The legendary Chicago economist, Milton Friedman, was not somebody to do anything by halves. Where others before him had shied away from even thinking aloud about the limits of firms’ responsibilities to those around them, Friedman waded into the debate with both feet. Corporations can serve society best, he stated, by cutting their costs to the bone and accordingly by making as much profit as possible.
This argument did not reference competitiveness directly in its original articulation. Yet as Matthew Watson shows in the latest post for the Fools’ Gold history files, it acts as an important forerunner of modern-day competitiveness discourse. Corporations that deny their broader social responsibilities, Friedman argued, set themselves on the road to a truly competitive zero rate of taxation.
Paul Samuelson and the Provision of Collective Consumption Goods: A Rejection of Competitiveness Logic
Paul Samuelson pioneered the mathematical models of maximisation that today form a central part of the economics of competitiveness. It is significant, then, that the pioneer himself deployed his method of difference equations to come to a conclusion that is wholly opposed to modern-day competitiveness mantra. This post by Matthew Watson brings Samuelson’s argument to a wider audience as the latest instalment in our series tracing the intellectual underpinnings of contemporary competitiveness discourse. It reviews his defence of collective provision of the public goods that enhance individual welfare and his view that the funding of public goods should be protected from race-to-the-bottom dynamics.
David Ricardo’s Theory of Comparative Advantage: Exploring the Hidden Historical Underside of Modern-Day Competitiveness Discourse
David Ricardo’s status as the first really famous economist of the nineteenth century rests on two capacities: his ability to think in pure economic abstractions and his ability to harness economic theory to a liberal political worldview. They came together most famously in his theory of comparative advantage, through which countries are encouraged to specialise in producing the goods in which their workers are relatively most efficient. Despite being two hundred years old, Ricardo’s theory is still the mainstay of the orthodox economics justification of free trade and, at one stage removed, of modern-day competitiveness discourse too. This post by Matthew Watson looks behind the façade of the numbers that Ricardo used to illustrate his theory of comparative advantage, to show that they were anything but an innocent account of essential economic relationships. It therefore helps to place modern-day competitiveness discourse in a far from flattering intellectual light.
Update: Farnsworth’s work has been generating huge media coverage in the UK, because of the role it has played in new Labour Party’s preliminary economic platforms – making it subject to attack from many different people. See Farnsworth’s responses here.
Kevin Farnsworth at York University has been exploring the scale of corporate handouts in the UK. Via The Guardian:
“Taxpayers are handing businesses £93bn a year – a transfer of more than £3,500 from each household in the UK. The total emerges from the first comprehensive account of what Britons give away to companies in grants, subsidies and tax breaks, published exclusively in the Guardian.”
One of the core insights driving the Fools’ Gold project is this: national ‘competitiveness’ is a confused and dangerous term to use when talking about an economy. What people (politicians, especially) often seem to think is that if you support one economic sector, that will necessarily make your economy as a whole more competitive. The problem is: that ‘support’ generally has to come from somewhere else in your economy.
So a corporate tax cut, for instance, is paid for by others in the economy, via lower corporate tax revenues, which may mean reduced fewer universities and courts, and so on. A more deregulated (and hence supposedly ‘competitive’) financial sector will see taxpayers taking on risks and eventually being forced to pay for them, while bankers get the cream.
These kinds of internal transfer do not automatically enhance growth, productivity, or anything that one might call ‘competitiveness.’
From The Economist, in November 2013:
“Globalisation sceptics often warn of the pernicious effects on labour standards of international competition for investment. In the race for foreign business, the argument goes, countries cut back on regulation and enforcement of decent working conditions in order to lower labour costs.”