Economic Theory

It’s time to imagine life beyond the state

One of the most dangerous myths that pervades the political debate today is the idea that “neo-liberalism”, as the left describe it, has a stranglehold over economic policy.

Certainly, if we compare the influence of government on our lives today with the early twentieth century, it is very clear that we live in a social democratic and not a free-market country. As AJP Taylor said in his Oxford History of England: “Until August 1914 a sensible, law-abiding Englishman could pass through life and hardly notice the existence of the state, beyond the post office and the policeman… He could travel abroad or leave his country for ever without a passport or any sort of official permission… The Englishman paid taxes on a modest scale: nearly £200m in 1913-14, or rather less than 8 per cent of the national income.” Bliss.

Since then, government spending has grown from around 10 per cent to nearly 50 per cent of national income, two-thirds of which is on health and welfare. The regulatory state has also increased in size. Approximately 13 per cent of all UK jobs now require some form of licensing, registration or certification from government – a proportion that has doubled in the last decade or so.

Since 1986, when the state took over responsibility for regulating financial markets, the volume of financial regulation has increased enormously. As Bank of England chief economist Andrew Haldane has pointed out, in 1980 there was one regulator for every 11,000 people employed in finance but, by 2011, there was one regulator for every 300 workers in the financial sector. If the trend continues, there will be more regulators than people actually working in finance in 60 years’ time. Anybody who believes that the 2008 crash was caused by “light-touch regulation” has not been studying the realities.

When the government brings in its new so-called “living wage”, it will determine directly the pay of 20 per cent of the workforce – so much for the abolition of incomes policies. In Scotland, the growth of the regulatory state is reaching disturbing proportions: from next year, every Scottish child will have a state guardian.

It might be thought that we need the state to fund all the things a civilised society demands – health care, income provision in hard times, education and so on. However, such things do not have to be provided by government. They were once provided by civil society institutions and commercial organisations, with the state playing an enabling role or filling in the gaps. And other countries have not gone down the route we have of completely sidelining the private sector and vesting more and more powers in the state.

By international standards our outcomes are poor. Nearly 20 per cent of those who leave UK state schools may be functionally illiterate – even though the UK has the highest secondary school completion rate in the world. Our National Health Service ranks twentieth out of 24 OECD countries in terms of five-year mortality rates for patients with breast, cervical and colorectal cancer. Other EU countries, such as Germany, with significant private funding and over 50 per cent of beds in the private sector, produce much better outcomes.

Of course, many people argue that, without the huge role that the state now has, we would go without health, education and welfare and, it is suggested, people did so before the state expanded its role in these areas. They should look more closely at the reality.

While the range and quality of those things the private sector provides has improved beyond all recognition, the quality of those things provided by the state has not done so. While the state has a legitimate role, it should not be spending nearly half of national income, tying us up in red tape and being the dominant provider of vital services.

The IEA’s Paragon Initiative will research and propose alternatives. It will suggest ways in which large parts of government activity can be returned to civil society, families and the private sector – leaving the state with a residual role in ensuring that all can afford key services. There will also be proposals to end the dominance of Westminster. Those functions that remain with government should be pushed down and managed locally, with revenue raised locally too.

In summary, the project will be a five-year programme designed to re-imagine what life would be like if the government returned to its proper role of serving – rather than dominating – the people, civil society and the community.

Prof Philip Booth is the IEA’s Editorial and Programme Director and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. This article first appeared in City AM.

4 thoughts on “It’s time to imagine life beyond the state”

  1. Posted 29/10/2015 at 16:49 | Permalink

    One result of the huge expansion of the size and scope of government over the past hundred years is that many of us now regard the government as our enemy. It always seems to be bossing us around, telling us what to do, or what not to do, often by means of regulations that are virtually incomprehensible. If the government aimed to do a great deal less, there might be a sporting chance that it would achieve its reduced aims much less unsatisfactorily. It is also worth pointing out that allowing the government a virtual monopoly, for example in providing schooling, is an extremely risky procedure. If the civil servants in the Ministry of Education get something wrong — for example, how to teach children to read — there is a serious danger that
    for years nearly all children will be taught by an inappropriate method. In contrast, if competition is allowed, even encouraged, then we can all judge which method is better by looking at the outcomes. Philip makes the claim, which I have seen elsewhere, that about twenty per cent of pupils leaving state secondary schools are functionally illiterate. If that percentage is anywhere near right — after about twelve years spent compulsorily in a state school — it is a scandal of which any civilised society should be thoroughly ashamed. But I’m not aware of any public uproar on the matter. Have we all given up? Good luck with the Paragon Initiative. The potential for significant improvements, mostly by reducing the activities of government, is enormous!

  2. Posted 01/11/2015 at 17:41 | Permalink

    Socialism is the incorrect reaction to the inequities of the free market. Specifically the privatisation of land and other economic rents. Instead of addressing that directly and, all parties prefer to tax output a re-distribute it. This is not only costly, but distorts incentives. Absolute and relative poverty can both be substantially lowered by shifting taxes off output onto land and other economic rents, allied with a Citizens Income. If this were to happen, the elimination of deadweight losses, and the reduction in the State (HMRC and DWP could be largely scrapped for example), should easily see State spending %GDP reduced to under 25%. Furthermore, as discretionary incomes for median working households would be greatly increased, so does the scope for both health and education to be privatised and paid for by tokens. For a small State we first need a fair and optimally efficient economic system. Is this what Philip Booth wants or does he prefer to defend rent seeking privilege? Looks like the latter to me.

  3. Posted 02/11/2015 at 10:10 | Permalink

    While I definitely hope the Paragon Initiative succeeds in educating the public about how their lives might be better without the state controlling so many aspects of their lives, the reality is that for most people, the state is imply the devil they know and they cannot imagine life without it.

    One of our greatest strengths as human beings is our ability to adapt and sadly it is also one of our greatest weaknesses as well because people are willing to put up with a WHOLE LOT more state intervention in their lives, as long as the changes come in slowly enough and they have time to adapt to them.

    Also, the only way to truly know how private enterprise might actually provide these vital services more efficiently is if these private firms are free to find alternatives. Unfortunately, given the degree of control the state exercise over private enterprise though regulation/compliance/licensing, it’s hard to see how private company could ever be truly innovative in the fields of healthcare/education/pensions.

    Once again, I do hope the Paragon Initiative succeeds but given the leftish nature of the media and with kids being drilled down with socialist democratic values all the way through school and University, this is quite a big challenge.

  4. Posted 05/11/2015 at 12:43 | Permalink

    Here’s a pipe dream for you, if you like!

    Libertarianism should be taught in schools. It can make no headway against socialism otherwise. The problem is straightforward (and was discussed by Hayek in The Fatal Conceit). Human beings are naturally socialist. Our savannah background, where tribal socialism served us well, is evolutionarily hard-wired into our brains. No human needs to learn about socialism; it comes as naturally as breathing.

    But not everything that was helpful to us then is helpful to us now. (I can think of a few other human characteristics which are best controlled in a civilised society.) Libertarianism has to be learned. It needs reading and explanation. It is far from obvious, in fact it is the antithesis of obvious.

    The function of education is, among other things, to develop curiosity and intellectual rigour. It is the function of teachers to encourage students to be broad. Yet a form of government which is not socialist is for most people, the dark side of the moon. It is a total unknown.

    It is not good for democracy when even some students of political philosophy and economics have never heard of the great thinkers of classical liberalism or have been encouraged to treat them with disdain. Actually, you would think England before WW1, the the United States until FDR and finally John Cowperthwaite’s Hong Kong had been the failures and every awful socialist experiment elsewhere the successes!

    It is unsurprising that economists nearly all subscribe to socialism. You need a career, a job. Who employs you (except for this august institute) if, for example, you say you rather admire the Austrian School? The question answers itself.

    Classical liberalism should be taught in schools. You could teach socialism too if you like to show balance but there’s really no need. Everyone has a PhD in it already.

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