Corporatism, rigged markets and a new ideological showdown

FORGET the old politics of left versus right. Britain faces a choice between three philosophies – capitalism, corporatism and social democracy – with adherents scattered across all political parties, as the nuclear energy fiasco has demonstrated yet again.

Capitalism involves a genuinely private sector that competes for customers: if companies make a profit, they expand, hire staff and make fortunes for their owners; if they make a loss, they go bust, the staff are fired and the owners lose their investment. The capitalist approach to energy is to create a genuine market with real competition, make it easier for companies to develop infrastructure, allow shale gas to be developed and relax extreme anti-carbon policies. Subsidies for wind power and nuclear would end. This would allow prices to fall, improve customer service and allow innovation: at some stage, for example, solar panels could become so cheap that they genuinely make renewables competitive.

In banking, the capitalist policy is to empower consumers, eliminate implicit and explicit subsidies and develop a bankruptcy code to allow banks to fail while minimising the damage caused to third parties. Bondholders would be bailed in, as happened with Co-op (though that process has been imperfect); the taxpayer would no longer be fleeced.

But corporatism is a different beast: while private companies and shareholders nominally still exist, they are of a different kind to the hungry, competitive firms we see in a capitalist world. Barriers to entry – usually caused by government regulations and costly subsidies – mean that companies tend to be less efficient. Customers are treated badly. In extremis, losses are socialised and profits privatised.

In such a world, the biggest determinant of corporate profitability are regulations imposed by the state: hence massive lobbying and an incentive to recruit former politicians and regulators to ensure the right contacts. Woe betide anybody who falls foul of the powers that be: contracts can be withheld, the law changed or – in finance – bosses sacked with no due process, even from technically private firms.

Corporatism has become the dominant ideology in energy; the market forces that were unleashed in the 1980s and 1990s (and which needed further intensification and refinement) have been rigged and controlled in a manner that has largely ruined them. Investment decisions have been nationalised. Prices are going up as a result of green rules imposed by the previous Labour government, the EU and continued by the coalition. Many of these were supported by the industry and its hapless lobbyists; all were determined in closed rooms by bureaucrats supposedly committed to saving the world but with no real interest in the living standards of ordinary people. The result: subsidies are being passed on as costs to consumers, some individuals and firms are making a fortune from subsidies and others are withering.

The disastrous deal signed by the coalition yesterday and an EDF-led, Franco-Chinese consortium to buy over-priced nuclear electricity from a new plant is corporatism at its most developed and counter-productive. The coalition rightly doesn’t want the UK state to own UK electricity firms but it doesn’t mind if the French or Chinese states control them instead. It is bizarre, to say the least, as is the fact that the coalition apparently believes it can predict prices, technology and markets over the next 30-40 years.

The remaining philosophy – social democracy – is even worse. It  would eradicate the remaining market forces via Ed Miliband’s price freeze. The logical conclusion is renationalised utilities and a crisis when the Treasury suddenly discovers it has no money to finance the investments required.  We need to ditch corporatism, resist the siren songs of social democracy – and above all rediscover the liberating potential of real capitalism.

[email protected] me on Twitter: @allisterheath

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