Society and Culture

On phony ‘voluntarism’ and soft compulsion

David Cameron has apparently rejected the proposal for a sugar tax, and is instead to use the threat of intervention to pressure food and drink companies into ‘voluntarily’ reformulating their products to reduce sugar content.

Is this a good thing? Manufacturers are still faced with costly changes to their business which are very unlikely to lead to a reduction in obesity, the ultimate goal.

Voluntary action is often claimed to be preferable to compulsion. Maybe, but the precedents aren’t good. Think of ‘voluntary’ pay restraint in the 1960s and 70s, and ‘voluntary’ export restraints in the 1980s. In the former example wages were distorted and strikes proliferated to no long-run benefit. In the latter case Japanese firms circumvented restrictions on car exports to the USA by setting up non-union plants in the Southern states and thus undermined the unionised car plants in the mid-West which had demanded protection in the first place.

Sometimes government passes the buck to the private sector because it doesn’t really believe in a proposal at all. More often it wants to be seen to be sensitive to the demands of pressure groups, but knows that it would be complicated to develop workable legislation. In some cases (as with food legislation and the minimum price for alcohol) government action might conflict with European law. Or take the recent business with Starbucks and Google paying less tax than public opinion is thought to demand. Rather than undertaking long-overdue reform of the tax system, the government cajoles companies into ‘voluntarily’ paying more tax than their legal obligations. It’s easier.

Setting targets for women on company boards is another example of ‘voluntary’ action, in this case in an attempt to stave off a possible European directive. The 25% target set by Lord Davies has been met, so onwards and upwards to 33% or more. But the overwhelming majority of new women board members have been in (sometimes pointless) non-executive roles: it’s difficult to see that much has been gained even if we accept the rationale for this objective.

At a lower level, vague and confused employment law is difficult to interpret. The government thus enjoins the use of the Advisory, Conciliation and Arbitration Service’s (ACAS) ‘codes of practice’, for instance in relation to requests for flexible working. No employer is legally obliged to accept these codes, but Employment Tribunals look less favourably on employers who remain aloof. So prudent firms don’t have much of a choice in reality.

It is of course worryingly easy to slip from voluntarism into compulsion when the public has been softened up. The Living Wage Campaign, which flatters the vanity of participating firms, ignores the logic of how labour markets inevitably operate and is poorly targeted to relieve poverty, has made great progress despite being ‘voluntary’ for employers. It has already achieved the halfway house of Mr Osborne’s National Living Wage. Under a Corbyn government it would reportedly achieve its goal of completely subsuming the National Minimum Wage, as all public procurement would require the full Living Wage and private sector firms would be barred from paying dividends if they weren’t compliant. Indeed Mr Corbyn has argued for a rate even higher than the Living Wage Campaign’s target – and without the Campaign’s proposed regional difference.

Voluntary measures can’t turn a bad policy into a good one. What they do is obscure the true extent of government meddling. We can measure the proportion of GDP going into state spending and the extent of government debt, and count the number of regulations passed over time. But the wider influence of government cannot easily be quantified. There just seems to be an awful lot more of it about.

Such twiddling can be dangerous. Mr Cameron’s compulsory gender pay audits will not require any specific action by businesses as a consequence, but the fear of unjustified scapegoating is likely to lead to panic action by firms ‘voluntarily’ trying to offset pay disparities by measures which may damage both profits and employment.

What I fundamentally dislike, I guess, is government throwing its weight around – virtue-signalling on the one hand and threatening businesses with unspecified action, like some thug seeking protection money in a gangster movie, on the other. If there is a real argument for action to offset some alleged market failure, let the case be stated, the argument weighed and carefully considered law enacted in public view. Otherwise spare us both the homilies and the menaces.

Prof Len Shackleton is a Visiting Fellow at the IEA, and professor of economics at the University of Buckingham. He is the author of the IEA monographs Should We Mind the Gap? Gender Pay Differentials and Public Policy and Employment Tribunals: Their Growth and the Case for Radical Reform

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

1 thought on “On phony ‘voluntarism’ and soft compulsion”

  1. Posted 25/02/2016 at 14:11 | Permalink

    Many years ago, Enoch Powell used to refer to what Len Shackleton is talking about as ‘the Rule of the Threat of Law. Among its adverse consequences, nobody can ask the courts to interpret not-yet law, yet producers and others may stand to suffer if they ignore the threat. In a free country people shouldn’t have to worry about ‘keeping on the right side’ of the government.

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