Chapter 27.
“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” — R. Buckminster Fuller
Traditional economic models often fall short in addressing today’s complex challenges, proving inadequate in prioritising the genuine flourishing of people and planet. While the appeal of simplistic, binary solutions is that they demand less immediate intellectual effort, the long-term consequences of that initial thoughtlessness are almost always more complex and harder to resolve than the initial problem itself. 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. This approach fails because sustainability challenges are inherently “wicked problems,” where an apparent solution in one area often results in a new, unforeseen problem occurring somewhere else. 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). This oversimplification ignores crucial variables, diverse motivations, and unintended consequences. 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. In practice, this allows complex issues like Brexit or immigration to be reduced to simplified, ‘either/or’ narratives that exploit genuine fears and amplify them into generated prejudices, offering easy, but false, explanations for deep-seated economic anxieties.
A prime example of a highly effective framework, obscured by this dichotomous thinking, is the mixed economy. For decades after 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. The mixed economy is a pragmatic partnership between the state and private enterprise. 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, leading to a period where the crucial role of the state was increasingly dismissed, driven by a rigid “state vs. market” dichotomy. Recurrent financial meltdowns—in 1987, 2008, and the COVID-related crisis of 2020—have revealed structural weaknesses in purely market economies. 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 led to 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) 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. The state is essential because it provides the infrastructure and the rules within which markets can operate fairly and competitively. It is also uniquely positioned to correct for inherent market failures. 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. This shareholder pressure can only be overcome by innovative corporate structures, such as the ownership model adopted by Patagonia, which frees the company from the relentless pressure of quarterly reporting. 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. 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. The state is an entrepreneurial actor, undertaking investments that the risk-averse private sector is often unwilling or unable to make. 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, and ensuring resilience in times of crisis.
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. Investment in human capital through social provision leads to improved social mobility, which in turn boosts economic productivity and GDP. This creates a virtuous cycle: social investment fuels economic growth and stability. 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. 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. Research from the UK Sustainable Investment and Finance Association (UKSIF) shows UK pension funds face a £15.2 billion risk from stranded fossil fuel assets by 2040.
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. In this context, the ongoing Pension Schemes Bill presents a golden opportunity 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. For pension funds, divestment is no longer a fringe ethical consideration but a central component of prudent financial management.
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. 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 percent of the population covered by Statutory Health Insurance (SHI). This embodies a strong solidarity principle, where collective contributions empower equitable access for all. The German system faces challenges that can impact individual empowerment, including an overemphasis on treatment rather than prevention—a fundamental systems flaw. 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.
The Preston Model in the UK serves as a powerful, real-world case study for implementing Community Wealth Building. This model is centred on Anchor Institutions—locally embedded public and non-profit organisations like the City Council, universities, and NHS trusts—that cannot relocate. By analysing and intentionally directing their spending, Preston strategically shifted millions of pounds in procurement contracts from distant corporations to local co-operatives and SMEs (Small and Medium-sized Enterprises). This action directly promotes the creation of local jobs, increases wages (by championing the Living Wage), and fosters plural ownership by supporting local worker co-operatives. The model proves that directing local spending towards internal economic development is a critical strategy for tackling systemic inequality and achieving economic self-determination by reducing the leakage of public money out of the local area.
Implementing such a strategically focused agenda is not without its inherent challenges, including navigating legal constraints and potential resistance from vested interests. 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: Transport: Moving People, Goods and Ideas
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