The Case for a Productive State: Beyond Market and Welfare
The 2008 financial crisis exposed a critical flaw in our economic architecture: the systemic risks inherent in a system where individual failures can cascade into widespread instability. Regulators responded by adopting a macroprudential approach, recognizing that system-wide instability requires intervention at the structural level. However, this lesson has yet to be applied to the supply side of the British economy, leading to a compounding crisis of living costs, productive capacity, and public finances.
What makes this particularly fascinating is how the British state continues to operate a pre-2008 supply-side regime, monitoring individual sectors and firms while neglecting the systemic issues. This has resulted in a state that pays for failure but is not permitted to fix it, creating a mutating state-market hybrid of price distortions, excess profits, and chronic underinvestment.
The Roots of the Crisis
The privatization of essential services has transferred responsibility from public providers to private actors, prioritizing profitability over social needs. This architecture has four structural features:
- Capital flows toward private profit, not social necessity.
- Essential investments that fail private hurdle rates are underprovided.
- Financial markets favor short-term returns over long-horizon infrastructure.
- Splitting essential systems across multiple private actors destroys coordination, creating transaction costs.
One thing that immediately stands out is how these features systematically subordinate provision to extraction, leading to rent extraction, under-investment, and risk transfer to those least able to bear it.
The Productive State: A Third Pillar
To address this crisis, we need a Productive State, a public institutional architecture that intervenes on the supply side by investing in public assets for public provision of essentials. This approach transcends the dichotomy of private market provision and welfare state redistribution, focusing on directly owning and operating capital in essential sectors.
In my opinion, the Productive State is the supply-side completion of the macroprudential turn, applying different ownership to systemically important sectors and intervening in production to prevent cascading failures.
Why This Matters
The Productive State delivers sovereignty advantages, including price sovereignty, supply chain sovereignty, and ownership sovereignty. It also provides structural advantages over private alternatives, such as patient capital, lower cost of capital, and system-level coordination.
What many people don't realize is that public corporations can optimize sectors as systems, internalizing transaction costs and delivering investment at lower cost. This is evident in the success of Greater Manchester's Bee Network, which has restored bus routes and reduced system costs through public coordination.
The Path Forward
The Productive State intervenes where private ownership fails, guided by tests such as productivity exhaustion, systemically significant prices, investment strike, social need, and public policy goals. This approach is not theoretical but is being demonstrated in practice, as seen in Manchester's public transport experiment.
If you take a step back and think about it, the Productive State offers a deliberate, sequenced path to change, governed by institutions built for the purpose and financed through revenue-backed public corporations. It is the political courage to act and the movement to make transformation real that will determine our future.
Personally, I think the choice is clear: we can either continue down the path of stagnation and geopolitical tension or embrace the Productive State, building a three-tier economy of abundance, security, and stability. The destination is an economic system where shared abundance weakens the empire of necessity and expands the realm of freedom, and it is within our reach.
