Austerity is not just a consequence of the global financial crisis but is here to stay as states grapple with the wider impacts of globalisation and the difficulty of increasing state spending.
These are among the key messages from an ongoing multi-national academic study into the ‘foundational economy’ – namely those parts of the economy which provide the very basic goods and services that are at the foundation of civilised life.
Mick Moran, Professor of Government, is part of a research team at Alliance MBS which has been working on the study. He says the relationship between the state and the foundational economy has become increasingly problematic in recent decades as modern forces undermine the ability of nation states to increase both welfare and infrastructure spending.
As he explained: “The success of neo-liberal ideologies increasingly constrains the state’s capacity to increase taxes in order to fund services. We saw a good example of this before the recent UK election where the Conservative party was forced into a U-turn in its attempt to hike national insurance for self-employed workers.”
Prof Moran said at the same time globalisation had further weakened the nation state.
“Globalisation has forced states into increasing competition for hi-tech industrial advantage. Policymakers are far more interested in glamorous hi-tech industries than more ‘mundane’ foundational sectors which are viewed as a drain on the productive economy. States have become obsessed with high technology industries even though they only make quite a small contribution to the total employment base.”
Policy impact
Prof Moran said a number of wider policies had further driven these trends, such as the global boom in utility privatisation - which was initially driven by the wave of privatisations in the UK and US.
“This has transformed the long view traditionally associated with state-led investment into one driven by shareholders concerned with high short-term return.”
Another area is the widespread contracting out of services in areas such as health, adult social care and education. “The result is the creation of a new class of casual low-paid workers and the colonisation of services by multi-nationals primarily concerned with shareholder-driven returns.”
He added that as a result of these trends the historical contract between citizens, state and the foundational sector was now broken.
“We have entered a new age of citizen discontent across the advanced world with declining trust in political institutions and the draining away of support for social democracy, typified by the election of President Trump. There is a broken contract between the citizen and the state and we cannot go back. Whatever solutions that exist they can’t rely on trying to recreate the world before 1970.”
Solutions
Prof Moran said new technologies of taxation now needed to be invented, while there was a need to confront the argument that the foundational economy is an unproductive sector.
“Instead we need to be clear that the foundations of economic prosperity lie with the foundational economy. We need to recognise the central position of the foundational economy in the creation of dignified and meaningful employment – ranging from nursing and teaching to plumbing and potato picking. Ultimately, the foundational economy is a rich reservoir of skill, experimentation and knowledge.”
Such ideas around the significance of the foundational economy are gaining traction across the world.
For instance Prof Moran recently gave a video presentation on the foundational economy to a conference in Bogota, Colombia. The conference was organised by Milennia.org which promotes the development of fundamental public services in Latin America, and the invitation came after the work of Alliance MBS attracted interest from parties in Latin America trying to build foundational services.
*Further reading on the foundational economy and links to research papers can be found here