. — in order to ensure that these sectors are stable and do not fall into the hands of foreign competitors or private enterprises that are only out for profit. These state-owned enterprises should become national champions that work together in a close relationship with other economic actors on the market in an effort to protect national interests and create a strong economy. To prevent these state-owned enterprises from becoming large bureaucratic molochs, it is important to give a voice to all those who work in them and are affected by them, not just the bureaucrats in charge of day-to-day management. For this, co-determination is important. In the case of public utilities for example, the state should adopt a system of “social ownership”, meaning that it will not just be the state owning the utilities and making decisions, but also the locality and employees. In this system the board of representatives will be split up between local representatives, worker’s representatives and representatives of the state, and they all get to elect 1/3 of the representatives (Glasman 2018).
Besides managing the internal market, the state should also manage the nation’s commerce. The state should adopt a form of economic nationalism (something I will explain more in depth in a future article). It should protect the national economy against foreign competition. To do this, the state needs to manage the flow of goods, capital and labour across borders. It should regulate exports and imports, e.g. by using tariffs and/or import quotas, with a special focus on protecting domestic industries that are important to national (geopolitical) interests. The state should invest in these important industries — and the R&D, education and infrastructure that supports them — to ensure that they keep up with foreign competition, while also investing in the development of new industries and technologies.
Second Duty: Create consensus between the different interest groups
As representative of society as a whole, the state should use its special position to bring together the different interest groups in society. The state should work together with the social partners (labour unions & employer’s organizations), het maatschappelijk middenveld (civil society) and other important interest groups, to create economic co-operation between these groups and unite them in a collective effort to reach important national goals.
For this co-operation, a neo-corporatist framework is needed. Neo-corporatism is a system in which the state brings together different interest groups (labour unions & employer’s organizations in particular) in a formal co-operation in order to mediate and prevent conflict and and to enhance economic growth. Neo-corporatism favours tripartite co-operation between the state, labour unions and employer’s organizations. Tripartism can best be defined as (Collins Dictionary of Business 2002):
“A system of co-operation between both sides of industry and the state. Tripartite institutions typically include representatives of trade unions, managers and owners, and government on the grounds that each has an interest in, and worthwhile contribution to make, to economic and industrial policy.”
If this system is implemented correctly, the state can ensure that the partners in the co-operation have a cordial relationship in which everyone gets their fair share, preventing class-conflict and fostering class co-operation. A good example of this system in action is the Poldermodel, in which state works together with labour unions, employer’s organizations and other interest groups to consult about important matters such as socio-economic problems, labour markets, the environment and healthcare. The system has benefitted the Netherlands, because it has created a stable social dialogue (6), reduced strikes and tensions between labour-management, and ensures that organizations are involved in the decision-making process (CNV 2018).
This cooperation between the state, labour unions and employers also needs to be introduced in the workplace. Just like in the public sector, the state needs to implement a system of co-determination following the German model (“Mitbestimmung”) that allows for workers to elect up to half of the members of a company’s supervisory board (the board that appoints and oversees a company’s board of management), and the formation of work councils that concern themselves with matters such as the implementation of employment laws and rights (Sullivan 2017). The state should also acquire shares in big private-enterprises that have a lot of strategic value for national (economic) interests, in order to gain more say over them and ensure that national interests are also kept in mind during the day-to-day business of these companies.
Duty 3: Protect citizens from the excesses of capitalism
Although the capitalist free-market system has brought a lot growth, economic prosperity, innovation, and rising living standards, the spoils are not always divided in a fair manner, which has become increasingly clear over the last few decades. Since the 1980s our economy has grown at a rapid pace, but for many people their wages have stagnated (Koppes 2021) and costs of living have increased. More than 600.000 people in our country live in poverty (Bruins 2021), while many more families struggle with debt and can barely hold their head above water. The decline of the labour unions, the rise of the gig economy (7), and the outsourcing of jobs to foreign countries, have also put workers and their families in an increasingly difficult situation. These are just some of the excesses of free-market capitalism that have become an increasing problem during the past decades.
This is where the third duty of the state comes in: the protection of citizens from the excesses of capitalism. To keep the capitalist system fair and stable, the state does not only need to have a role in managing it and bringing together the different interest groups, but it also needs to use its power to actively protect and assist families, with the goal of creating a level playing field for them and ensuring that they can live happy and fulfilling lives. For this, the state needs to create a potent, but simple and manageable welfare state aimed at creating strong families and communities, that combines a strong government and social programs with communitarian values and individual responsibility.
The first priority of this welfare state is to ensure families the basic necessities of life: education, work, housing and healthcare. A good education forms the base of a successful life, as it creates a level playing field for individuals in the economy, which helps them get the job that suits them. The state should also ensure that there is enough good work for people. It should create jobs by combing different policies such as job creation programs, tax cuts for (small-medium) businesses, investments in economic growth and local industries, and the removal of red-tape regulations that prevent entrepreneurship. The state should also ensure that these new jobs are good jobs, by raising the minimum wage and implementing policies that protect workers, such as mandatory unemployment insurance, good pensions, allowing for labour unions to have a strong role in the workplace and negotiation of contracts, and good workplace safety regulations. The creation of good jobs will in turn allow individuals to start a families. A family needs to live somewhere however, so the state — in co-operation with housing corporations — needs to create enough (social) housing for families to live in, and ensure that rents and house prices stay affordable. When families have found a place to live, its also important that they stay healthy. To ensure a healthy population, the state needs to re-take control over the healthcare system and make it accessible to all by creating a National Health Insurance Fund (similar to the NHS), with a focus on preventive care and lowering or getting rid of co-payments. In addition to these four basic functions of the new welfare state, there also need to be several extra social programs that can help individuals, families and communities. Some examples of these social programs could be a universal basic income for individuals, a more generous monthly basic income for families, and assistance-programs for families that are in trouble with debt.
Besides having a generous welfare state, the government also has to manage other excesses of capitalism, with the most important being the protection of consumers and the environment. Consumer protection should be focused on ensuring that consumer goods are of a high quality, and that these goods do not pose a potential threat to consumers (e.g. by being made from toxic materials). Environmental protections need to be focused mostly on protecting the environment from the negative effects of industrial capitalism, preventening further climate change, and the conservation of the environment itself. Examples of these policies could be stricter regulations on polluting industries and banning the use of certain toxic chemicals.
The state should also foster the creation of strong communities by promoting volunteerism and providing help to these community initiatives where needed. It could do this by removing any bureaucratic red tape that stands in the way of these policies or by providing budgets for initiatives that are very promising. The state should also work together with charitable organizations and non-profits (e.g. churches or charity organizations) in a collective effort to improve the lives of citizens.
Now that we have covered the history of the relationship between the state and the economy, (some of) the different reasons why the state needs to intervene in the economy, and my view of the ideal relationship between the state and the economy, it is safe to say that I fall on the side that views the state as a Leviathan that protects the interests of the people and country. Since the end of the debate about the role of the state in the economy is not, and perhaps will never be, in sight, I hope that I can add to this discussion with my article and future articles that elaborate on the points mentioned in this article.
Note: I want to give special thanks to my good friend Jake Galvin for proofreading my article and giving me feedback for improvements.
1: Natural monopoly: A natural monopoly occurs when the most efficient number of firms in the industry is one. A natural monopoly will typically have very high fixed costs meaning that it is impractical to have more than one firm producing the good. Found on: https://www.economicshelp.org/blog/glossary/natural-monopoly/.
2: R&D (Research & Development): Research and development (R&D) includes activities that companies undertake to innovate and introduce new products and services. It is often the first stage in the development process. Definition found on: https://www.investopedia.com/terms/r/randd.asp.
3: Social partner: An individual or organization, such as an employer, trade union, or employee, participating in a cooperative relationship for the mutual benefit of all concerned. Found on: https://www.lexico.com/definition/social_partner.
4: Het maatschappelijk middenveld: The organizations that stand between the government and the citizen, such as the trade union movement, educational organizations, and agricultural organizations. Found and translated from: https://www.encyclo.nl/begrip/maatschappelijk_middenveld.
5: Social market economy: An economic system in which industry and commerce are run by private enterprise within limits set by the government to ensure equality of opportunity and social and environmental responsibility. Found on: https://www.thefreedictionary.com/Social+market+economy.
6: Social dialogue: Social dialogue is defined by the ILO to include all types of negotiation, consultation or simply exchange of information between, or among, representatives of governments, employers and workers, on issues of common interest relating to economic and social policy. Found on: https://www.ilo.org/ifpdial/areas-of-work/social-dialogue/lang--en/index.htm.
7: The gig economy: A labour market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs. Found on: https://www.lexico.com/definition/gig_economy.
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