Chapter 33.
Traditional economic models often fall short in addressing today’s complex challenges, proving inadequate in prioritising the genuine flourishing of people and planet. The journey towards new economic paradigms demands a re-evaluation of established dichotomies and a reimagining of how markets and states can collaboratively foster fairness and collective well-being. This requires transcending the limiting binary thinking that frequently reduces problems to simple either/or propositions, a tendency that permeates not just social discourse but approaches to economic and industrial development.
The “dilemma of dichotomy”—the persistent tendency to reduce complex issues into two opposing camps, such as market-only or state-only solutions—blinds us to truths and the most effective answers. A key component of this false dichotomy is the neoliberal belief that the state is a fiscally constrained actor, akin to a household budget, an idea directly challenged by Modern Monetary Theory (MMT). While offering a comforting sense of clarity, this oversimplification ignores crucial variables, diverse motivations, and unintended consequences. It dismisses perspectives that don’t neatly fit into predetermined categories, fostering a tribalistic mindset where defending one’s side becomes more important than collectively understanding the problem. Dialogue devolves into entrenched positions, making progress impossible, because new information causes discomfort—what psychologists call cognitive dissonance—leading individuals to re-entrench in their existing views. This is exacerbated by societal trends like increasing social isolation, which erode social trust and foster a paranoid “us vs. them” mentality. A psychological tendency, especially prevalent in “Western, Educated, Industrialised, Rich, Democratic” (WEIRD) societies, makes challenging one’s beliefs a perceived threat to identity, further compounding this issue.
A prime example of a highly effective framework, obscured by this dichotomous thinking, is the mixed economy. For decades after 1945—the “post-war era” —a broad consensus in much of the world affirmed that society achieved the best outcomes when the state and markets worked together. This was a period that saw the creation of key instruments of social democracy: universal healthcare, education, housing support, and a comprehensive social security safety net, all of which demonstrably lifted people out of poverty and fostered widespread prosperity. The mixed economy is a pragmatic partnership between the state and private enterprise, acknowledging their mutual dependence. Decisions are made based on effective outcomes, not purely on ideological adherence. This model was financially viable because the state, as the currency issuer, could direct money and resources to these projects without being fiscally constrained by tax revenue.
This proven model has been systematically undermined. A backlash emerged, exacerbated by global economic crises in the 1970s and the introduction of fiat currencies. These circumstances were exploited by neoliberals who promoted the idea that unfettered markets were the sole solution to all economic problems. This led to a period where the crucial role of the state was increasingly dismissed, driven by a rigid “state vs. market” dichotomy. The evidence is clear: this market-centric approach has demonstrably failed. Recurrent financial meltdowns—in 1987, 2008, and the COVID-related crisis of 2020—have revealed structural weaknesses in purely market economies, demonstrating that markets cannot function effectively in isolation. As economists like Joseph Stiglitz have documented, periods of unchecked market liberalisation often lead to increased inequality and systemic instability. Indeed, the public has increasingly realised that “what we had did work and what we have now does not work,” a sentiment reflected in the political struggles of parties rigidly committed to unfettered market solutions. A salient example of the social corrosion resulting from a solely fiscal focus can be seen in the UK under Thatcherism and subsequent austerity policies, which prioritised deregulation, privatisation, and deep cuts to public services, exacerbating the housing crisis and leading to widespread de-industrialisation, surging unemployment, rising inequality, and a significant increase in poverty. The state’s ability to respond to these crises through mechanisms like Quantitative Easing (QE), where it created vast amounts of money to stabilise the financial system, stands as a stark repudiation of the idea that it is fiscally impotent.
The reality, viewed rationally, is that states and markets are not rivals; they are indispensable collaborators in common purpose. Neither works on its own—a simple statement of fact that defies ideological claims. The state is essential because it provides the infrastructure and the rules within which markets can operate fairly and competitively. Without rules, akin to trying to play football without them, genuine competition and fair outcomes cannot exist. The state, by setting these rules, facilitates markets to deliver their best. It is also uniquely positioned to correct for inherent market failures. Markets are poor at accounting for “externals”—the unintended societal consequences of private transactions not reflected in the price mechanism (e.g., the ill health costs of toxic products or the environmental damage of carbon emissions). The state corrects these through mechanisms like taxation, and this corrective role is vital as the number of market failures, with climate change being the biggest, continues to grow.
The state also exists to do something that markets are very poor at: think about the long term. Corporate decision-making often ignores anything beyond a 15-year horizon when making investment decisions, yet so much of what society now needs, from transport and energy infrastructure to defence against flooding and climate change, is based on long-term planning. Economists like Mariana Mazzucato, in The Entrepreneurial State, further validate this by demonstrating how state-led investment and risk-taking have been foundational to numerous technological breakthroughs traditionally credited to the private sector. MMT provides the financial framework for this. As the currency issuer, the state is uniquely positioned to fund these long-term, high-risk investments that the private sector is unwilling or unable to make, because it is not constrained by profitability or short-term returns. From the internet (initially funded by DARPA) to GPS (a product of the US Department of Defence), the state has consistently acted as an entrepreneurial actor, undertaking investments that the risk-averse private sector is often unwilling or unable to make. This “entrepreneurial state” actively shapes markets, not merely regulates them, directing innovation towards socially desirable outcomes, challenging the limitations of a purely laissez-faire approach. The insights of Karl Polanyi, in The Great Transformation, similarly highlight society’s inherent need to protect itself from the destabilising forces of self-regulating markets, reinforcing the state’s necessary role in setting boundaries.
The state, in other words, prioritises people over profit, the long-term over the short-term, and society over individual gain. It acts as an enabler, building the capacity upon which markets can be built, laying the foundation for business success, ensuring resilience in times of crisis, and providing what markets cannot deliver in the long term whilst correcting for their failures and protecting those who would otherwise not have access, including running progressive taxation and benefit systems, as without these, markets would ultimately fail due to a lack of customers. This understanding underpins new economic models that prioritise collective well-being. Sound fiscal management by the state provides resources for social investment, funding universal healthcare, quality education, and robust safety nets. From an MMT perspective, this is not a matter of a tight budget, but a political choice to direct money and resources. The state, as the currency issuer, can always afford to fund these social investments, provided the real resources (labour, skills, etc.) are available. These instruments of social democracy directly improve citizens’ quality of life, reducing financial stress and fostering stronger relationships and mental well-being, as documented by institutions like the Money and Pensions Service. A healthy populace, educated and secure, forms a more productive and innovative workforce, a core tenet of Human Capital Theory, championed by economists like Gary Becker and Theodore Schultz. Investment in human capital through social provision leads to improved social mobility, which in turn boosts economic productivity and GDP by better matching talent to opportunities. This creates a virtuous cycle: social investment fuels economic growth and stability, which then generates more resources for further social investment, demonstrating the interdependence that a mixed economy facilitates.
This recognition extends to financial governance. The bedrock principle guiding pension fund management—fiduciary duty—demands acting solely in the best financial interests of beneficiaries, requiring prudence, loyalty, and diligent risk management. Since we live in an era defined by accelerating climate change and a global transition to a low-carbon economy, continued investment in fossil fuel assets increasingly conflicts with this responsibility. Divestment from fossil fuels is becoming a financial imperative, a cornerstone of sound fiduciary care. The primary financial threat is stranded assets, defined as assets that suffer unanticipated or premature write-downs, devaluations, or conversion to liabilities. For the fossil fuel industry, stranding can be triggered by new government regulations, shifts in market demand due to plummeting costs and increasing adoption of renewable energy, and even growing legal action against high emitters. Coal-fired power plants, for instance, are particularly exposed, potentially needing to retire decades earlier than planned to meet international climate goals. The financial exposure for UK pension savers is alarming. Reports indicate that the UK economy is disproportionately vulnerable to stranded fossil fuel assets, with potential losses for UK pension savers reaching tens of billions of pounds by 2040. Research from the UK Sustainable Investment and Finance Association (UKSIF) specifically shows UK pension funds face a £15.2 billion risk from stranded fossil fuel assets by 2040, with the UK’s broader total economic exposure calculated at a staggering £113 billion by 2040. These are not speculative future losses, but a clear, quantifiable financial risk that asset owners and managers are increasingly neglecting at their peril. Legal experts, such as ClientEarth, have actively warned that continued financing of new fossil fuel projects, like the proposed Cumbria coal mine, could leave financial firms in breach of their legal duties to investors. Authoritative bodies like the International Energy Agency (IEA) have unequivocally stated that “no new oil and gas fields approved for development are needed” on the path to net-zero, a stance echoed by the UK’s own Climate Change Committee (CCC). Continued investment in fossil fuels in defiance of these expert assessments represents not only an environmental gamble but a financial misjudgement, locking pension funds into declining industries and exposing them to the risk of “stranded assets.”
In this context, the recently introduced Pension Schemes Bill presents a golden opportunity, aiming to deliver bigger pension pots and better value for millions of savers, ultimately benefiting up to 20 million workers across the UK. The Bill provides a pathway for a greener future by enabling the consolidation of Local Government Pension Scheme (LGPS) assets into larger pools that can invest significantly in local infrastructure, housing, and clean energy. The Tyne and Wear Pension Fund (TWPF), serving over 165,000 members, is already a significant investor in climate-positive assets and aligns with national net-zero targets. This strategic shift highlights the potential for UK pensions to unlock trillions of pounds for sustainable growth, aligning financial security with environmental responsibility. As Richard Curtis eloquently stated, ‘Greener, fairer pensions are our superpower to protect the future for all generations. We need our leaders to put British savers and climate safety at the heart of the pension reform. There’s no point inheriting a pension in a world on fire.’ For pension funds, divestment is no longer a fringe ethical consideration but a central component of prudent financial management, demanding a proactive approach to risk mitigation and a reallocation of capital towards sustainable, low-carbon alternatives.
The concept of a strategically focused state, committed to local empowerment, efficient resource allocation, and the pursuit of social equity, offers a powerful framework for new economic models. This approach moves beyond wholesale nationalisation, focusing instead on targeted interventions that empower local communities and foster democratic accountability. Practical examples of this approach are emerging across the UK, demonstrating that responsible spending and robust public services are not mutually exclusive. The “Local Railway” initiative implemented on the picturesque Cambrian Line in Wales offers a compelling case study in achieving economic prudence through localised empowerment and deeply integrated planning. By dismantling traditional hierarchical structures and fostering close collaboration between track infrastructure and train operators within a specific geographical area, this initiative reportedly yielded substantial infrastructure savings, estimated at £1.5 million. This financial efficiency was accompanied by tangible improvements in service reliability and responsiveness to local community needs, highlighting that empowering local expertise and adopting a holistic, system-wide perspective on railway management can unlock significant efficiencies and optimise public resource allocation. The lessons gleaned from the Cambrian Line underscore the potential for devolving greater levels of autonomy and responsibility to regional networks, fostering a culture of local ownership, innovation, and accountability that drives efficiency and service improvements from the grassroots level.
In the dynamic North East of England, the strategic and publicly driven revitalisation of the long-dormant Northumberland Line, a project significantly enabled by the proactive financial leadership, unwavering vision, and effective coalition-building of the North of Tyne Mayor, stands as a powerful example of railway investment that is both socially beneficial, strategically impactful and financially rewarding. By reconnecting communities in South East Northumberland with Newcastle upon Tyne after decades, this transformative project directly addresses significant issues of transport deprivation, providing long-awaited access to a wider range of employment opportunities, educational institutions, essential healthcare services, and social and cultural amenities. This enhanced connectivity acts as a vital catalyst for broader regional economic growth, attracting new businesses, stimulating investment, and fostering greater social inclusion and mobility. The impressive early ridership figures on the reopened Northumberland Line further validate the strategic rationale behind this crucial public investment, underscoring the indispensable role that railways play in addressing geographical inequalities and promoting a more equitable distribution of opportunities.
The insightful and strategically vital arguments presented by Gareth Dennis in his work, How the Railways Will Fix the Future, provide a crucial intellectual framework for understanding why these regional successes are not merely isolated instances of localised improvement. Dennis compellingly argues that railways are not antiquated relics but critical infrastructure for tackling urgent and interconnected challenges: climate change, air pollution, social fragmentation, and persistent regional inequality. His work emphasises rail’s inherent energy efficiency for moving substantial volumes of people and freight, its potential to drastically reduce carbon emissions, and its unique capacity to physically connect communities, foster economic development sustainably, and promote social cohesion in an environmentally responsible and socially just way. Dennis’s vision aligns seamlessly with the principles of strategic public investment for long-term societal benefit, advocating for a railway system that is meticulously planned, efficiently operated, and guided by serving the public good as its primary objective.
For Great British Railways to truly internalise and build upon the valuable lessons from Wales and the North East, and to effectively realise the transformative potential articulated by Gareth Dennis, it must adopt a comprehensive and holistic approach. This necessitates prioritising strategic investments not solely based on narrow, short-term financial returns, but rather on their profound potential to deliver enduring long-term economic value, significantly enhance social inclusion and accessibility, actively promote environmental sustainability across all aspects of railway operations (as strongly advocated by leading organisations such as the Rail Safety and Standards Board), and foster stronger, more resilient connectivity. GBR should actively empower regional networks to identify, develop, and implement tailored solutions, mirroring the successful localised empowerment witnessed on the Cambrian Line. Furthermore, GBR must proactively champion strategic public investment in railway infrastructure and services, recognising that such well-conceived and executed investments can act as powerful catalysts for broader economic and social regeneration, yielding significant returns for the nation. To achieve these ambitious goals, GBR must cultivate a strong culture of genuine collaboration and seamless integration across all levels and functional areas of the national railway system, actively breaking down traditional silos. This requires open communication and partnership between infrastructure managers, train operating companies, local government authorities, the business community, and, most importantly, the diverse communities the railway network is designed to serve. Moreover, a steadfast commitment to transparency and robust mechanisms for democratic accountability will be absolutely crucial in ensuring that GBR’s strategic investment decisions consistently align with the broader public interest and that the national railway operates as a truly public service, accountable to the people it serves.
Germany’s healthcare model offers a compelling case study in balancing universal provision with individual choice and a degree of market dynamics. It operates as a dual system, with around 90% of the population covered by Statutory Health Insurance (SHI) and the remainder by Private Health Insurance (PHI). SHI is funded by income-dependent contributions from employees and employers, pooled and reallocated to non-profit “sickness funds” based on risk. This embodies a strong solidarity principle, where collective contributions empower equitable access for all, ensuring comprehensive coverage regardless of individual income for essential services like doctor visits, hospital care, and prescriptions. Patients within the SHI system retain the freedom to choose their physicians, including specialists, fostering individual agency in their care pathways. Private Health Insurance, available to high-earners, the self-employed, and civil servants, offers tailored benefits, often faster appointments, and access to private hospital rooms. This dual approach aims to provide universal coverage while offering choice, seeking a middle ground between purely state-controlled and fully privatised systems. For personal empowerment, the German hybrid model is arguably superior, combining the security of universal access with significant individual choice in providers and insurance plans.
While recognised for its efficiency and comprehensive coverage, the German system faces challenges that can impact individual empowerment. These include a lack of central coordination in public health, which can make navigating the system complex for individuals. An overemphasis on treatment rather than prevention may limit proactive health management. Difficulties in digitisation can hinder patient access to information and streamlined services. Despite high staff density, nursing staff often face heavy workloads due to fragmented hospital planning, potentially affecting the quality of patient interaction and care. The system also contends with economic interests that can hinder preventive measures and a reimbursement model that sometimes incentivises certain treatments over others. Recent initiatives, such as the “Action Plan for a Diverse, Inclusive, and Barrier-Free Healthcare System,” aim to address these challenges by improving accessibility, providing multilingual information, and enhancing digital tools, further striving to empower individuals within the system.
Regulation for the common good is essential, implementing smart, effective regulations that protect workers’ rights, ensure consumer safety, and safeguard the environment without stifling socially beneficial innovation. Community wealth building becomes a key economic strategy, focusing on mechanisms that keep wealth generated locally circulating within the community, fostering economic resilience, reducing inequality, and building a more democratic and inclusive economy. Implementing such a strategically focused agenda is not without its inherent challenges. Operating within a broader capitalist framework, particularly at a sub-national level, necessitates navigating legal constraints. There is also potential resistance from vested interests who benefit from the status quo (the influence of corporate lobbying as documented by by organisations like OpenSecrets). The constant need for robust democratic engagement to maintain public support and accountability also presents a challenge. The scalability of successful local initiatives to a broader national level requires careful consideration of differing contexts and power dynamics. This approach also faces potential criticisms from both traditional perspectives, which may advocate for more radical and centralised state control, and from neoliberal viewpoints, which fundamentally oppose any significant state intervention in the economy. Addressing these challenges requires a pragmatic and adaptive approach, focusing on building coalitions, demonstrating tangible successes at the local level, and articulating a clear and compelling vision for a more just and equitable society.
Next Chapter: Housing: Building Progress
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