reading the paper the other day, i was confronted by Neo-liberal cliche that bothered me slightly. a person wrote in bemoaning the State "crowding out" free enterprise, and arguing that the private sector are "wealth creators", and the State some kind of parasite.

having been reading some economic theory recently, i thought about this, and came to the conclusion such distinctions are largely bollocks. some reasons why

the notion that wealth is "created" at all is flawed in the first place. Wealth comes from the exchange of labour for money in the production of goods/services. A worker is as much part of wealth creation as any investor or manager. Capital (financial/land/technical) alone does not produce more wealth, it requires labourers. so in a sense the wealth is inside all workers from a furniture maker to a shop assistant to librarian. These people provide the service/product. You could own the whole process, but without people to make/operate/ staff/sell, there would be no end product. the Capitalist is often the least necessary person. This is clear from small businesses, who borrow their capital, from the bank without the bank taking profits or a managerial role.
As such, the economy is the movement and exchange of labour in the production of goods/services, in return for money or payment of some kind, which in turn becomes spent on more services/goods (rent, food, clothes, luxury goods, whatever) which provide jobs for other people. The economy is just a flow of labour and money. To suggest something is created from nothing is plainly simplistic. The point is that economic success is maintenance of that flow. The State providing jobs does a similar role to a bank really in getting someone from a position where they earn nothing (unemployment) and can spend nothing, to a position where they earn (provide a service/good) and spend money.
The latter, as Keynes points out, effects a multiplier: if a state builds something, say houses, and gives jobs to people to build them, it also increases private sector employment: The houses require materials, transport, and sundry other private services which equals jobs in the private sector; The jobs also equal disposable income which is spent...... in the private sector,again increasing jobs in the private sector. The State, as well as providing necessary services (health care, council houses, education, social care and on....) that are often better in accountable state hands, produces economic consumers, or, to be fairer, gets these people back into a situation where they can work and in turn provide economic demand that businesses benefit from. In times of economic downturn, where the private sector is saving not spending, and unemployment is low, equalling low demand for goods (a spiral of non- consumption/ unemployment which is stagnation), the state can effectively jump start the economy by spreading employment and confidence.
Even if you accept that states taxing to spend is somehow parasitic upon private revenues, actually the state is taking from "excess" funds (profits, incomes, CGT), which in a depression are highly unlikely to be spent or invested (the latter insensibly, if at all): uncertainty as to future gains means investment is less likely and saving more likely. Saving exceeding spending is central to economic downturns. The State by appropriating these funds through taxation, is using these funds more sensibly economically, as follows:

A) taking, for example, £120000 income tax from someone on several hundred thousand, pays for the state to provide perhaps 6 or more public sector workers providing a necessary service. this removes them from unemployment and non-consumption, and puts them back to employment and consumption. The people are now, no longer taking from state (benefits) but working for it, and in turn, spending money in the private economy.

this is economically better than a large accumulation of private wealth, which is less likely to be spent (particularly in diverse maintainable spends; the luxury good market is an unstable one) if spent at all. As is said earlier, a key factor in depressions is the preference for liquidity (saving) over investment, especially amongst the rich. The employees spend more diffusely, more necessarily, and ultimately more maintainably (food, clothes, etc,).

AND

it performs the valuable social function of redistributing wealth; the excessively rich paying for jobs of poorer sections in necessary areas. It is, surely, better to have a rich man paying tax to employ someone, than paying tax to pay their benefit and trap them in a cycle of poverty and non-consumption that doesn't benefit the economy.

Either way, in the end, public or private, money flows back into the economy.
The government performs the important function (the one the private sector often fails to do in downturns; note how companies lay off staff, and banks refuse to lend) of keeping this flow (of labour for money for goods for labour for money for goods,.... and on) going. which is what a healthy economy is about, surely?


(and as a important socialist caveat, The state can do this in way that is accountable and concerned with social well being, not mere private profit, and diffuses money across the population)