Public Services Or Corporate Welfare: Rethinking the Nation State in the Global Economy

Public Services Or Corporate Welfare: Rethinking the Nation State in the Global Economy

by Dexter Whitfield


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Product Details

ISBN-13: 9780745308562
Publisher: Pluto Press
Publication date: 01/20/2001
Pages: 336
Product dimensions: 5.31(w) x 8.46(h) x (d)

About the Author

David Cronin is a journalist specialising in European politics. He is the author of Europe's Alliance With Israel: Aiding the Occupation (Pluto, 2011) and has written for a variety of publications, including the Guardian, Wall Street Journal Europe, European Voice, the Irish Times and Electronic Intifada.

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Public Goods, Public Risk and Power Struggles

The first part of this chapter examines the provision of global and national public goods which helps to understand why certain functions and services are publicly provided. The second part discusses the important role of risk which is being packaged and priced in order to justify partnerships and privately financed infrastructure projects. The third part provides a brief overview of the power struggles between global organisations and nation states, between multinational companies and states, between financial and industrial capital and between capital and labour. The chapter concludes that the triangular paradigm of the state, market and civil society (World Bank, 199 7) is an inadequate analytical framework for understanding and assessing the consequences of globalisation.


Public goods have two key properties. They are non-rival (consumption by one user does not reduce the supply available to others) and non-excludable (users cannot be excluded from consuming the goods). It also means that it is not possible to charge for their consumption. Local or national public goods include defence, law and order, public health, macroeconomic management, roads, parks and open spaces. Global public goods are those with benefits which extend across borders, populations groups and generations (Kaul et al., 1999). This section examines the provision of public goods, followed by a brief examination of public choice theory which is at the root of neo-liberal public policy.

Positive and negative externalities arise from the activities of individuals, firms, organisations and states which result in benefits (education benefiting society) or damage (air or river pollution) but they do not bear the costs. Public goods often face a double jeopardy – market failure and government failure – requiring remedial action by civil society. The state plays a crucial role in minimising negative externalities and promoting positive externalities through taxation, regulation, monitoring and inspection, planning and the provision of activities and services. States have also acted to regulate monopolies and afford consumer protection in the provision of goods and services. There are two other key attributes to public goods: they suffer from under-provision and policy is mainly determined by the nation state.

The provision of public goods is a key economic and social rationale for the state. But this is often portrayed in the narrow terms of market failure, i.e. the state providing functions which the market cannot or will not provide. This approach begins and ends with the market, thus marginalising the importance of accountability, public interest, responsibility and capability which justify state provision of public goods, and in some cases, private goods. It is a minimalist perspective, which serves to distract from market failures and inefficiencies to provide private goods and affords capital a justification to constantly reconstruct the role of markets and highlight government failure to fully provide public goods.

Global, regional and national public goods are becoming more important in determining collective and individual welfare and reducing inequality. Increasing instability of market economies, the threat of financial crises, 'the return of depression economics' (Krugman, 1999), the threat of environmental catastrophe, all place increased reliance on public goods and their interconnectedness at local, national and international levels. There are five key issues:

1. Globalisation increases the demand for public goods as a result of increased trade in goods and services. The spread of disease, food and labour standards are just two examples. There are also growing demands for international market controls to minimise fraud and corruption, to minimise negative externalities such as environmental pollution and to maximise beneficial externalities such as public health and education, and for global equity.

2. The increasing private provision of public goods by the commodification of services and public risk, the unbundling of the physical infrastructure from service provision, the private financing of public goods, creating markets for private suppliers and marketising non-core use of facilities will ultimately change the form and provision of public goods. This is precisely the WTO agenda for the liberalisation of services discussed earlier. The World Bank considers that 'although the the state still has a central role in ensuring the provision of basic services – education, health, infrastructure – it is not obvious that the state must be the only provider, or a provider at all. The state's choices about provision, financing, and regulation of these services must build on the relative strengths of markets, civil society, and state agencies' (World Bank, 1997, p. 2 7). This process could change the 'publicness' of public goods – for example, private provision will lead to increased business role in determining the level, quality, availability of and access to services, the terms on which they are promoted, the division into commercial and non-commercial services, the emergence of competing privately financed services for wealthy and middle-class users resulting in further exclusion and widening inequality. These changes are mainly in local and national public goods but are likely to extend to the private provision of global public goods.

3. The private provision of global and national public goods will further marginalise global equity – it will be an externality of private global systems. Global public goods could widen inequalities. Globalisation is already causing new divisions in social classes and economic interests, for example indebtedness, within and between nation states creating increased demands for global public goods and equity.

4. Making private goods more public – providing development and technical assistance to countries excluded from FDI. However, this again raises the conditions imposed by international bodies which may still reinforce the private provision of public goods.

5. The need to make the public cost of private sector externalities and private sector transaction costs publicly transparent. If democratic renewal, performance management and the knowledge economy are to have any relevance, they must ensure that the full public costs and social/environmental impact of private provision, contract and market failures are regularly assessed and publicly available.

Many public goods, services and activities could, in theory, be privately provided but not without social costs, subsidies, increased inequality, stringent controls and the likelihood of increased collusion and corruption. Nations choose, in varying degrees, to identify services as public goods for public interest, security, political, social and economic reasons, and not least because of the limitations, and in some cases, the failure of market forces and private provision to meet social and public need.

Public Choice Theory

Public choice theorists gained new followers in the 1980s with the emergence of the bureau-maximisation theory (Niskanen, 1971) and new institutional economics or transitional cost theory (Williamson, 1975, 1985). Right-wing political groups and parties, business and trade organisations such as the Confederation of British Industry (Britain) and Business Roundtable (New Zealand), together with multinational industrial, service and financial capital, vigorously promoted this ideology.

Public choice or economic rationalism is focused on the role of the bureaucracy in a market economy. In summary, public choice theory claims that the growth of government is due to the private interests or ambitions of bureaucrats whose aims are directly related to the size of their budget (Niskanen, 1971). The bigger the budget, the higher the bureaucrats' salary, status and power. According to this theory, organisations produce a much larger output than is needed because of the absence of market forces. Public choice theorists believe that all but a few essential public goods should be provided by the market. Dunleavy (1991) sought to replace Niskanen's budget-maximising model with a bureau-shaping model in which he distinguishes between four types of budgets and five types of agency. Rational bureaucrats are deemed to have a choice of maximising strategies and do not solely maximise budgets.

Public choice theory has its roots in the USA and has been defined as

the economic study of non-market decision-making, or simply the application of economic to political science: the theory of the state, voting rules, voter behaviour, party politics, the bureaucracy, and so on. The methodology of public choice is that of economics, however. The basic behavioural postulate of public choice, as for economics, is that man is an egoistic, rational, utility maximiser. (Mueller, 1989, pp. 1-2)

Public choice theorists want to see public services as an integral part of the global marketplace. They seek to develop theories which prove that 'bureaucracy is bad', public is less efficient than private. They ignore the fact that the shortcomings ascribed to bureaucrats and the public sector are probably more rampant in private sector bureaucracies where self-interest, greed, exploitation, theft and corruption are often endemic.

The neo-liberal conception of the state has permeated World Bank policy making for the past two decades. This assumed that states are inherently inefficient, that state officials always act in self-interest and that state intervention has to be limited to market-friendly action such as investment in education and training, creation of a competitive climate for business, and maintaining a stable macro economy. The fact that Japan and the East Asian nations had strong interventionist states was only belatedly acknowledged.

A comprehensive review of public choice literature concluded:

Scientifically, it is another in the long line of failed attempts at a rigorous, axiomatic, general theory of government. Ideologically, many of the theorists are accused of selecting for study only those shortcomings of government which suggest reducing it rather than improving it; or else they merely search government for instances of corruption or unproductive gain-seeking and generalise them as the nature of all democratic government. (Orchard and Stretton, 199 7, p. 410)

Many other analysts have been equally critical, for example 'as a general theory, Niskanen's is empirically wrong in almost all its facts' (Self, 1993, p. 34).


The accommodation or transfer of risk has become a central feature both for those who wish to maintain collective risk through universal public provision, and for the marketisers, who want to transfer certain risk, at a suitable cost, from the public to the private sector.

Risk is a part of everyday life, at work, travelling, in sport and leisure activities, health, making choices about savings and pensions and in personal relationships. The management of risk is centuries old, since the early insurance markets developed for overseas trade. Some risks can be eliminated or mitigated but most cannot. Technological change, particularly in financial markets and privately financed infrastructure provision, has meant a higher profile for risk management – the analysis, control, communication and monitoring of risk. Risk analysis involves identifying, quantifying and pricing risk which can usually be statistically calculated. Fire, theft or accidents occur unexpectedly but happen regularly enough to be broadly predictable and therefore insurable. Individuals, organisations and firms can choose to absorb the consequences of risk or to pay a premium to transfer risk to an insurance organisation. In some circumstances, such as motor cover, it is illegal not to have insured risk.

Keynesianism provided a way of socialising and controlling risks inherent to capital accumulation. It socialised the risks of illness, disability and unemployment and reduced the risk of civic strife and industrial strikes, sharing the costs between workers and employers. 'The welfare state can be seen as a collective and institutional response to the nature of localised risks and dangers, based on principles of rule-governed attribution of fault and blame, legally implemented compensation, actuarial insurance principles and collectively shared responsibility' (Beck, 1998, p. 15).

Business risk is more complex and difficult to predict. The reinsurance market developed to spread large-scale risk between insurance companies and financial institutions. Different financial markets provide varying degrees of risk for investment funds, for example, stocks, bonds, foreign currency and futures markets. Risk itself has become a tradable commodity. The risk attached to purchasing shares or currency can be hedged by spreading and insuring them against changes in exchange or interest rates – the spreading of, and speculation in, risk is rife. The state also provides business with different forms of insurance such as export guarantees. In the wake of Russia's debt default in 1998, the IMF called upon private sector institutions to review their financial investment risk analysis and for central banks and regulatory agencies to reassess their supervision of markets because the crisis had been in part caused by 'excessive risk-taking, excessive leverage and ultimately an unsustainable structure of financial positions' (IMF,1998, p. 15).

Giddens (1998c, p. 33) argues that the crisis of the welfare state is not purely fiscal but a 'crisis of risk management in a society dominated by a new type of risk'. But the welfare state is substantially more than a publicly owned insurance organisation providing unemployment, sickness and disability benefits. The post-war welfare state was not just about ameliorating conditions 'here and now' but creating opportunities in the future following two world wars, the failure of private health and education, mass unemployment and the defeat of fascism. This narrow 'security' categorisation conveniently ignores all the other basic functions of the welfare state such as education, health, housing and social services. The 'security' thesis implies that it would be relatively simple to replace it with private insurance.

The advocates of risk society, such as Beck, claim that the nature of risk has changed.

The impact of modern risks and manufactured uncertainties, these modes of determining and perceiving risk, attributing causality and allocating compensation have irreversibly broken down, throwing the function and legitimacy of modern bureaucracies, states, economies and science into question. Risks which were calculable under industrial society become incalculable and unpredictable in the risk society. (Beck, 1998, p. 16)

Many PPPs are justified not solely on the lack of public finance but the need to withdraw from property management to concentrate on the provision of core services or because of new risk created by rapid technological change.

But is the future any more difficult to estimate than it was 10, 20 or 50 years ago? The Cold War has evaporated but the threat of recession, famine, civil war, nuclear and environmental disaster are ever constant. Some risks for capital have increased, for example, implementing global strategies, entering new markets, winning contracts and operating internationally against more intense competition. It has meant increased insecurity, mass unemployment, short-term contracts and casualisation of labour. The creation of risk may have outpaced the development of trust (Strange, 1996, p. 86) but it is highly questionable that the nature or composition of risk has changed so fundamentally as to make redundant many of the social mechanisms developed to accommodate it. We need more, not less, social protection to ameliorate the negative consequences of globalisation. The process of identifying, quantifying, allocating and pricing risk may be changing but this reflects a further stage in the commodification and commercialisation of risk rather than structural change in society. It is superficial justification for the Third Way and the privatisation of the welfare state.

Commodification of Risk

It is important to understand the different ways in which risk is being commodified and how capital is exploiting risk to secure new modes of accumulation by packaging, commercialising and pricing risk.

Individual risk: Restructuring the social wage by individualising second tier pensions (deferred wage), restricting the power of collective organisation and the promotion of stakeholding. Commodifying savings for fear of future nonavailability or deterioration in service: encouragement of higher levels of savings for education and long-term care. Risk will be commodified so that insurance companies will have 'life services' policies for services required over a person's life rather simply than the risk of death itself.


Excerpted from "Public Services or Corporate Welfare"
by .
Copyright © 2001 Dexter Whitfield.
Excerpted by permission of Pluto Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Table of Contents

List of Tables and Figures, x,
Abbreviations, xii,
Acknowledgements, xiv,
Preface, xv,
Introduction: The Global Corporate Agenda, 1,
1 Public Goods, Public Risk and Power Struggles, 19,
2 Nation States: Facilitating and Accommodating Globalisation, 37,
3 Modernising the State: A Third Way for Competition, 63,
4 Modernising the State: New Organisation and New Management?, 101,
5 The Emerging Corporate-Welfare Complex, 130,
6 The Price of Neo-Liberal Modernisation, 165,
7 The Nation State in 2020, 204,
8 Redesigning the State – A New Public Order, 221,
9 A New Public Service Management, 253,
10 New Strategies and Alliances, 284,
Bibliography, 287,
Index, 306,

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