Dreams And Reality

international | anti-capitalism | opinion/analysis Tuesday March 30, 2004 12:25 by Economic Realist

How to achieve utter penury and impoverishment and the alternative..

Socialist and left wing governments advocate at the very least a public sector and welfare state.
How do these operate?

A state run company is owned by the government in the name of the taxpayer. Taxpayers money is invested and the profits that accrue are used as another source of government income. If the company loses money and threatens to go out of business then it is subsidised to prevent the workers from going out of work. Most employees of state run companies are unionised and are outspoken in defence of their jobs and their company. Because it is an "essential" service they can command strong bargaining power.
The welfare state is designed to give benefits and continous financial help to unemployed people unitl they find a new job. This money is provided by the taxpayer.
These systems advocate high tax on the population with higher incomes and high tax on private business and industry.

Ultimately this is harmful and counterproductive.

The employees of state run companies with the knowledge that they have job security and that their union will launch strike action in their defence will be unconcerned with their actual job performance and be untroubled by the unexistent prospect of being fired for doing a poor job. If this attitude is wide spread there will be a great deal of money lost on the incomes of unproductive workers. The less productive workers are, the less profitable the company is and therefore the more the government will have to bail it out with subsides.
The result is a vicious circle. Unprofitability leads to subsides leads to more unprofitability leading to more subsides. Eventually the only reason the company exists and the workers incomes exist is because of the tax payer paying a high rate of tax..
The tax the provides the income for the welfare state comes from upper middle class and private business.
While people are unemployed they are unproductive. They are spending money which is given to them as an entitlement by the state. The system is designed to be a safety net until they move into new employment.
However if the welfare assistance is higher than the average minimum wage the unemployed are more likely to stay on unemployment assistance rather than take a cut in income by taking on a minimum wage job. This means more people remain for longer on unemployment assistance.
This means that higher incomes and private business the sources of the welfare state must suffer a higher rate of tax.
Private business employs more people than the private sector. When the tax rate rises profits fall so these companies have to find new ways of saving money. They usually cut their productivity and cut the number of their employees. This means more unemployed and less goods on the market.
When there are less goods on the market the price of goods rises because demand increases. Unemployed people suffer most because they suddenly find that the value of their welfare does not meet the cost of living.
They therefore demand a rise in welfare.
This means that there is a rise in tax which results in more unemployed, less goods on the market and higher prices ( inflation) which results in higher demands from the unemployed which leads to higher taxes etc. etc. What happens is that less money is spent because the employed workers of private companies do not earn what they once did since this has gone in higher tax paid by their companies to the government to pay for their unemployed counterparts.
They are forced to spend less even though prices have increased. The increasing prices mean less profit for companies who cannot spend more on wages to their workers.
These workers may be either sacked because they cannot be paid by their employers or may be attracted to welfare because it may be higher than their wages.
This means more unemployed people higher welfare and higher taxes on private business in order to fund it.
Private businesses go out of business and the government see it as their duty to nationalise more companies in order to subsidise them and keep people working. This means higher taxes.
Higher taxes mean these now privately held companies are less profitable and to keep them going we need higher taxes.
But there is nothing left to tax because of a steep fall in productivity, an explosion of inflation and mushrooming unemployed workers so the government has to borrow to fund its activities which are expanding as more companies are supported by the state and more people are on welfare.
The high interest rates on government borrowing mean that to pay back these borrowings money must come from somewhere else to pay it back. There is not enough tax income to pay for it so the government must borrow again.
The cycle continues and the government debt increases.

The result is a government crippled by debt, unemployment, poverty, badly run or non existent public services and mass emigration.
Like Ireland in the 1980's

The obvious solution is low taxes, low government spending and low borrowing and privatisation of all serivices and state owned companies.
Thats what neo-liberal economics means.
The result is constantly increasing profits, high employment, affordable goods and high living standards. There is a vast gulf between the incomes of the wealthy and the poorest but the poorest are employed have a broad range of cheap but high quality goods to choose from, can afford cars, houses, foreign holidays, cable television, cinema, eating out and much much more.
The few unemployed are so because they did not adapt to the new reality must seek employment or else live on less than the industrial wage. The public sector is decaying because it has not adapted to the new reality and governments must sell them off and liberalise the market to private companies who can do the same job more efficiently while making a profit.
Funding for pirvate business comes from the purses of private individuals both rich and poor and this is the driving force for growth. low taxes and low interest rates encourage more investment resulting in higher profits, higher productivity. Competition forces rivals to lower their prices into the floor and benefits the consumer. Companies which canot compete go out of business and workers can lose their jobs but the availability of jobs in other sectors means that unemployment need not last for years. In fact the job for life has ceased to exist giving greater freedom to workers to choose to work in one company for a few years and move to another once times change.
Where government money is well spent is in education. Money should be flung into this sector to educate competitive and dynamic workers for the new reality.
This is what Ireland is like since we became neo liberal. Things can only get better!
And its great!