A thicket of summer grass: the thymotic anger behind the strikes
We all have comparable, though doubtlessly very different, memories and experiences of summer, and have been having them for hundreds of years – and, sometimes, people have described these in even more saccharine terms than I have just done. Take, for example, sixteenth-century poet Alexander Hume’s ode to “A Summer Day”: “The flourishes and fragrant flowers / Through Phoebus’ fostering heat, / Refresht with dew and silver showers / Cast up an odour sweet… All labourers draw home at even, / And can to other say, / Thanks to the gracious God of heaven, / Which sent this summer day.”
Unless, of course, those labourers happen to belong to a public sector union. As some of you might know, major unions in the UK are planning co-ordinated strike action this summer, which looks likely to go ahead. At least officially, this is being done to protect the unholy trinity of unionised life – holiday, pay and pensions – and it looks like they are going to try to spoil the party while they are at it. Strikes are planned across the government, which most of us are bound not to notice, except perhaps those of teachers and, in particular, transport, where tube workers are threatening to interfere with Wimbledon. Interfering with tennis is, of course, insufferable, and raises the question: during such a lovely time of year, when so much is going on, how can 750,000 people – all of whom have jobs in which they voluntarily consented to be employed – be grumpy to the point of wanting to ruin everyone else’s fun?
I will admit here that my treatment of union grievances might seem flip at first glance. However, “grumpy” is a very good description of what is going on, though it contrasts sharply with what the unions want us to think – namely, that the proposed strikes are about economic justice. In a recent speech Len McCluskey, general secretary of Unite,described the strike as the latest iteration of a red-hot class war, a “fight… (against) bad employers… (and) the Eton classroom bully-boys running the government (who) want to cut… so the rich can keep on feasting”. He was even brazen enough to conclude his remarks with a line from the long-obsolete Communist Manifesto: “we still have a world to win”. But striking workers at the local Jobcentre are hardly the heirs of a centuries-old “struggle of the proletariat with the bourgeoisie”. What on earth are they upset about, then?
More likely, it is a sense of hurt feelings from a workforce that is both “dwindling (and) demoralised“, a sector of society that has failed to adapt to the new reality of austerity – and doesn’t want to, either. This phenomenon is not new, and in fact was the subject of extensive treatment in Francis Fukuyama’s landmark work The End of History and the Last Man, where Fukuyama points out that relative self-perceptions of worth, even among people who are well-remunerated, are central in politics. “In political life,” he writes, “economic claims are seldom presented as simple demands for more; they are usually couched in terms of ‘economic justice.'”
To him, these claims do not necessarily arise out of deprivation – poverty is relative, he says, pointing out that the poverty line in the United States “represents a standard of living much higher than that of well-off people in certain third world countries” – but adds that “this does not mean that poor people in the United States are more satisfied than well-to-do people in Africa… for their sense of self-worth receives many more daily affronts” from those who are better-off still. Fukuyama describes the emotion arising from these affronts as “thymotic anger” – that is, anger deriving from a wounded sense of self-worth – that exists because people “believe, consciously or not, that their dignity is ultimately at stake in disputes over money.”
I am inclined to agree with Fukuyama’s analysis. That thymotic anger is in play with these strikes is clear enough by reading the unions’ P.R. material, all of which strains desperately to prove the utility and necessity of public services on the one hand, and the quality of the labour that provides them on the other. Take this, for example: “cuts [in public services] have led to increased errors, backlogs in post and half the calls from the public going [un]answered last year”; put differently, “our work is necessary and essential, our profession delivers value when it carries on this work, and by cutting our budgets you do not accord our work its true value”. Or this: “whenever Jobcentre Plus staff have been allowed the same flexibilities and funding as private sector companies… they have been able to compete with, if not surpass, the performance of contractors,” in other words, “we are just as capable as you are, and can beat you at your own game. How dare you suggest otherwise?”
What we are left with is a simple truth, that human beings require dignity and recognition, and a complicated problem, that a large and well-organized group of public servants with hurt feelings will forever make limitless demands for compensation that British taxpayers cannot possibly meet. But how to resolve this? It would be ridiculous to suggest that society goes on subsidizing the self-esteem of nearly a million people if other solutions are available; one of these, of course, would be to dispense with significant pieces of the public sector, and reintroduce our union friends into our private sector world where work is valued not on the basis of the political power we wield, but rather on the value we deliver through the use of our energies and talents, and in particular, competition between employers in the labour market.
But this is only half of the solution. Bending others to our will through the use of political power is a convoluted and roundabout way to dignity; instead, developing our individual powers by pursuing creative or productive endeavours with “an emphasis… on the practice of life” (Fromm, 1955) is much more likely to lead us to happiness.
If you’re wondering where to start, I suggest a quiet, contemplative walk on a glorious summer day.
The folly of the public benefit test
The government has already made it quite clear that the Chair of the Commission must desist or be relieved her responsibilities; a future resumption of her unsuccessful attempts to force consolidation in the sector was always unlikely. In so far as the foray was the brainchild of Labour policymakers, the announcement on Friday that the Commission’s programme of assessments ‘is at an end’ and that irrespective of the outcome of the case ‘the commission intends to review the guidance in the light of its experience of its use’ comes as no surprise either: while politically useful in pacifying interests on the left of the party, this aspect of Labour’s policy excursion into the charitable sector has been far from successful in policy terms.
The episode offers a classic example of a market intervention gone wrong. The idea behind the legislative ‘fudge’ that was the Charities Act 2006 was that by removing the presumption of public benefit from charities concerned with the provision of education (among others), but leaving it up to the regulator to determine, on the basis of case law, what such charities must do to justify their existence, the Commission would be able to leverage to greater effect the assets of the ‘third sector’ estate – in particular those held in trust by charities whose objectives are achieved, wholly or in part, by charging fees. Though at the time, the Commission appeared nonplussed – arguing that case law meant the presumption would, in practice, be preserved anyway – Labour strategists calculated that under more assertive leadership (enter Dame Suzi Leather), this mechanism could make charities work harder.
Little surprise then that when the guidance for fee-charging charities emerged in 2008 many of the sector’s best rehearsed arguments for the public benefit – as, for example, those focusing on its contributions to the greater social good, and on savings to the taxpayer – were dismissed out of hand. The guidance stressed that the benefit must be ‘identifiable’, provided to ‘a section of the public’ in such a way as not to be ‘unreasonably restricted’ by inability to pay fees, and that ‘any private benefits must be incidental’, rather than integral to, its core purpose. It also stated that any benefits must also be set against any ‘detriment’ or ‘harm’ caused by their activities, giving unjustified legitimacy to the view that the continued existence of private schools has a negative impact on social cohesion.
At the same time the guidance made the level of bursary provision the key test of charitable integrity. Though the Commission has argued against setting specific targets, maintaining that schools should be judged on a case-by-case basis (an approach apparently set to be upheld by the Courts this week), hypothetical case studies supplied in conjunction with the guidance suggest what has effectively become a benchmark of 11% of fee income as an acceptable level of bursary provision. In consideration of other acceptable initiatives, such as offering the use of facilities to the wider community and partnerships with local state schools, the Chair subsequently made clear that in her view increasing bursary provision offers the most straightforward route to satisfying the new requirement.
The effect was to put such charities in an impossible situation. To continue to provide schooling, they must comply with the Commissions demands: they do not have the option to relinquish their charitable status; assets that have been put into trust cannot simply be taken out again. Effectively therefore, the prospect was of a choice between compliance and closure. Satisfy the regulator’s arbitrary definition of ‘trust’ or be forced out of the market. The experience the two test case schools – Highfield Priory prep school in Fulwood, Lancashire, and St Anselm’s in Bakewell, Derbyshire – both of which failed the test in 2009, giving rise to the ISC’s action, illustrates the stresses involved in being put in this position only too well. The hundred or so similar schools seeking as a result (under the leadership of IAPS chief executive David Hansen’s) an alternative not-for-profit vehicle that will enable them legally to relinquish their charitable status in the courts provides an indication of the number of schools affected. The fact is that ordinarily schools simply cannot afford this level of bursary provision. The price hikes involved would ruin them.
As my recent paper on the potential of England’s proprietorial independent schools made clear, I don’t happen to think that the charitable trust model is necessarily the most effective or efficient out there, nor do I find the ISC’s arguments in favour of charitable status ultimately convincing. Most people assume that charities exist to help people who cannot help themselves and I can only think of one example of a public school with an endowment substantial enough to be able to function with absolute integrity in this way. Far more fundamentally than they are charities, schools are businesses, and it would serve us all to approach them as such.
But legislation is not the way to get from A to B on this question. Labour’s approach was ultimately an attempt to force consolidation in the market; the irony is that left alone, this would have happened anyway and far more efficiently. Charitable mergers have been commonplace for some time now. The trend towards federation had begun well in advance of these developments and will doubtless continue long after the furore has died down – witness, for example, the rise of the GDST and of CfBT. Analysts estimate that a fifth of all independent schools will be in federation or alliance by 2020. Other schools, notably the Whispers School, Surrey, have taken the decision to liquidate their assets and expand their bursary provision to more competitive charitable schools.
This option has been successfully taken up by a number of charitable schools selling up to the Cognita schools group in recent years too. Schools acquired in this way to date include Cranbrook College, Ilford; Glensesk School, East Horsley; and Downside and West Dene (now Cumnor Girls), Croydon. With the Conservatives now committed to pursuing greater charitable efficiency by increasing competition in the market through academy expansion, the Charity Commission should put this sorry episode behind them and focus on developing and facilitating these and other means of rationalising independent school provision.
Free Schools are heading for failure
Much as we might wish to think otherwise, this has serious implications for the government’s wider schools reform platform: most especially in respect of its hopes of efficiency gains through school closure. The idea was that by freeing up new school supply, while at the same time rationalising existing management structures through Academy expansion, the government might also be enabled to tackle more proactively the problem of persistent under-performance, at its most acute in areas where deprivation is greatest. But without new schools coming on stream in numbers, the threat of closure rings hollow, and one of the most important mechanisms for turning around these schools doesn’t work as it should.
By any estimate, proposals for Academy expansion have received an overwhelmingly positive response, particularly among secondary school heads: a recent Association of School and College Leaders (ACSL) survey indicated that almost half of their schools had either already converted or were actively considering doing so. Gove may well succeed in bringing about a wholesale conversion right across the system. He needs to be prepared to meet the challenges presented by those schools which will as a consequence go into decline.
Academy conversion fundamentally alters the relationship between a school and its local authority (LA). It cuts all the ties and removes both from all the obligations. In consequence, on the LA side, those that retain education departments will do so only to the degree that they are able successfully to compete with other service providers in the market – be they neighbouring schools with specialist expertise, local federations, or EMOs. For their part, schools will ‘buy back’ from LAs only those services they need, and will be able to use their financial autonomy to set more effective, performance-related pay and conditions for staff, for example. With a national funding formula in development, related more directly to fluctuations in actual, in-year pupil numbers, and LA mechanisms to smooth cash flow removed, in the future schools will have to bear the consequences for educational outcomes: demand for places at successful schools will enable them to operate more efficiently than those that are merely mediocre, and perhaps even encourage some expansion; conversely a more responsive system ought to facilitate an expeditious conclusion for failing schools that are unable to buck the cycle. This is all as it should be, and if it happens it will have been a long time coming.
In respect of closures, the plan, outlined in the 2010 White Paper, is that in such circumstances in the first instance school improvement specialists like the Harris Federation will be brought in to turn things around. No one wants to see a school fail, and those that are struggling should be given opportunity to make good. But, according to the provisions of the 2011 Education Bill now in Committee, if a school fails to make the necessary improvements, the Secretary of State can step in to effect a closure on an accelerated time scale. Once the Bill passes into law, he will be able to close any school eligible for intervention, not just those deemed by Ofsted to be in need of special measures (as currently).
It’s a bold move, and one that should reap dividends if put into practice. Convincing evidence from a choice reform in Tel Aviv where unpopular schools were actually closed shows significant overall efficiency gains, indicating the potential (V. Lavy, ‘Effects of Free Choice among Public Schools’, Review of Economic Studies). If there aren’t new school groups waiting in the wings looking for premises though, then the Secretary of State and his Schools Commissioner will have to look for other solutions, forcing them back on strategies which only protract decline and delay the inevitable. Ministers can’t afford to let free school reforms lag: let’s hope they regain the courage of their free market convictions.
James Croft’s report, Profit-Making Free Schools: Unlocking the potential of England’s proprietorial schools sector, is available for free download now.
The impact of proportional representation and coalition government on fiscal policy
Introduction
For many years, there have been calls to change the electoral system within the UK from First-Past-the-Post (FPTP) to a more proportional system. This has featured in successive Liberal Democrat (formerly the SDP/Liberal Alliance) manifestos, as the FPTP system favours a two party system as the percentage of votes does not reflect the number of seats won in Parliament.
At the 1983 election, the Conservatives won 42.4%, the Labour Party won 27.6%, and the SDP-Liberal Alliance a combined total of 25.4% of the proportion of the vote respectively. In terms of seats won, the Conservatives took 61%, the Labour Party took 32.2%, and the Alliance took 1.8% of seats respectively. This distortion of vote leads to a higher chance of a single party government forming, as each seat in effect is a separate election; the third party, the Liberal Democrats have support dispersed across the country and where support is not concentrated enough in seats, they receive a high percentage of the popular vote but a lower proportion of seats.
In a more recent example, the 2010 election saw the Liberal Democrats winning 1% more of the popular vote but losing five seats in parliament. Other smaller parties such as UKIP, BNP and nationalist parties have criticized the system, as the barriers to entry into parliament for them are very high.
The 2010 election produced the first hung parliament since February 1974 and the first coalition since World War II. The Liberal Democrats entered a coalition with the Conservatives thanks to an agreement to hold a referendum on the Alternative Vote (AV). This referendum will be held on May 5th.
Perhaps the strongest argument for FPTP is that the likelihood of forming a single party government is much higher than under proportional representation (PR). Single party overall majority governments are widely seen as being more stable than coalitions. As a single party has a majority within the legislature, a government should be able to push the legislative agenda through. The thinking goes that this should keep faith with credit markets due to the lower chance of the government collapsing, and tighter fiscal policy as the bargaining process involved in coalition formation leads to higher taxes and higher government spending. (In order to buy the support of the various interest groups the negotiating parties rely on.) This has been an area that has not been discussed in detail during the debate around Britain’s possibility of changing the electoral system.
In this think piece, I will examine whether PR is more likely to produce coalitions, and if so, whether coalition governments produce more fiscally profligate governments, in terms of fiscal policy. This will be kept within the years of 1987-2007 before the financial crisis. I will examine five western parliamentary democracies that have systems based on PR to see whether there is evidence suggesting that fiscal policy is looser than in the UK: Greece, Ireland, The Netherlands, New Zealand and Germany.
This of course is not an absolute science as there are a myriad of variables that affect fiscal policy. However the evidence that I explore shows a mixed picture from around the world. From it I will consider what PR could mean for the UK.
New Zealand, from FPTP to MMP:
New Zealand (NZ) is a recent case where a referendum changed the electoral system from FPTP to the Mixed Member Proportional system (MMP). Under FPTP, the elections of 1987, 1990 and 1993 with a legislature of 97, produced majority governments. Labour had a majority of 9.3% in 1990 and the National Party had a 19% majority in 1993. When MMP was introduced in 1996, there have been coalitions formed ever since. Ideologically similar parties (in terms of Left/Right) such as National and NZ First have been formed as well as Labour with parties on the same ideological lines. (See NZ tables from 1996). However, in 2005 a minority coalition of Labour and the Progressives was being supported by NZ First, United and the Greens on a vote-by-vote basis.
The introduction of a PR-style system has not had a significant effect on New Zealand’s fiscal policies. The most striking piece of evidence is that the government has managed to pay off its debt continually since 1998. The ratio of government spending to GDP reached it lowest point in 2004, and has helped the government pay off debt by running budget surpluses. Under the years of FPTP, government ran deficits from 1987-1993, and this suggests that FPTP does not necessarily mean prudent fiscal policy. However, growth was also low during this period.
We must also note government spending has reduced in proportion to GDP when a centre-left coalition was in charge. (See NZ Tables from 1996 to 2005.) Growth was positive and quite smooth between 2000-2007, but the government has not changed its discretionary fiscal policy a great deal, and has not encouraged government spending. This suggests that a single party not having a majority could have restrained spending.
However, in 2005, with the economy still growing and a minority government being supported on a vote-by-vote basis, government spending has increased, but only slightly. This could have been apart of the bargaining process, that FPTP supporters fear, but it has been only slight.
An interesting aspect is long-term bond interest rates. In the 1996–2007 period studied here, they have been relatively stable, suggesting that coalition governments are not necessarily seen as being ‘weak’ by bond markets.
New Zealand
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Fiscal Trends within other Coalitions
The Netherlands:
The Netherlands lower house of 150 seats is elected under a list system of PR. No single party has controlled the legislature since the 19th century. The legislature is fragmented with many parties, holding a more evenly distributed number of seats between the parties. Coalitions are normally under a three party rather than a two party coalition. (See Netherlands tables below.) The ‘Purple Coalition’ ran from 1994 to 1998 and was made up of the PvdA (centre-left), VVD (centre-right) and D66 (social liberal). From 2002, a centre-right coalition was formed with the CDA, LPF and VVD parties. However, since 2006, the centre-right parties, CDA and CU, went into coalition with the PvdA, meaning a left/right coalition government.
The Netherlands is a case where supporters of FPTP will say that looser fiscal policy is apparent. Government spending has been around 56.5% to 45.3% of GDP. Spending has remained above 45% of GDP and could indicate that agreement between the coalition parties has kept government spending high.
Taxation within the economy has remained around 41% to GDP. In 2003, there was another election leading to a liberal to centre-right wing coalition; at this point, long term interests remained constant, suggesting that the market was not concerned about instability within government. Despite having a more economically liberal coalition in place, government spending has remained constant that indicates that more liberal coalitions are not necessarily more prone to tighter fiscal policy.
The remaining area to look at is debt that has fallen over 15 years. This was not to do with government surpluses, as there have been continuous budget deficits.
These indications suggest that relative to the other countries, PR has contributed to a looser fiscal policy in the Netherlands.
Netherlands
Germany:
Germany has a mixed system, with 323 seats distributed under the Party List system and 299 seats distributed under FPTP. Since the 1990s, Germany has been in coalition; this has been either under the Christian Democratic Union (CDU) and its sister party within Bavaria, the Christian Social Union of Bavaria (CSU), in coalition with the Free Democratic Party (FDP) or the Social Democratic Party (SDP) in coalition with Alliance ’90 and the Greens. The Federal Election of 2005 returned a balanced parliament between the left and right; this led to a grand coalition between the CDU/CSU and SDP with eight out of the sixteen cabinet posts going to each party.
The German case is also a cause of concern for the supporters of FPTP. Government spending to GDP is higher (above 45%), and this has led to a trend of budget deficits. Even with unification between East and West costing a large amount of money, government spending has stayed high in proportion to GDP. Overall taxation itself is below 40%, suggesting that the centre-left coalitions did not mind keeping taxes low, but has kept spending rather high. This has led to German debt to GDP being high relatively to the others in this discussion and it has been increasing since 2001.
Economic growth has fluctuated but has remained steady, suggesting that coalition government has not necessarily meant economic instability in Germany.
Germany
Ireland:
Ireland uses the Single Transferable Vote in multi-member constituencies that elects 166 members. This is done on a preference system and has led to constant coalition from 1989, with no single party having an overall majority. Finna Fail and the Progressive Democrats have been coalition partners for a number of parliaments. In 1994, one of the coalitions collapsed after a corruption scandal and this led to a formation of a Rainbow coalition that was formed across the political spectrum (by the centre-right Fine Gael, the centre-left Labour and the socialist Democratic Left). In 2008, a majority coalition of Fianna Fail and the Progressive Democrats was succeeded by a Fianna Fail-Green party coalition. This coalition collapsed in disagreements over the Irish bailout in 2010.
Tax rates and government spending to GDP have been kept relatively low to the others in this discussion. Spending has been below 40% since 1995 and hit record lows by 2000, even when a minority coalition supported by smaller parties. Debt has come down significantly in proportion to GDP with high growth rates and these measures give a good indication that coalition government, even when Rainbow coalition have had a tight fiscal policy. Coalitions have produced high growth per annum and CPI has remained under control, indicating economic stability. (Of course, Ireland’s government also implemented some catastrophically bad economic policies during this period and in the subsequent financial crisis, but its fiscal policies were relatively restrained.)
Ireland
Greece:
The Greek electoral system has forty-eight multi-member constituencies and eight single member constituencies, with a Parliament of 300 seats. Out of these seats, forty parliamentary seats are reserved under FPTP, and the other 260 seats are distributed under the party list system. In order for any party to have MPs elected to Parliament, a party must receive at least 3% of the proportion of the vote. This system was created to encourage a single party majority and is known as ‘reinforced proportionality’. Since 1990 there have been six elections, and only one has produced a minority government. The average majority of the government is 4.34% and in comparison to the UK, the Greek electoral system has not given such comfortable majorities.
The ratio of government spending to GDP stayed above 40% and tax revenues have remained low throughout the study period. In fact, the tax revenues are the lowest compared to the countries in discussion. However, this is not a convincing case that majority governments are lower taxing; Greece has problems with tax avoidance and this could be a reason for low tax revenues (http://www.ft.com/cms/s/0/b5c198d0-4a9d-11e0-82ab-00144feab49a.html#axzz1HY0tFhhm). With lower tax revenues to spending, there have been budget deficits pushing government debt to very high levels.
Inflation fell from highs when a minority government was formed in 1990, suggesting that a minority government could not keep inflation under control. Since then, whilst majority governments were in power, inflation dropped significantly and stabilized since 1996.
The financial crisis, which led to Greece becoming the first Eurozone member to experience a sovereign debt crisis thanks to ballooning government debt, has exposed the fatal weakness in the Greek system. The relatively low-tax, high-spend policies that Greece enjoyed during the boom years of the period studied here led to a debt timebomb that has exploded in a spectacular fashion. This may be evidence of coalition governments’ inability to take hard decisions to avoid later catastrophe.
Greece
UK:
The UK since 1945 has produced majority governments with different sizes; 1974 was the last minority government. Since then, the Conservatives have had vote majorities of 6.7% (1979), 22.3% (1983), 15.7% (1987) and 3.2% (1992); Labour have had majorities of 27.2% (1997), 25.3% (2001) and 12.4% (2005). In 2010, the Conservatives fell short of an overall majority by 21 seats; this was unusual, as FPTP has produced single party governments that have had comfortable majorities.
Single party government has kept taxation and spending to GDP relatively low to the other countries. However, budget deficits have been common and have been funded by increases in government debt and suggest that majority government does not necessarily mean tighter fiscal policy.
Growth has been stable steady and inflation has been stable since 1993. Long-term interest rates have been on a downward trend, since the early 1990s recession and these variables indicate that majority government has given economic stability.
UK
Different systems of PR and the coalitions produced:
Opponents of PR believe that it is more likely that a coalition government will be formed, as no single party will have an overall majority within the legislature due to no single party obtaining more than 45% of the vote. (I have used 45% as a rough figure rather than 51%, as the variants of PR do not necessarily mean that a party needs 51% to obtain a majority as in Greece.) Within the five countries that I have examined, this seems to be the case.
These western parliamentary democracies have a variant of a PR system. Greece, with a ‘reinforced proportionality’ mantra, has produced majority governments. However, these majorities have been slim and not as strong as those under the FPTP system in the UK and New Zealand (when using FPTP). Germany, the Netherlands, New Zealand (since 1996) and Ireland have all had coalitions.
The facts are clear that PR systems are more likely to produce coalition government and the opponents of PR are right to suggest this. However, it does not necessarily mean that single majority party governments are more prudent with their fiscal policy.
Legislature sizes, variants of PR and the distribution of seats:
An interesting observation to make is the link between, the variant of PR system, the distribution of seats within parliaments and the size of the legislature.
It seems that a coalition in a smaller legislature has tighter fiscal policy. Ireland, with a lower house containing 165 voting members, has had coalitions with tight majorities and in some cases been in a minority situation. This has also been the case with NZ; with only 120 representatives, spending has reduced since FPTP, and taxation has fluctuated little.
In contrast to Germany with a legislature of 622, there seems to be a looser fiscal policy. One of these reasons could be that there are more people needed to keep on side and therefore spending has to be higher to satisfy them; they also may have demanded lower taxes. Having taxes lower than spending has caused a number of budget deficits raising the government’s debt. This can be seen with Greece; it is double the size of the Irish Parliament, and has had a majority in five out of six elections. However it has continued with a looser fiscal policy.
The outlier is the Netherlands with a parliament of 150 members. Government spending and taxation is relatively high in comparison to the other countries. However the Dutch have a much more fragmented parliament and coalition governments are made up with more than two parties. This is because of the variant of PR; the Dutch electoral system produces a myriad of parties in Parliament with a share of seats that is more evenly distributed across them. The Dutch electorate vote for a wider range of parties that leads to a more even distribution of seats across parties. However, in comparison to the other countries, the percentage of vote won is roughly the same as seats won. This suggests that the variant of PR could change voting intentions and for the Netherlands, coalition bargaining could have caused higher spending and taxation.
The German, NZ and Greek parliaments have an election system that is hybrid. Two (and sometimes three) parties receive a large share of the seats and the other parties receive a less even distribution of seats in comparison to the Dutch parliament. This showing the variant of PR is an important factor in this discussion.
The areas of variant of PR, size of the legislature and distribution of seats across the parties could be factors in determining fiscal policy.
What this could mean for the UK in Coalition and her fiscal policy:
The introduction stated that this is far from being an exact science and this section is truly speculative. The first problem is that people may vote tactically to keep a party out of a seat or protest vote in reaction to dissatisfaction of the main parties. If under a more proportional system, the electorate’s voting intentions may have changed and this is difficult when looking at the percentage vote of past election results.
If the UK were under a very proportional system like the Netherlands, there might have been two large, one medium and a few small parties surrounding them from 1987-2005. This is very similar to the Irish lower house as there are large centre parties with other smaller parties around them. However the UK parliament is large like the German house that suggests that due to the large number of seats, fiscal policy could be a lot looser due to the influence of backbenchers.
Since 2005 there has been a change from voting for the mainstream parties. This may have been down to the unpopularity of Labour and the Conservatives, leading to more protesting voting. Parties such as UKIP, Green and the BNP would have entered parliament as they received enough votes. This would have had little effect on governments, as the size of their vote was very small. From the analysis of the other countries, this would suggest that under a system of Dutch PR, the UK would have had fiscal policy following the German model due to the size of the legislature.
If the UK used a PR model closer to Germany and New Zealand, the UK would probably have had governments that had slimmer majorities. This would imply a Greek model of governance, as the Greek legislature is larger than the others apart from Germany. This suggests that government spending to GDP increasing and a looser fiscal policy. The 1992-1997 Parliament had a government majority of 20, and in this case, spending did reach a higher proportion to GDP. However the UK economy was recovering from the 1992 downturn and the government may have been stimulus spending at the time.
There is no definite conclusion possible from this evidence, but for the UK, a system of PR would seem more likely to produce results along the lines of Germany’s fiscal policy, with a large legislature dominated by big parties and with a larger parliament, which may have increased the UK’s governments spending overall.
Summary:
From the Western parliamentary democracies that use a system of PR, there is ambiguity as to whether fiscal policy is less under control in coalition in comparison to single majority party government. The move from FPTP to MMP in New Zealand reduced government spending and debt to GDP indicates tighter fiscal policy.
This think piece has identified a number of potential reasons that may have caused coalitions to have tighter or looser fiscal policy. It seems that the variant of PR being used, the size of the legislature and the distribution of seats to parties affects fiscal policy. This is seen in the Netherlands, where the system of PR is very proportional and may encourage the electorate to vote for other parties. This leads to a more equal distribution of votes across parties. Coalitions are formed from three parties and where there is spending taxation are high to GDP, it would suggest that the bargaining process has led to looser fiscal policy. Ireland, with a small parliament, two or three large parties and a number of small parties, has seen relatively prudent fiscal policies whilst in coalition (prior to the financial crisis). Germany, with a hybrid system and a big parliament, produces two big parties and three smaller parties. It seems to have produced higher government spending and the factors of variant of PR, the size of legislature and distribution of seats could be influencing what control a coalition have over fiscal policy.
Coalition governments are normal to countries that have PR systems. They do not necessarily mean looser fiscal policy and it has not shown that they cause economic instability to markets.
The case for NGDP targeting – lessons from the Great Recession
In making his case, Sumner argues that:
(1) Inflation targeting is flawed because it depends on inflation indices like the Consumer Prices Index. However, such indices are easily swayed by factors such as exchange rates and sales taxes – which may not require a monetary response. Moreover, inflation indices frequently misprice (or overlook altogether) housing. These issues, inter alia, make inflation indices unreliable as a primary target for monetary policy.
(2) NGDP targeting works because it addresses the dual concerns of macroeconomic policy – inflation and growth – with a single policy target. This prevents the policy incoherence and confusion associated with dual mandates. While it is technically true that the Bank of England’s Monetary Policy Committee has a single mandate (inflation) it is clear to most observers that they are also conducting monetary policy with a strong view to supporting the wider economy. An explicit NGDP target would be more transparent and increase the accountability of the central bank.
(3) Inflation targeting requires central banks to focus on consumer prices. This makes inflation targeting regimes prone to allowing asset bubbles to form when the economy is booming. These eventually destabilize the economy. Sumner does not suggest that NGDP targeting would completely eliminate this problem, but he does argue that it would impose more monetary restraint while the economy was growing strongly, thus discouraging widespread, credit-induced malinvestment.
The flipside of this is that NGDP targeting automatically leads to looser, or more expansionary, monetary policy during economic slumps than inflation targeting would allow. This, Sumner argues, prevents real shocks in one sector of the economy depressing other, otherwise stable sectors. In other words, NGDP targeting is a more effective economic stabilizer than inflation targeting.
Sumner illustrates this by pointing to the fact that countries such as Sweden, which employed an aggressive policy of monetary stimulus – as would have been indicated by NGDP targeting – suffered less severe recessions and stronger returns to growth than their peers.
(4) The Great Recession of 2007-09 was a smaller version of the Great Contraction of 1929-33. While many observers have assumed a simple financial crisis –> recession transmission mechanism, the actual pattern was far more complex, with lots of reverse causality. NGDP fell sharply before the worst of the financial crisis in late 2008. And because NGDP is effectively the total funds people and businesses have available to repay nominal debts, this led to widespread financial distress. Plummeting NGDP expectations then caused asset prices to fall sharply, adversely affecting the balance sheets of the major banks.
In other words, a localized crisis (sub-prime) was followed by a fall in NGDP, which led to financial distress, which in turn sent NGDP expectations even lower. That crashed asset prices, dramatically worsening the financial crisis, which then led to a deep recession. It was a vicious circle.
On the basis of this interpretation, Sumner argues that NGDP targeting would have (a) prevented such a large bubble building up before the sub-prime crisis, (b) prevented the bursting of the bubble from triggering a sharp fall in NGDP, and (c) prevented the financial crisis from worsening so dramatically in late 2008. To put it simply, while NGDP targeting would not have completely prevented the financial crisis or the recession, it would have made them far less severe.
So how exactly does Sumner propose that monetary policy be conducted in future?
• Firstly, he suggests that an NGDP growth target be set for the Bank of England. He does not propose a specific target, but indicates something in the region of 5 percent annual growth.
• Secondly, he suggests the Bank employ level targeting, which means targeting a fixed growth rate trajectory, and making up for any near-term shortfalls or overshoots.
• Thirdly, he suggests that the Bank target the forecast, including market expectations. Monetary policy should be forward-looking, not backward-looking as is the currently the case.
• Fourthly, following on from the previous point, he suggests that the Bank of England set up an NGDP futures market and subsidize trading of NGDP futures contracts. This would give monetary policy a compass: if NGDP futures prices rose, the Bank could tighten policy; if prices fell, they could loosen policy.
• In the long run, he argues that this market could eliminate the need for policy discretion. The Bank should promise to buy and sell unlimited amounts of NGDP futures at the target price, thus making their policy goal equal to the equilibrium market price.
• Essentially, this would mean the NGDP futures market forecasting the setting of the monetary base that was most consistent with on-target NGDP growth. The monetary base would respond endogenously to changes in money demand, keeping NGDP growth expectations on target.
Scott Sumner’s proposals do not necessarily represent the corporate view of the Adam Smith Institute. Nevertheless, the Institute believes very strongly that a serious debate about our monetary arrangements is long overdue, and is delighted to publish this report as a contribution to the public debate.
To have or to be? A reflection on the anti-cuts march
After his introduction, met with boos and cheers in equal measure, he began to speak – and while his speech was easily the best on offer, trade union gatherings are not exactly known for brilliant, soaring oratory. Mr. Miliband tried to break that mold. He proclaimed that the day’s protesters came “in the tradition of… the suffragettes who fought for votes for women – and won; the civil rights movement in America that fought against racism – and won; the anti-apartheid movement that fought the horror of that system – and won. The cause may be different but… we are standing on the shoulders of those who have marched and struggled for great causes in the past.” The purpose of the day, he declared, was to “preserve, protect and defend the things we value” – those “things” being, specifically: “libraries, the Citizens Advice Bureau, the community centre,” children’s centres, and public sector jobs, “the fabric of our communities.”
Like Icarus, he soared. “This is the big society,” he cried, dropping a line his speechwriter probably thought was pretty clever a couple of days ago – but it fell flat, considering that every speaker for the previous hour had said exactly the same thing, several times, in all their speeches, too. In his concluding remarks, he went for the gusto and quoted Martin Luther King, the rhetorical equivalent of playing the Sarabande from Bach’s fifth cello suite: on paper it looks straightforward enough, but if you’re a complete amateur it will be instantly apparent to anyone within earshot. Which it was. He misquoted King – the line that he attributed to him was actually King paraphrasing someone else – though to his credit, if a rug counted as a primary source document, he would have been spot-on. But never mind that. He was trying to make people feel like they were part of something special and momentous, and get some votes in the process. I’m sure he picked up a few.
Miliband’s speech contained details that we are likely to hear again in the coming months as the budget cut proposals turn to implementation. As themes, however, they are ridiculous. Libraries, children’s centres, and public servants do not form the backbone of British cultural life; nor should they, when the internet freely makes available reams of information to all and the public sector devours half of the gross national product (and since when did free childcare and healthy diet consultations for three-year-olds become a key element of the liberal state?). These things are luxuries, not defining aspects or key commitments, and when we consider that fact, Mr Miliband’s words and the cheers of his audience betray the movement’s purpose and its true motives.
It is not principles or ideas, but ‘things‘ – in Miliband’s own words – that this movement is defending. Material gain, or at least the provision of services (which is really the possession of labour and a right of access to certain common property) is its aim, and freedom – the central pillar of other epic movements from which, with unbridled arrogance, this weekend’s protest falsely claimed its heritage – was nowhere to be seen. Liberty does not enter their calculus. The emphasis, all day, was not upon who they are and what they want to become, but what they possess, what they do not want to lose and what they want to acquire; to have, not to be. Unlike the philosophers whose theories their politics both derive from and pedestrianise, this movement’s members are materialistic (though not materialist) and they have chosen, like so many before them, to try to commandeer the institutions of the state to seize power for the material gain of their class. They might succeed.
If they do, the continuation of class-warfare politics will not help us escape our predicament: if we have any hope of advancing our thinking on the welfare state beyond, as John Gray put it, “a vulgar and unreflective meliorism about the human prospect… combined with a crudely economistic conception of what social improvement consists in”, a new libertarian approach, based around free action, is required. Further expansion of the welfare state has been tried before, and each time it has failed in its objectives; moving back towards a total state will fail again, just as welfare state Britain fails us now.Remember, it slides deeper into debt each day, and continued ignorance of this fact has the potential to place the entire British project in jeopardy. “It is not from this thin gruel we can hope for sustenance”; to make progress we must transcend the polemic of class conflict and replace it with an emphasis on individual freedom and private, voluntary action.
Allow me to explain what I mean. A few hundred years ago, life was hellish by modern standards – no freedom, no middle class, no rights, no books written by Hunter S. Thompson. Illnesses we consider easily treatable killed millions. Progress was agonisingly slow: the development of new technologies was stagnant and large construction projects, such as cathedrals, took centuries to complete.
But we no longer shiver round dying hearths nor read by candlelight. We now stand tall and walk proudly down city streets, bathed in neon all the while, beneath gleaming skyscrapers that tower over us, quietly watching our civilization pass below them. We enjoy civil liberties and freedom to speak our minds, we have begun to cast aside petty prejudices and superstitions in favour of merit, reason and the scientific method; we tamed our countryside with steel and diesel and we communicate with each other at the speed of light. Distances that once took many months to traverse at great personal risk we now cross in mere hours and safely, too. Hunger in the West has been virtually eliminated. Humanity has been liberated, not by the state but by capital, and by innovations of men who acted intending “only [their] own gain, and in this, led by an invisible hand to promote an end that was not part of [their] intention” (you-know-who, 1776).
These are some of the things capital does, given free markets and 300 years.
The production of every commodity – toasters, televisions, telephones, clothing, books, medical equipment, rubber ducks – we use, every scrap of food we eat, every train, every building, every airplane, every automobile, every paved road, every skyscraper, aircraft and web-page, our entire modern world – is a monument to the unstoppable, pervasive and transformational power of free enterprise. It is this vitality, not the tired and discredited model of a bloated centralised state, which will save us from our current predicament. It is our task, at this most critical of junctures, to ensure the state follows the right path. That path is towards minimalism.
Whither the welfare state, then? John Gray put it best when he wrote that “any decent society will do what it can to alleviate the unavoidable misfortunes of human life, to enable and empower its members in coping with them and to ensure that those that cannot be avoided can nevertheless be borne with dignity and consolation”, but we should not endanger everything our forefathers have built for the sake of free childcare, or an unnecessarily large civil service. Ed Miliband told the crowds in Hyde Park: “there is an alternative.” I agree: we’ve tried the welfare state for seventy years, it isn’t working, and it never has. There is an alternative. Let’s try it.
What will the Bribery Act mean for business?
The problem is the scope of the Act and its significant implications for businesses with a UK connection. One of the offences created is “failure to prevent bribery”. This may be committed by a company which “carries on a business or part of a business” (a term which is not defined in the Act) in the UK. The Act also applies to any person or company that commits a bribery offence outside the UK as long as they are a British citizen or resident, or a body incorporated under the law of any part of the UK. The offence may apply to bribery conducted anywhere in the world by a person with no connection to the UK as long as they are “associated with the company”. A person is “associated with a company” if they perform services on behalf of or for the company – this has the potential catching a company’s agents, employees, subsidiaries, intermediaries, joint venture partners and suppliers.
The most contentious part of the Act is section 7 of the offence, “Failure of Commercial Organisations to Prevent Bribery”. It is a strict liability offence and the main defence for the commercial organisation is an ability to show that it had “adequate procedures” in place to prevent persons associated with the organisation from committing bribery.
The issues with the Act are, first, it criminalises a company or person for an action by a foreign associate done without their knowledge. Secondly, in order to have a “defence” to the Act, many companies will establish an internal anti-corruption department in order to safeguard themselves from prosecution, this will be costly and may have no effect on corruption.
Thirdly, even if UK businesses may be willing to play the game, why would foreign businesses with only minor business dealings with the UK overhaul their entire company at great expense to ensure compliance with the Act, when they could trade with other major economies to our loss. Overseas companies considering a listing on the London Stock Exchange will have to bear in mind the downside risk of exposure to this vague legislation which would come with a London listing.
There has been considerable delay in bringing this legislation into effect. The Act received Royal Assent in April 2010 and was originally to come into force in October 2010, but was delayed until April 2011. It has now been delayed a second time, due partly to the complexity of the Act, which requires considerable guidance notes for companies, and partly to the reluctance of politicians, who realise that despite the good intentions of the Act, it may go a few steps too far and be damaging to British businesses operating abroad as well as eroding the UK’s business competitiveness. The Bribery Act is widely considered to be more far reaching than the US Foreign Corrupt Practices Act 1977 in its extra-territorial application, and it is being reviewed as part of the Government’s Growth Review (the Government initiative to reduce the regulatory burden on businesses in Britain).
A spokesman for the Prime Minister described the Growth Review position on the Bribery Act in the following terms, “The Growth Review is ensuring that every Government department is doing everything it can to identify the obstacles for investment and help the country’s economy to grow.” But, when asked if the Prime Minister was sympathetic to criticisms of the Act, the spokesman stated that “The Government is clear that corruption should not be considered an acceptable way to win business and the UK stands alongside the Organisation for Economic Co-operation and Development countries, all of whom have criminalised foreign bribery.” It would seem that there is considerable political and international pressure to implement the Act, which was originally the response to criticism by the Organisation for Economic Cooperation and Development.
Like international banking regulation, unless implemented by all major economies in tandem this kind of legislation will be a hugely anti-competitive step for the UK. In a globalised economy excessive or more strident regulation, out of step with other major economies, makes your country uncompetitive by driving up costs for businesses and driving off foreign businesses who would otherwise invest in your economy.
How Ireland can leave the euro
Congratulations on your new appointment. As you read the civil service briefings on the present crisis, you will come to appreciate that Ireland’s problems would be much easier to manage if your administration could choose the country’s own exchange rate and interest rate. However, your officials and your colleagues may believe that there is no practical way to leave the present European monetary union and so achieve this flexibility.
In fact, there is. Leaving the euro is politically tricky and economically costly in the short-term. But it is far from impossible. The long-term advantages clearly outweigh the short-term costs, and the politics can be managed. The following outlines how it can be done:
1. Announce on a Sunday morning that Ireland is “temporarily suspending” its euro area membership.
It is obviously vital that this announcement come as a surprise to markets. So you cannot discuss it with many people in advance. The Taoiseach and the Governor of the Banc Ceannais na hÉireann must obviously be informed and agree. However, even discussing the idea in a wider circle is likely to lead to leaks; in turn, this will cause a run on Irish banks and a complete collapse of deposits, destroying what is left of the economy.
2. As of L Day (Leaving Day), all Irish assets and liabilities are denominated in the ‘Irish euro’, initially at the exchange rate 1:1.
This means that there is limited disruption of cash. People will continue to use euro coins with the Irish national side and euro banknotes with the letter ‘T’ (for Ireland) in the serial number. You thus avoid having to change ATMs or any other machines that take cash. For the initial period of a fixed exchange rate (see below), Gresham’s Law will operate and ‘non-Irish euros’ will disappear from circulation in Ireland. You may later wish to take a leaf from the successor states of the Austro-Hungarian Empire and stamp ‘Irish euros’ to highlight their national character further.
3. Announce that there will be temporary exchange controls pending a resolution of outstanding issues such as Irish euro-denominated debt.
On this, you have a choice. You can announce that Ireland will honour its euro-denominated debt until roll-over. This puts the exchange-rate risk on you. Since a main reason for Ireland to leave the euro area would be to devalue, this move would increase your debt, but would facilitate any negotiations with your euro area partners. However, it is an expensive route.
You may therefore prefer to announce that as of L Day (Leaving Day) all external Irish euro-denominated debts are also denominated in the ‘Irish euro’. That puts the exchange rate risk on your creditors. It is cheaper, though it leaves you open to substantial lawsuits.
The exchange rate will of course not remain fixed for long. Nor would you want it to. But until the transition period is over, you may have to rely on the black market (which you will, of course, criticise) to provide you with accurate information about the appropriate Irish/euro are exchange rate.
4. You should in any case now go for a default – which of course you will describe as “a renegotiation of public debt”. Since you will in any case devalue (which is a form of default) you might as well get everything out of the way at the same time. Offer creditors a (say) 50% haircut on any debt that is maturing over the next few years; or a new bond maturing (say) 15 years down the line. With any luck, they will take the 50% and run.
You will no doubt be told that if you do this, Ireland will be shut out of capital markets for years, perhaps decades to come. Perhaps. But if you have a primary budget surplus you will not need to borrow much anyway. Moreover, history clearly shows that when the only threat your creditors hold over you is that, should you default, they won’t lend you any more money, then you should default at once. In any case, knowing international markets, they will realise that the combination of default, devaluation and a return to being able to set a monetary policy suitable for Irish needs, will actually give a boost to the economy. They will therefore be eager to lend.
5. One last thing. You will eventually want to move away from ‘Irish euros’ to a proper national currency (you can still keep notes and coins looking the same to ensure that cash machines will work). When you do, I suggest that you do not tie your currency to any other currency – the whole point of this exercise is to be able to conduct an independent monetary policy in the interests of Ireland.
Yours faithfully,
(signed)
cc, mutatis mutandis, to Ministers of Finance of Greece, Portugal, Spain and Italy – and Germany.
A smarter approach to the welfare state
The sacred formula ‘Free at point of delivery’ must be stood on its head to become the next big idea ‘Paid for at point of delivery’ – except for those whose income tax returns entitle them to get it for free. Whatever the cost, the amount you pay will depend upon last year’s income tax return.
“Smartcard” technology has recently made great strides. The French are experimenting with giving every individual a smartcard with their complete medical history on it. This, in the land of the grand projet, is surely a more practical approach than our own absurdlygrand projet of a centralized computer database that has already cost billions and is, apparently, still nascent. Such a smartcard could link to Inland Revenue records of last year’s income tax return and so access a new reading every year. This is not a measure of net worth* as it entails no further intrusion than has already been undertaken to tax one.
Your income tax status would determine your contribution: low incomes, the old and the young would be free; high incomes would have to pay in full and most people would have to pay in part**. Nor need there be broad bands of subsidy as the technology allows a precise calculation to be made for each individual. The government would determine, each budget, what the thresholds for non-payment and full payment would be as well as the intermediate percentages that would be payable. A by-product of this system would be to blur the lines, over time, between public and private provision. R. Sutherland sent this to George Osborne’s economic advisor, who is also a believer. Part of the value, he believes, is that by making transparent the value people get from public services, satisfaction would massively rise.
This same technology could also be used for education. Again with the pupil’s educational history and qualifications (initially blank but complete before one seeks employment) encoded on the card and with the same facility to link to the parents’ last year’s income tax return, they would be free to try to get their children into the schools of their choice with most people having to pay in part but again the low incomes are free and high ones pay in full. In theory, such a proposal would put ‘public schools’ on the same footing as ‘state schools’ but boarding is a separate expense for which only scholarship pupils from low income homes would be eligible. Even so, the sharp lines between private and public sector provision could become blurred. The aim is to achieve a practical means of increasing personal freedom, raising standards and using money more efficiently.
Competition for the best schools might require further screening. Failed schools would go to the wall and competition would raise standards overall so that in time nearly all neighbourhoods would have a decent school, perhaps entailing larger classes with better teachers. Good schools and good hospitals are created by leadership and example, qualities nourished by an open, competitive environment. Local authorities could retain the right to run schools and hospitals but not the right to be sole providers, though that may sometimes happen, faute de mieux.
I believe this scenario would be much cheaper to administer than vouchers that would require large-scale bureaucratic involvement rather than mere technology.
Advantages of this scheme
The state would have to run a fund to pay schools and hospitals what the smartcard determines individuals need not pay but the state would no longer run hospitals, doctors, nurses, teachers, schools or universities. The savings from dismantling the central and regional bureaucracies now in charge could be great enough to affect the entire income tax structure quite to the point where the threshold for paying income tax could be seriously raised. In a buoyant economy (when it returns) there is surely no better welfare than not taxing the least well off while confining handouts to the seriously disadvantaged. Under such a dispensation the workshy would have no system to ‘play’ and would have to think the unthinkable and do something.
Empowered people would be customers; either as patients or pupils, rather than supplicants in a queue for hospital treatment or serfs directed to where they must go to school. The individual would feel more self-respect and would have more responsibility and more choice. The state can concentrate on what it can do best – legislating and allocating and then leaving it to the market and modern technology to magic the money to where it is needed. Chronic disorders, medical or educational could be allowed for
The left would find it hard to rubbish as ‘uncaring’. It comes close to the spirit of the old Christian/Marxist adage “from each according to their ability, to each according to their need”- all this using only modern technology rather than state bureaucracy. The best professional talent and organisation will become more widely accessible and all will have fewer forms to fill and more time to do their jobs.
Many people have a fondness for steam engines but modern society, the modern economy and modern technology have made them redundant. Many retain a fondness for the old NHS but changes in society since its inauguration make it no less redundant than steam. The main obstacle to radical reform is redundant attitudes and perhaps the reluctance of people with power over our lives to let go of it.
They should be disobliged.
It’s freedom we need, not the nanny state
Some people might actually benefit from the nanny state, but the questions of who decides what is in people’s interests and whether individuals can be coerced will forever separate libertarians from paternalists, says Tom Papworth. Paternalism, or (as it is now called, in a strange shift of gender and status) “the nanny state”, has always had its defenders amongst the elite. After all, it is the elite who define what is good; what is virtuous. It is little surprise that they would seek to defend their mores, even to the point of crushing the individual freedoms of others.
Over time, this has taken many forms. Most Greek city-states confined women to the household and reserved the public space for males; for three centuries, any sign of deviating from religious orthodoxy in the Kingdom of Spain was investigated by the Inquisition; sodomy is illegal in around 70 countries.
These were not mere acts of cruelty; on the contrary, they are promoted for the supposed good of both society and those directly affected. The Greeks wanted to preserve women’s honour; the inquisition sought to save heretics from eternal damnation; those who ban homosexuality consider it to be a moral corruption and also harmful to the participants.
It was the realisation that great historic injustices were the result of powerful men imposing their values on others that engendered the great liberation movements. In Europe, the reformation and the enlightenment were deliberate attempts to destroy the stifling dominance of religious and secular conservatism. One might therefore assume that paternalists would not wish to see a return to theocracy. Yet it is to religious law that Alain de Botton turns in his article for the BBC online magazine when looking for an example of how a society might set out rules for how citizens might live their lives.
De Botton cites Judaism, the rules of which “extend their reach dramatically far beyond what a libertarian political ideology would judge to be appropriate” to include “how we should behave with our families, our colleagues, strangers and even animals.” Judaism isn’t alone in this respect: Christianity and Islam are both equally prescriptive. De Botton concentrates on the lighter side of religious diktat (notably how often the Mishnah says that one should have sex with one’s wife). But not all religious law is so benign: Deuteronomy 21, verses 18-21, tells us when to stone our children; Sharia prescribes stoning for adultery and conversion to another faith (“apostasy”).
What underlies these – and all – paternalistic beliefs is the idea that it is justified to use force to make individuals live by rules that are intended for their own good. Nobody questions whether rules should exist to protect individuals from one another, but the idea that rules should exist to protect us from ourselves is deeply controversial. And with good reason.
Talk loudly and carry a small stick
One means of avoiding the obvious objection to paternalism is obfuscation. Thus, moral conservatives often conflate comment with coercion, and suggest that libertarians are willing to allow any behaviour to pass without criticism. “The foibles of citizens should be placed beyond comment or criticism”, are the words that de Botton places in the libertarian’s mouth.
This is a deliberate misrepresentation. Freedom of speech is a cardinal libertarian virtue, and that includes the freedom to criticise the behaviour of others. At the heart of every liberation struggle is the right to criticise kings, bishops and oligarchs. What is remarkable about today’s protests in Tahrir Square or last month’s rising against Zine El Abidine Ben Ali is that, just weeks before, any dissent would have resulted in a visit from the secret police. Indeed, it is noteworthy that Mubarak defends his three decades of dictatorship with emergency legislation that is supposed to be in the interests of the Egyptian people. The Arab world has taken paternalism to the extreme, with countries run by individual father-figures who do not trust their people to rule their own lives.
A libertarian society would certainly be marked by vociferous debate; there would be no shortage of shock-jocks condemning behaviour of which they disapprove. But their reaction would be limited to words; they would not be able to use force to bring others into line.
This is the crucial difference between a libertarian society and a conservative one (using “conservative” to mean any society that seeks to impose rules of virtue upon its people – which has been done by socialists and communists just as much as by reactionaries and Conservatives). In this sense, the term “nanny state” is unhelpful: the common image of nanny may be interfering and bossy, but she is at least kind and loving; someone to whom one might run with a cut knee. A nanny who used force to discipline a child would face an Ofsted investigation and possible criminal prosecution, but the nanny state uses force regularly to impose its will.
This is why the actions of the nanny state elicit “howls of protest”. It is not that the specifics are so extreme. Using less petrol or eating more healthily may very well benefit the individual who is being coerced by paternalists – at least in the narrow sense that the air is less polluted and their arteries less full of fat. If we focus on the specific issues that the paternalist prioritises, it is easy to argue that the citizen (“the infantilised-citizen”, if the coercing authority is considered to be a father-figure or a nanny) is better off. But this is to ignore three things: what the infantilised citizen loses when they are no longer required to make decisions for themselves; what they lose when the sanctions for non-compliance are imposed; and the possibility that the well-meaning patriarch gets it wrong. Whether it is piles of corpses or merely constrained and limited lives, the costs of paternalism can be staggeringly high.
De Botton therefore misses the point when he says that “Libertarians often pity the inhabitants of religiously-dominated societies for the extent of the propaganda they have to endure.” It is not the propaganda of the Ayatollahs that bothers libertarians, any more than they are bothered by Songs of Praise or Thought for the Day, or by the Archbishop of Canterbury’s apparent hotline to the BBC newsroom. What bothers libertarians isVEVAK, and the fact that Iranians can be arrested for listening to the BBC World Service.
The people aren’t as stupid as you think
This confusion between criticism and coercion can be taken to the extreme. Unable to reconcile the freedom of individuals with their refusal to do what the social elite think is right, the paternalists have resorted to the expediency of “false consciousness”, the idea (first coined by Marx) that material and institutional processes in a capitalist society are misleading; that the poor, deluded masses simply do not understand what is good for them.
The libertarian is a humble person, who lives by the creed that no individual can know for sure what is best for anyone, and that we should therefore allow others to find their own path through life, and to make their own mistakes. The paternalist, by comparison, combines a deeply pessimistic view of humanity – deluded individuals unable to make informed choices – with a supreme arrogance about the ability of elites (including always the writers themselves) to judge how others should live.
One particular target of this is advertising, which is seen as both trivial and manipulative. On the one hand, it is alleged to distract us from discussions of higher issues and to create in us a materialistic nature; on the other, it tricks us into buying things we don’t need. Yet this belies the fact that the public space is larger than it has ever been; millions now avail themselves of technology to engage one another in debate, bypassing the traditional gatekeepers in politics and the media. As for our materialistic nature, we may be richer, and so have greater choice and opportunity to acquire, but that may very well help create a deeper, more vibrant society. It is only once individuals reach a certain level of material security that they can afford to devote their efforts to the longer-term concerns of ethics and politics.
What a piece of work is a man
Ultimately, it is the dim view that paternalism holds of humanity that is its downfall. It is not that those who wish to live in a free society “think we are above hearing well-placed, blunt and simply structured reminders about being good.” It is that we believe that we are able to act upon those reminders without having to be coerced into doing so. So contra de Botton, we do not ever “wish that someone could come along and save us from ourselves”, for to do so would be to surrender the very thing that makes us human: our ability to choose for ourselves and to fashion our own conception of life. Complete freedom is never “a prison all of its own.” It is the crucible of human existence.
Tom Papworth is the Director of Policy at Liberal Vision, which exists to promote individual liberty, a free economy and limited government among the political and media community and to the wider public, and a Fellow of the Adam Smith Institute.