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Private Firms Can Serve the Public

Author: Gary Wootton

Idealised conceptions of a functioning market work in terms of rational consumers making informed decisions and paying appropriate prices for appropriate amounts of goods and services, and rational suppliers making informed decisions and producing those goods and services at appropriate cost and in appropriate amounts.

Basic economic modelling recognises one of the chief flaws of this conception as its omission of the external impact of private transactions: people who are not the consumer or the supplier are effected by production and consumption. These are referred to as externalities.

The fiscal system can theoretically be used to internalise these externalities, and ‘fix’ the broken market. So, cigarettes generate an externality when they cause diseases which are costly to the health service. Taxing cigarettes is supposed to work two ways: making the cost more prohibitive to prevent the dangerous behaviour, and generating sufficient taxation revenue to adequately fund treatment of the resultant ill-health.

Here the external cost of medical care is internalised into the consumer-supplier transaction. The same argument could be made of petrol – its external costs could include road construction, maintenance & repair, and the damage done to the environment: taxing petrol makes it more costly, reducing consumption, and generates an income-stream for the government to use to maintain the road network and to tackle pollution.

The problem with the prevailing view of markets and externalities is its conception of the ‘supplier’. It does not see them as organisations - made up of lots of people - instead it is only concerned with the few financial owners of the companies supplying goods and services. The worker is left out, and the model only accounts for consumers and capitalists. Workers’ rights, pay and conditions are legislated for in terms of a safety-net, but there seems no attempt made to manipulate the fiscal system to internalise the worker’s quality of life into the workings of the market: specifically, the decisions made by suppliers in terms of how they choose to operate.

The health, wealth and happiness of the worker are external to the private transactions made between consumers and suppliers, but they are all public goods. Public bodies should be promoting them. It’s clear that public bodies manipulate the fiscal system to fix broken markets and to internalise externalities, but it’s unclear why this doesn’t happen with regards to the rights, pay and conditions of the worker. Further, when employers do not promote the health, wealth and happiness of the worker, the consequence of this is an increased pressure on public expenditure: it simply makes more sense for government to act to prevent rather than treat work-related illnesses, for instance.

Local government bodies should undertake an audit of the health, wealth and happiness of their local workforce, and devise a response – using fiscal manipulation – to promote them. Companies treating their workforces differently should have different taxation demands. If employers want to minimise their taxation contributions, they should have to do their bit to minimise the public expenditure demands. If companies – and their owners – want to keep their profits private, they should have to act in the public interest in the first instance.

So what would constitute acting in the public good in terms of employee-employer relations?

The following is an indicative but non-exhaustive list of things employers could do:

  • Pay the Living Wage
  • Have a low ratio of pay from (e.g 1:3)
  • Offer generous parental leave, and flexibility for working parents
  • Invest in certified and purposeful training and development
  • End zero-hour contracts or other ad-hoc, unpredictable practices
  • Insist on world-class standards of Health and Safety
  • Ensure worker representation on decision-making bodies
  • Employ people from the most disadvantaged wards
  • Employ people facing distinct barriers to employment, e.g. those recently made redundant
  • Offer workers options for part-ownership of the business

To take Hartlepool Borough Council as an example, the present mechanisms for varying the taxation burden on employers include: the Hartlepool Enterprise Development Fund, the Rates Equivalent Grants Scheme, the Capital Investment Grants Scheme, the Jobs Creation Grant Scheme, and other support offered via Tees Valley Unlimited. Grant support – presently – can amount to 50% of annual business rates, up to £10,000. Clearly, the idea of local government offering rates relief – which effectively means varying the taxation burden on employers – is not a novel one. Doing so to promote the rights, pay and conditions of the worker, though, apparently is.

People who criticise the goals of such left-leaning political thought are either ill-informed or selfish; there’s no grounds on which political action pursuing the health, wealth and happiness of the population is inappropriate. The more legitimate branch of criticism of such left-leaning political thought is premised on the clunky, inefficient state machinery. The joy of this approach is that the public interest is defined by the public’s representatives, but the actual heavy lifting is left to the private sector. We collectively set the terms, and then the market can innovatively and efficiently deliver.

At its core, the idea is to challenge the practice – rather than the existence – of the private sector. On a fundamental level, the belief is that exploiting and neglecting your workers should not be allowed to be a profitable endeavour.

The publisher is the Centre for Welfare Reform.

Private Firms Can Serve the Public © Gary Wootton 2019.

All Rights Reserved. No part of this paper may be reproduced in any form without permission from the publisher except for the quotation of brief passages in reviews.