Breaking the monopoly of the state

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Sorting out some books yesterday, I came across a copy of the 1980 ASI paper Re-Servicing Britain by Michael Forsyth. He argued that all local services should be opened up to competition. Now Prime Minister David Cameron has written in the Daily Telegraph to say that the traditional state monopoly over public services will indeed be opened up. Private and voluntary groups are being given the automatic right to compete to supply them. It remains an excellent idea.

Of course, local authorities have indeed contracted out things like refuse collection since that 1980 paper (and of course road works have been done by private companies pretty much for ever). Once Margaret Thatcher's beady eye was no longer on them, though, many local authorities (and government departments) reverted back to using in-house providers – using a couple of excuses that Mr Cameron needs to sort out if he is going to make his new policy stick.

One reason is that if they use in-house providers, VAT is not an issue. If they contract out to commercial firms, they have to pay 20% VAT. Often, for the same reason, if they do contract out, they often contract to charities, which don't pay VAT, but which are often not so cost-efficiently managed as private firms.

Another problem is the regulations on the 'transfer of undertakings'. This was a cunning ruse designed precisely to thwart contracting out in the 1980s. Basically, if you take over an 'undertaking' – like local government refuse collection – you have to pay the same wages, and provide the same pensions, perks and holidays. So it reduces any outsider's ability to re-jig the service, run it more flexibly, and make a profit too.

Those excuses of course cost taxpayers and ratepayers money, and deliver them a worse service. Let's hope that the promised White Paper addresses them.

The flaws in our democracy

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Two things today convince me that our democracy is deeply flawed. First, Parliament's decision that the referendum on the Alternative Vote will be binding, and will be won by a simple majority. Second, the government's decision to scrap forestry sales.

I've been boning up, prior to writing a short primer on the subject, on Public Choice economics. This is the idea that you can apply economic tools to the workings of government. It is clear that in majority voting systems, the majority can exploit the minority. But James Buchanan, who got a Nobel Prize for it, says it's worse than that. He shows how the self-interest of politicians, officials and interest groups, and the bargaining between them, can lead to minority interests benefiting at the expense of the rest of us. He says that for some important issues we should demand more than a majority for the decision to be made. And for deciding the rules of that process – the constitution, if you like – we should demand complete unanimity, so nobody risks being subsequently exploited.

Making a referendum binding for the first time in the UK's history is, let's face it, a constitutional change of some magnitude. As is changing the voting system itself. Whether you support AV or not (no parties actually proposed it in their manifestos), it seems reasonable that it should require a large measure of public support to happen. Few people know much about the subject, so in some areas the turnout could be miniscule: it could be a constitutional change chosen by a small minority – an interested, informed minority – that could have major consequences for the rest. Likewise, the decision to make the referendum binding is made not by the people but by a simple majority in Parliament, a body whose democratic credentials are rather tarnished right now. If this is allowed to stand, who knows what other binding referendums might be proposed in future? Maybe having more referendums is no bad thing – Switzerland seems to get on fine with it. But horse-trading in Parliament is a bad way of making constitutional change.

And the forests? It just shows how decision-making is dominated by interest groups. I cannot believe for a moment that all the celebrities who wrote to the Times and got the campaign going understand one iota of the actual policy, or have the faintest idea of what Forestry Commission land actually comprises and how well or badly it is managed. We really are at the mercy of minorities. If we are forced to accept their opinions in binding referendums too, then our democracy is really sunk.

A sign of the times?

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A new US Congressman's welcome banner. I wonder if any MPs would put up a similar sign in their offices...

(Hat tip: Club for Growth)

Dalrymple on the Big Society

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Theodore Dalrylmple is spot on about the ‘big society’ in today’s Daily Express:

THE Big Society is a bad name for a sensible idea: namely that citizens should not rely upon the State and its bureaucracies for their own welfare. Instead, they should form voluntary associations to look after both themselves and others…

He points to two big problems with the ‘cradle-to-grave’ state:

The problem with the State taking care of everything is twofold. First it tends to destroy our character, something that can be observed every day. Our faculties such as prudence and planning for unpleasant eventualities are lost if they are not exercised, a trend surely borne out by the fact that we as a nation save nothing and borrow much.

The second problem is that the State isn’t very good at what it does. How many of us find that, if we can afford it, we are willing to pay privately for services that are supposed to be provided by the State, such as education and dentistry? People pay twice over, first in taxes, then as fees – and the taxes drive up the fees.

Finally, he highlights how the state promotes atomization in society:

And there is another way in which handing over everything to the State hardens our hearts: we come to believe that, having paid our taxes, we have paid our dues to society. When we have spent half of our time, nearly, in working for the State (as we do even if we are employed in the private sector), we do not feel much inclined to perform social service afterwards, even for those close to us. Where the State takes care of us all, we become separated from one another…

In the name of social solidarity we have turned ourselves into a lonely crowd.

You can read the whole thing here. Incidentally, Dalrymple also has a new book out at the moment: Spoilt Rotten: The Toxic Cult of Sentimentality. You can buy it from Amazon here.

Meet the new boss, same as the old boss

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Predictably, the Prime Minister’s relaunch of the ‘Big Society’ has been a bit of a damp squib. He’s failed again to define it clearly, outline what the government will do to facilitate it, and why it’s worth doing.

Let’s start with branding. The name ‘Big Society’ is naff, condescending and vague. I’m sure it’s intended to sound approachable and unintimidating, but in dumbing down the name it’s lost all meaning in the process. What is a ‘big’ society? Is China’s the biggest? Presumably not – the ‘big’ been appropriated to mean something entirely different to the way most English-speakers use it. This isn’t a simple matter of aesthetics. It’s a continuation of the Blairite tendency to reduce ideas to meaningless, nice-sounding phrases whose owners can use them to justify anything without giving critics solid grounds to attack from. It’s tactics, not strategy.

The concepts that underlie the ‘Big Society’, like increasing personal responsibility and allowing civil society groups to replace government bureaucrats in certain roles, are good. Cutting back the state’s spending and allowing the private sector to fill in the gaps is what any responsible government should do. But is this really what it means? Apparently not. David Cameron’s speech is heavy with rhetoric about personal responsibility, but light on the implications of that. If personal responsibility means anything, it is that people must choose to be charitable, not be forced by the state to be so.

The practice of the ‘Big Society’ seems to be to use state money to pay charities to do what government departments used to. An example of this is the Big Society Bank. Why is this expected to be any different to direct state action? Charities are often as poorly managed as state bodies – but, to their credit, a pseudo-competition means that the really bad ones might lose their public support. With state funding, that semi-market in charities disappears and they become no better than government bodies. The government-sponsored charities crowd out the competition in charities. Likewise with getting 'ordinary people' to help run state services. Most civil servants were ordinary people once: it's the structure of the state that's the problem, not the content of civil servants' characters.

So, if the ‘Big Society’ means cutting government spending and roles, and letting the private sector – for-profit or non-profit – take over, great. But everything I’ve seen so far suggests that it means switching state spending towards charities. All this’ll do is change the instruments that the state uses to intervene in society. I suspect that the ‘Big Society’ concept is vague by design rather than accident, to mask the fact that it really won’t change much at all.

Other people’s money

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Is there anything more dispiriting to hard-working taxpayers than self-important grandees blithely spending their money without due regard to reality? Two recent examples this past week underscore that other-worldliness: the European Court of Human Rights and the Olympic Park Legacy Company (OPLC).

Take the Court first. It has ruled that the UK is violating the human rights of prison inmates by denying them the vote. Whatever the merits of the legalities, former Tory minister and one-time jailbird Jonathan Aitken pointed out in an otherwise predictable “debate” on Radio 4’s Today program that the last thing our beleaguered prison wardens need is yet another function – returning-officer duties. In the greater scheme of things, this may not be all that costly but it is added cost. And one can imagine how such costs will escalate in the face of claims that prison officers normally engaged in maintaining order failed to conduct such elections in accordance with the finer points of electoral engagement.

If this is the era of counting pennies, then surely voting rights for inmates who probably have never voted in their lives before are low on most priority lists.
From the subtle to the garish, OPLC has chosen West Ham United’s bid for the Olympic stadium over that of Tottenham Hotspur’s. West Ham’s bid requires a £40 million loan from Newham Town Council and another £35 million taxpayer handout from something called the “conversion fund” of the Olympic Delivery Authority. Tottenham’s bid required no taxpayer money.

The biggest reason for the selection of West Ham was its promise to keep the stadium’s racing track to fulfilling a promise in the original bid for the Olympics to maintain athletics at the site. That track & field and football don’t mesh in a stadium was ignored. Instead, taxpayers will be paying for a bad promise to the eminences of the International Olympic Committee whose speciality is bankrupting cities. Montreal only paid off its debts for the 1976 games five years ago and its multi-purpose stadium proved to be utterly useless in very short order.

It’s now up to London Mayor Boris Johnson and two government departments to ratify the OPLC decision. With so much talk of “tough spending decisions”, this is an easy one – just say no! 

Holding back the flood

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Australian Prime Minister Julia Gillard says she will introduce some 'temporary' tax rises to pay for the country's flood damage. And in the UK, the BBC World Service is closing a sixth of its world language services, firing journalists and mothballing transmitters.

Two unrelated stories, you might think, but they show the real problem that liberals have in holding back – never mind reversing – the seemingly unstoppable growth in government.

If Julia Gillard wants to find money to pay for flood damage, why does she not do what the rest of us do in such circumstances? When the rest of us face some domestic emergency, we just have to grit our teeth and cut back somewhere else to find the money. Why is government's answer to every expensive problem a rise in taxes? Why is it not a reduction in less urgent spending elsewhere?

And isn't it amazing that the answer to a 16% cutback in the World Service cutback leads to large chunks of the service being axed completely. Let's not forget that 300 BBC executives were recently exposed as earning more than the Prime Minister. Why not get rid of some of the back-office fat instead of axeing the front-line services?

Short answers only, please.

The Scotland Bill in three minutes

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Parliament will debate the Scotland Bill today, which among other things proposes to devolve some fiscal autonomy to the Scottish Parliament. I've written a 3-minute guide to the Bill, outlining and assessing its proposals, and arguing that it doesn't go far enough in devolving fiscal autonomy to Scotland. You can get it here.

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Conservatives expose themselves on local TV

"Over time", Mr. Hunt claims, local television would build up strong local advertising bases. But the Culture Secretary is far less well placed to judge this market than media companies, which are themselves fallible. And television advertising revenues have proven fickle in recent years. Of course, there might be a market for local advertising that has not yet been tapped, but the demise of Cinema adverts for curry houses does make one wonder!

Certainly, the entrepreneurs are not hopeful. Tim Brooks, managing director of Guardian News & Media, has described the idea that the network could be commercially viable as "sheer fantasy.” As he went on to point out, “The largest television company in Europe couldn't make enough money out of Channel Five, [and this was] the third network to [try to] make a go of it... [T]hat's why you won't see Jeremy Hunt bowled over in the rush of people with money wanting to get involved in his project." Sly Bailey, chief executive of Trinity Mirror, agreed, adding that getting involved “in a 10-way joint venture that doesn't make any money is not the most exciting prospect."

Paddy Barwise, Emeritus Professor of Management and Marketing at the London Business School, also questioned whether there was any public good to be served : "I'm pretty sceptical about the... public benefit … I would expect it to generate a low level of viewing.... [T]he channel would need a programme budget equal to or greater than Channel 5's in order to get enough national advertising to create a big enough subsidy to make the local opt-outs viable and that would, if it happened, make a significant impact on the existing broadcasters".

Clearly Mr Hunt genuinely believes that local television would be a good thing. But that is precisely the problem. The curse of the 20th century was government ministers who meant well, splurging vast sums of taxpayer money subsidising things that seemed like a good idea at the time. Even Jeremy Hunt’s Shadow describes the plans as “a politician’s vanity project”, and as a former Labour minister he should know.

The truth is that if people really wanted local TV then commercial media would have provided it. Note that I say ‘really’ wanted. Of course if you ask people if they want it, most will say they do. But if you ask people if they want a Mercedes most will say they do. Whether they really want local TV is determined by whether they would pay for local TV. If they would, you may be sure that entrepreneurs in ITV, Sky, Virgin and elsewhere would have identified an opportunity and jumped upon it. The fact that all previous attempts have failed, and that (as Marx would no doubt have been pleased to note) ITV’s many regions eventually collapsed into near monopoly, suggests that local TV is little more than ministerial fantasy.

If Mr. Hunt and the Conservatives were really a party that believed in the free market, they would let broadcasters and viewers (aka. entrepreneurs and consumers) decide what format television broadcasting should take. But then, the Conservatives are not a free market party.

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One of the best things about the return of the Conservatives to government is that it helps us understand what they really stand for, rather than what they claim to stand for.

For example, it is a one of the great ironies of modern political history that both the Conservatives and Labour claim that the Conservatives are a free market party, when they are, of course, nothing of the sort.

Take Jeremy Hunt’s announcement last week that he wants to create a new TV network that would support local television in its infancy. Media companies would be invited to tender for the channel, but it would be subsidised with free spectrum and funded by advertising in an attempt to make local TV commercially viable from the start.

This is a classic example of paternalistic intervention: “seed funding” to “pump prime” an industry. “Free spectrum” actually means that valuable bandwidth will be given away to a cherished company rather than being sold to the highest bidder for the benefit of the nation (or at least the government). The taxpayer is to be mulct further courtesy of the BBC, which has pledged to finance some of the upfront capital costs. This makes sense for the BBC, of course, which not only wants to cosy up to Mr. Hunt but also might help it destroy the local newspaper and radio companies currently battling to survive.

[Continue reading]

Libertarianism and the left

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Matt Yglesias, a centre-left blogger who writes at Think Progress, is often thoughtful and interesting, and well worth reading. Discussing the word 'neoliberal', he says that he has ten major economic policy objectives:

1 — More redistribution of money from the top to the bottom.
2 — A less paternalistic welfare state that puts more money directly in the hands of the recipients of social services.
3 — Macroeconomic stabilization policy that seriously aims for full employment.
4 — Curb the regulatory privileges of incumbent landowners.
5 — Roll back subsidies implicit in our current automobile/housing-oriented industrial policy.
6 — Break the licensing cartels that deny opportunity to the unskilled.
7 — Much greater equalization of opportunities in K-12 education.
8 — Reduction of the rents assembled by privileged intellectual property owners.
9 — Throughout the public sector, concerted reform aimed at ensuring public services are public services and not jobs programs.
10 — Taxation of polluters (and resource-extractors more generally) rather than current de facto subsidization of resource extraction.

I can think of my own goals, which would be different, but apart from the first point it's hard for me to disagree with any of Yglesias'. (Though we probably would on the implementation of the third point – obviously Yglesias and my views of how to get to full employment will differ strongly.) These aren't even 'motherhood and apple pie' goals, but realizable policies that chime fairly well with a freer market than we currently have. Redistributionism and Keynesianism aside, the free market right might be able to make common cause with moderate leftists like Yglesias to roll back state protections for some special interests, and try to make the welfare state less of an influencer of the social order by reducing its coerciveness.

If this holds true for the UK, it raises the possibility of new alliances. That's a big if, but I think it's more likely than some think. Socialism proper is a much bigger force in the UK than in the US (see, for example, the NHS as opposed to the corporatism of Obamacare), but it isn’t the whole story. Many on the left have as much disdain as free marketeers do for students marching for middle class tuition fee subsidies, or the main political parties' support for bank bailouts.

Aloofness from the political right would give libertarians and classical liberals more heft on that side, too, as our support would be less reliable and policy concessions more necessary. It’s improbable that libertarians and the left would ever become permanent allies, but if the British centre-left ever decides to fight for a policy platform like Yglesias’s above, it could find surprising allies in Britain's libertarians.