To what extent should the state intervene in the economy? Political debates on this issue often follow a false dichotomy. We take for granted that the Left favours a high degree of state intervention, while conservatives are associated with support for free markets. This juxtaposition is not only wrong; it entirely misses the essential point. The important question is not the extent of state intervention but rather the nature of the legislation that we must adopt in order to best serve the interests of the broad majority.
Reducing state regulation does not serve to liberate the markets – instead, it has quite the opposite effect: it bolsters
the power of a few large corporations. The supposed remedy – state intervention – too often fails. Through underperformance, governments often cause situations to deteriorate rather than provide effective remedies. A quick look at the behaviour of state-owned banks in the recent financial crises is sufficient to sow the seed of doubt about their capacities to manage risks effectively and better serve the economy than their private counterparts. Too often, state actors adopt policies that do not serve the interests of the broad majority but rather those of big business. In consequence, the state is no longer capable of assuring fair competition. Its regulatory powers appear to be so limited that economic policies remain unchanged from government to government. It comes as no surprise, therefore, that
left-wing parties suffer politically when they call for more state intervention.
The reason for the state’s failure to meet the needs of the majority of its citizens is that the balance of power between the state and business is skewed. The market economy has become a corporatist economy. In market economies the state acts as an independent rule-setter, thus ensuring economic competition. When financially powerful interest groups are able to exert tremendous pressure on the state, however, state actors are often drawn to take the side of these groups rather than speaking on behalf of their citizens. This is particularly the case when the complexities of policymaking grow beyond the competence of governments, leading to dependence on the expertise of external interest groups.
This leads to a formidable political dilemma. Many citizens have lost their faith in government and in politics, believing that the state is on the side of the rich. Increased regulation is therefore not an option, because state agents seem to be neither willing nor able to enforce rules that benefit the people.
I share the view that the state is serving the wrong interests in many ways. State actors have failed to successfully regulate the market economy, for example in the context of the financial crisis. We therefore need an innovative political strategy that takes a new approach to balancing the state and the economy. As citizens, we need to reclaim the state and ensure that it serves our interests, those of the people – and not those of the corporatist economy.
Similar to the ‘progressive movement’ in the USA at the turn of the last century, these new policies must promote a state with actual regulatory power capable of transcending the interests of big business. In order to defend us from hidden influences on policymaking, the processes leading to policy decisions must be rendered more transparent, ensuring that our governments are subject to scrutiny and are monitored – both by opposition parties and by the general public. The employees of our public institutions must be sufficiently qualified to meet with representatives of large corporations on an equal footing.
The adoption of any new, progressive strategy needs to generate more competition within our economies in order to control the corporatist economy. Governments alone cannot be responsible for planning all economic activity. We need to impose frameworks which ensure that markets generate outcomes that serve our interests.
Finally, this new progressive movement can only be a European one. Given the complex economic and political realities on our continent, we need to join forces. If we want government regulators to meet on equal terms with market players, we must operate at a European level. Regulations
must be applicable across national boundaries; only then can they prevent the degeneration of the state into the ‘selfservice store’ of the corporatist economy. This is essential in order to ensure that the state is once again able to work in the service of its citizens.
Gerhard Schick is a German economist and politician. Schick joined Alliance 90/The Greens in 1996 and was elected Member of the German Bundestag in 2005. Since 2013, he has been the Deputy Chairman of the Bundestag’s Finance Committee. Furthermore, he has been a Member of the Parliamentarian Financial Market Body since 2008. Gerhard Schick holds a PhD in finance from the University of Freiburg, Germany.
The original text was published as “Machtwirtschaft Nein Danke! Für eine Wirtschaft die uns allen dient” by Campus Verlag (Frankfurt, 2014)