Core values by John Blundell in The Business

IT is the perceived view that socialism and its big sister communism expired in the 1990s. The success of western capitalism, the collapse of the USSR, the astonishing conversion of China to exuberant markets, followed by India, leaves only crazed North Korea and blighted Scotland holding the torch for an omni-competent state.

Yet there are subtle forces changing the nature of British business life. The United Kingdom may have abandoned the model of nationalisation. It has adopted a more pernicious policy – regulation. There will not be a reader of The Business who has not encountered regulators during the course of their week.

Prime Minister Tony Blair and his team have renounced the old ploy of direct ownership of “the commanding heights” of the economy, as Lenin called them. The government does no longer own British Gas, British Steel, British Rail, British Petroleum, British Telecom, British Airways or the water utilities and the electricity companies. It regulates them. In some cases it regulates them so tightly their status as private plcs seems an illusion.

If I were to attempt to nominate the most intrusive and meddlesome regulator I select the Financial Services Authority (FSA). Its prissy and sanctimonious activities are slowly smothering the British insurance and savings industry in great candyfloss mountains of nominally benign rules. Selling life insurance needs the panache of salesmanship. Better a family has a less than perfectly tailored policy than none at all.

One company I still regard as a model of virtue, Equitable Life, was brought down by the neurotic application of rules – to the great loss of its owners – its policyholders.

Stock market transactions, banking and other money services are controlled in a more detailed and heavy-handed manner than they have ever been.

The most important aspect of any market is its freedom of entry. Over-regulation constricts this. Can new entrants play the game? Access is a definition of a healthy market. This involves the lifeblood of capitalism – risk. With compliance officers poised to swoop at every innovation everyone becomes more risk averse.

And as always it is the poor who suffer both from the lack of access to existing products, as regulation increases their costs, and from lack of access to new, less expensive products as regulation stops them coming to market.

One in four British workers is employed by the state now. The rest of us are regulated by the state. We are also taxed by the state for half of our earnings. We are toiling for our superiors for longer than any medieval serf worked for his feudal master. There ought to be a popular revolt against taxes but many are unseen. Petrol is so expensive not because of the avarice of BP or Shell but because of the Chancellor of the Exchequer.

For those with the least skills to offer, the state even claims praise for marginalising them further by imposing a minimum wage. This masquerades as benevolence but its effects are adverse – if unseen again.

Regulation stultifies. It is more subtle than commands. It always purports to be in the “interests” of those regulated. It never is. Rather it is in the interests of the regulators. Each regulation creates its own bureaucrats to service and police it.

I am always disappointed at the supine nature of universities. They do not defy the government. They ought to be triumphant in their independence and autonomy and be ever more diverse. Instead, with the glorious exception of the University of Buckingham, they are busy complying with government whims about who they admit and how much bogus “research” is published. My alma mater, the London School of Economics, also shows signs of revolt.

Labour MPs get red faced discussing the outrage of private hospitals taking patients under contract from the NHS. This is deemed to be privatisation of their most holy and revered institution. They omit the fact that private clinicians then have to agree to comply with NHS working practices and “standards” – nullifying the advantages of trying alternatives.

I earn my living in the competitive world of think-tanks. I run a boutique of ideas. My market is a lively one but most of my rival think-tanks are funded by the state. At the Institute of Economic Affairs we have never sought a penny from coerced income – taxation. I do not denigrate the integrity of other outfits but as they live in the sunshine of government grants it is not unnatural they propose giving the state ever more powers and controls. Perhaps we need an Institute for the Study of Subsidies to examine the futility of most government “initiatives”.

Old-fashioned nationalisation had its limits. It also had theatrical value. Everyone could see British Rail and British Steel were rusting failures. Now it is far more elusive. An impressive innovator such as GNER can change very little but the menus on their silver north-bound bullets. The private railway companies are as state-directed as they were when nationalised.

Thames Water is portrayed as a parody of ineptitude with its leaking pipes and empty reservoirs but this now German-owned plc can scarcely move for regulation. It is technically private. It is de facto a plaything of politicians.

I have not even mentioned the Great Regulator In The Sky. The European Commission is the world’s leading exponent of rules, directives, statutory instruments, controls and meddlesome muddling. Just as petrol prices seem to be Lord Browne of BP’s fault, while they are truly Mr Gordon Brown’s fault, we find it difficult to discern the hand of Brussels. Perhaps it is too easy a target but the Common Agricultural Policy is merely organised crime within a bureaucratic format. It is as immune to reform as it is to honest accounting. Our shopping baskets would be perhaps half their current prices if Asda, Tesco and Sainsbury were liberated to buy from non-EU sources without tariffs – a vicious sub-species of regulation.

Am I just being an economic whinger? We are all better fed, clothed, housed and entertained than any previous generation. The vast sweep of humanity, past and present, can envy modern Brits yet our strange secular religion remains what I regard as fraudulent – the belief in a benevolent state. This vast empire of regulations is only inhabited by fallible human beings who have no special insights or virtues.

Every British business has a person deemed to be their “Compliance Officer” … bustling to respond to the drip of more rules and regulations. So it must be. Yet I have a pleasing thought. Could they not also appoint “Defiance Officers” to challenge the intrusions and devise law suits and innovations to get around our over mighty regulators ?

In one sense Her Majesty’s Opposition ought to be exponents of this idea but the Tories too seem to worship at the altar of Regulation.

John Blundell is Director General of the Institute of Economic Affairs

Latest IEA publications on regulation include
Better Regulation Without the State edited by Keith Boyfield and
Regulating Utilities and Promoting Competition edited by Colin Robinson

You may also wish to read or download for free
The Dangers of Bus Re-regulation by John Hibbs et al.