The FT says the government’s decision to sell off some student loans “makes no sense.” From one perspective, this is true: it’s daft to sell an asset that probably has a positive return in order to pay off debt that carries a negative real interest rate. From another perspective, however, there is a kind of logic to it.
One key function of the state is to help maintain capitalist profitability. This isn’t simply because the state is the executive committee of the bourgeoisie. It’s because decent public services require a healthy economy, which in a capitalist economy requires profits to be high enough to finance and encourage investment.
But here’s the problem. In our era of stagnation, profitable opportunities are lacking. This is why business investment has been weak since the late 90s; why banks invested in mortgage derivatives rather than proper assets; and why we are bombarded with calls from people claiming to sell us compensation for PPI mis-selling or accidents we’ve not had. When real investment opportunities are lacking, we get stagnation and malinvestments.
Whatever the reason, there’s a need for state action to support profits.
One way it can do this is to sell off profitable assets it owns such as council buildings or student loan books. It’s probably better for macroeconomic stability that banks make money by ripping off students than that they chase risk like they did in the mid-00s.
Another trick is to outsource – giving private firms cash to collude with criminals, miscalculate tax credits, build schools that fall down and, I suppose, occasionally do something useful. Although outsourcing companies’ share prices have fallen recently, most of them have generated lots of cash.
I say this because I suspect that what we have here is another example of something I mentioned recently – a tendency for our economic views to be shaped by our formative years as well as by present reality. Because capitalism was dynamic back in the 80s and 90s, we tend to over-rate its dynamism now. As a result, we under-rate the extent to which it needs state aid to generate profits. Privatization and outsourcing are means of doing this.
You might object here that there are more intelligent ways for the state to expand profit opportunities – for example by expansionary fiscal policy, stopping Brexit or state support for innovation.
Such options are ruled out for political reasons: what we have here is an example of the relative autonomy of the state. Even if they weren't, however, they would have limits from a capitalist point of view. Fiscal expansion might eventually generate wage militancy; stopping Brexit might create a populist backlash and hence instability; and innovation would increase creative destruction and hence threats to incumbent firms. This creates a space for cronyism such as outsourcing and privatization.
Such policies might not always make sense from a conventional point of view. But then, the logic of capitalism isn’t necessarily rational from other perspectives.