In a Guardian article, Ha-Joon Chang argues that the free market is a myth. From drug patents to quantitative easing, businesses make money because of state help. Here's an extract from the article.
'Today, many banks all over the world would not have existed but for the huge public money poured into them in the aftermath of the 2008 crisis. Even in the case of those that have not been bailed out, their profits would have been much lower (or their losses far bigger, in the case of loss-making ones) without the cheap money showered on them – without any condition, unlike in the case of state supports such as unemployment benefit – through cuts in interest rates and the quantitative easing by the Bank of England.
In other instances, the social protection of business is more roundabout. The horsemeat scandal has revealed that British supermarkets and the European meat industry have made higher profits from the relaxation of regulations regarding food standards, introduced by the coalition government in 2010 in the name of cutting government spending and, more important, "red tape". The Poundland scandal has revealed that British retail stores would make lower profits if they were not allowed to use the claimants of unemployment benefits as unpaid workers.
Businesses make what profits they make only because the government, and the electorate as the ultimate sovereign (at least in theory), helps them in all sorts of ways – free money (banks), free workers (Poundland), monopoly rights (pharmaceutical companies), implicit permission for substandard products (supermarkets).
Once we accept that the amounts of profit companies make are ultimately determined by these "welfare payments" society decides to confer upon them, we begin to see the problem with the free-market view that has dominated the world for the last few decades.
For far too long we have been told by the business lobby and free-market ideologues that profit is the objective indicator of a company's contribution to the economy, when it is really socially and politically determined. Poor people receiving government benefits have been told far too often that they are spongers, when the rich get even more government benefits.
It is time that we dispensed with the myth that the market is a force of nature that should not be meddled with. Markets are social creations that can be, and have been, modified for social purposes.'
Unite, Britain’s biggest trade union, is urging other unions to join forces to stage a 24-hour general strike in what it privately admits would be an “explicitly political” attack against the government. The threat comes as Number 10 on Tuesday ruled out speculation that it was to freeze or even cut the minimum wage, as it embarked on the largest contraction to date in the welfare state with the aim of making “work pay”.
Leaders from across the movement will discuss the idea of a general strike later this month at a meeting of the Trades Union Congress’s general council, with members divided over how to respond to the government’s attempts to curb public spending. Unite, which has 1.5m members, has put forward a paper urging the TUC to “prepare for such mass industrial action”.
Unite argues that “such action is desirable” as it would not only put pressure on the government to change course but it would also enhance the credibility of the entire labour movement. “It would be a landmark in our movement’s recovery of its morale, strength and capacity to play a leading part in a society crying out for credible and honourable leadership,” the paper says.
Unite holds back from proposing an early date and acknowledges it would take months to build support. Unions would have to win the backing of members in ballots. The union proposes a voluntary levy across the movement’s 6.5m-strong membership to pay the wages of “particular selected and identified” groups of workers striking on behalf of the TUC’s wider objectives.
The introduction of the government’s flagship welfare reform, Universal Credit, introduces a major new challenge for any politician hoping to help struggling households with tax cuts. The design of Universal Credit means that, unlike under today’s tax credit system, cuts in taxes for low to middle income working families will be counteracted by reductions in a household’s Universal Credit entitlement. Put simply, under UC, tax cuts will not, in large part, reach low to middle income working households.
The reason can be summed up as follows. When someone’s taxes are cut – whether through an allowance increase or a 10p tax rate – this increases their post-tax income. However, in calculating the amount of Universal Credit a household receives, the government provides 65 pence less UC for each pound the family’s income increases after tax. This 65 per cent figure is known as the UC ‘taper’. Consequently, having cut taxes with one hand, it takes away nearly two thirds of the gain with the other.
Specifically, a tax allowance hike of £1000 would be expected to lead to a gain of £200 in post-tax income. However, this increase in post-tax income leads to a reduction of £130 in Universal Credit, and therefore a net gain of just £70. This means that rather than every taxpayer gaining a flat rate £200, those in the greatest need gain barely a third this amount – while those higher up, and not in receipt of Universal Credit, gain the full amount. With a tax cut achieved through a 10% tax band, the effect on Universal Credit is the same. Nearly two thirds of any benefit would be lost for those in UC.
This interaction between taxes and in-work benefits does not apply to large parts of the existing welfare system. While Council Tax Benefit and Housing Benefit are already assessed on the basis of net income, tax credits are assessed on the basis of pre-tax income, meaning that a tax cut has no effect on the amount of tax credit support received. The result is that, once UC is up and running (it is being phased in from later this year), tax cuts, already a relatively inefficient way of supporting low to middle income households, will become almost exclusively a policy for helping households on middle and higher incomes. For some time, as UC is rolled out gradually, those who happen to be on the new system will receive a far smaller gain from tax cuts than those remaining on the existing system.