Decentralisation of government is desirable, but not sufficient for economic liberty

‘Decentralisation. Decentralisation. Decentralisation’. It doesn’t have the same ring to it as Tony Blair’s ‘Education’ mantra, but there’s a significant proportion of the ‘progressive community’ who want Ed Miliband to adopt it as a key theme. This morning in the Guardian newspaper, a wide strand of centre-left individuals in the think-tank world have outlined why they believe the Labour leader must offer a compelling vision for ‘a much more equal and sustainable society’. They present five principles which the Labour leader should adopt in the party manifesto, one of which is more devolved power.

According to Blighty in the Economist, this letter shows the inherent ideological tensions on the left between ‘Labour’s co-operative, decentralising tradition against its managerial, centralising one’. In practice the former group are interested in policies such as ‘devolving power and funding to city regions and their LEPs, breaking up the hegemonic Treasury, new measures of economic achievement and a broader shift from short-term, department-based budgets to long-term, place-based ones’.

Many in favour of free markets will be heartened to hear a left critique of the managerialist centralising state model, and would welcome the push for more decentralisation of government. Free-marketeers tend to be in favour of localising government and, importantly, the fiscal decentralisation to fund it, for many reasons, including:

– the inefficiency of central planning with varying regional circumstances

– the slow responsiveness of central government to changed situations (Exhibit A: flooding in Somerset)

– the competitive pressure between regions to be cost efficient and offer lower taxes

– the likelihood for more experimentation in a decentralised model (see the federal US, for example)

– better accountability in a decentralised model

In other words, they believe decentralisation gives rise to better government, smaller government and government that is more adapted to the people it serves.

But decentralisation of government is neither a necessary nor a sufficient condition for the economic freedom which free-marketeers ultimately desire – though if properly implemented can act as a check on the interventionist instincts of politicians. Though Switzerland and the US are more economically liberal than the UK and have more decentralised government, the UK itself became more economically liberal under Margaret Thatcher (who was very much a centraliser). And you could have much more power devolved to the local level, but it used in a way which reduces economic or personal freedom. In fact, in many ways what this group of progressive thinkers believe in is a more small ‘c’ conservative vision which is in favour of decentralisation but willing to sacrifice economic liberty to achieve it.

It’s worth examining some of the recommendations of the think-tank progressives to see this. Though they talk of ‘devolution of state institutions…giving away power and resources to our nations, regions, cities, localities and, where possible, directly to the people’, the very use of the term ‘giving away’ power suggests that ultimate authority resides in the centralised state. It’s unclear, for example, whether they are arguing for the fiscal decentralisation and local tax-raising powers needed to keep localities accountable.

They also highlight the need for ‘accountability of all powerful institutions, whether the state or market, to all stakeholders’, but fail to spell out to whom ‘powerful institutions’ are accountable. Corporations and businesses should be accountable to their shareholders and their customers, but one imagines that the use here of the term ‘stakeholders’ would be widely interpreted to facilitate local political actors becoming more involved in aspects of the economy. Indeed, one suspects that the progressives here see big businesses per se as a threat rather than some of the conditions which can lead to monopolistic practice. As such they would be much more uncomfortable about the size of supermarkets, for example, because of their size – whereas a free-marketeer might argue they operate in a highly competitive sector and serve the needs of their customers well. In other words, if millions of decentralised customers want to buy food from a large supermarket, the supporter of free markets is happy; it is not clear whether Labour’s decentralisers will be: perhaps they will use national political power to give local political actors the ability to ride roughshod over the millions of people who vote with their wallets and feet each day.

Finally, the progressive authors advocate the ‘co-production of public services by workers, users and citizens, to make them more responsive and efficient’ and ‘prevention of the causes of our social, environmental, physical and mental health problems, which requires a holistic and long-term approach to governance’ – sentences which scream of public services beholden to producer interests and the pitfalls of ‘long-term planning’, rather than market mechanisms which empower consumers and adapt quickly to changing circumstances.

So decentralising government institutions has its merits. But it’s only if combined with fiscal decentralisation and a commitment to economic liberty that it can really be empowering for public service users, taxpayers, and customers of businesses. Whilst a fully decentralised government framework can act to restrict the interventionist instincts of political actors, it’s unclear as yet whether the Labour advisors who wrote this letter are willing to support devolving tax raising power, or whether their vision is actually an attempt for local actors simply to try to further control the economy.

Head of Public Policy and Director, Paragon Initiative

Ryan Bourne is Head of Public Policy at the IEA and Director of The Paragon Initiative. Ryan was educated at Magdalene College, Cambridge where he achieved a double-first in Economics at undergraduate level and later an MPhil qualification. Prior to joining the IEA, Ryan worked for a year at the economic consultancy firm Frontier Economics on competition and public policy issues. After leaving Frontier in 2010, Ryan joined the Centre for Policy Studies think tank in Westminster, first as an Economics Researcher and subsequently as Head of Economic Research. There, he was responsible for writing, editing and commissioning economic reports across a broad range of areas, as well as organisation of economic-themed events and roundtables. Ryan appears regularly in the national media, including writing for The Times, the Daily Telegraph, ConservativeHome and Spectator Coffee House, and appearing on broadcast, including BBC News, Newsnight, Sky News, Jeff Randall Live, Reuters and LBC radio. He is currently a weekly columnist for CityAM.

2 thoughts on “Decentralisation of government is desirable, but not sufficient for economic liberty”

  1. Posted 24/03/2014 at 17:29 | Permalink

    Perhaps you will reegard this comment as off topic. What we need is not localised government but less government.

    There may be a fine argument to be had between supporters of central and those of local governement but both have the same agenda: more government.

    Only a brave freee marketeer would want to go anywhere near this debate which implicitly debates whether it is better to have big government or big local government

  2. Posted 25/03/2014 at 15:45 | Permalink

    One of the many problems with big centralised government is the riskiness of having a single ‘solution’ to various problems imposed from the centre. If the politicians and civil servants in the centre really did ‘know better’ (as Douglas Jay — a Labour Wykehamist — once asserted) that might not be such a bad idea. But the evidence of the past fifty years and more is that governments (a) often know worse and (b) are incompetent at putting their ideas into effect. So ‘trusting the people’ may actually turn out to be the low-risk option.

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