It is easy to be pessimistic about Britain’s future economic prospects. The Lib-Con coalition agreement contains policies which are troubling. Indeed, there is a danger the coalition will continue the country’s long-term trend away from economic liberalism.
Ten years ago, the UK was one of the five freest economies in the world. It has since been moving downwards gradually, mostly because of large increases in the size of the state. If the share of government spending in GDP increases by more than ten percentage points in a single decade, it is no exaggeration to call this a real economic transformation.
However, keeping in mind F.A. Hayek’s seminal paper The Intellectuals and Socialism, which made the case that a nation’s course is ultimately determined on the battlefield of ideas, there are still reasons left to be optimistic. Why?
The UK is not the first country in the world to experience state growth of this magnitude. In the 1970s, West Germany recorded almost exactly the same aggregate figures: government spending grew from just below 40% to just above 50% of GDP in a short time. But there was one major difference: the latter development followed exactly the pattern outlined in Hayek’s above-mentioned paper. First, new anti-liberal, anti-capitalist ideas gained ground among the intellectuals. Subsequently, they entered the mainstream discourse, and eventually, they became the mainstream. In the end, politicians merely executed what had already become the zeitgeist.
No such pattern is observable in Britain. According to the British Social Attitudes Survey (BSA), in the mid-1980s, 36% of all respondents saw it as the government’s role to provide guaranteed jobs. In 2006, approval of this position had fallen to 16%. In the same time span, approval for state support of industries fell from 52% to 27%; approval for high unemployment benefits fell from 42% to 10%; and support for activist redistribution fell from 45% to 25%. Not too bad for a start.
So, if public opinion has not shifted to statism, why has the state grown so large? Here is one possible explanation: there are some big areas in which the statist post-war consensus has never been shaken, above all, health and education. Over the last two decades or so, people’s preferences have shifted in favour of health-related and education-related goods. These are the areas where spending has grown most and where it has been most popular (according to the BSA). If health and education had been private industries, their share of GDP would have increased at the (relative) expense of other industries. But as long as they are state-provided, a desire for growth in the health and education sectors means growth of the state. Advocating small government without explicitly attacking the consensus that health and education must be state-provided will then be read as advocating a cap on the size of these sectors. This would lead to a sectoral composition of the economy which would not be in line with consumer preferences.
Unfortunately, in the present set-up, public funding of health and education cannot easily be topped up and complemented with private funding. If the above explanation is correct, then advocacy of spending cuts should always be combined with advocacy of policies that increase people’s opportunities to move beyond basic state provision. Education vouchers that can be privately topped up are one example. Permitting patients to mix-and-match the healthcare services of the NHS and those of private providers, perhaps funded by private supplementary insurance, is another one.