Government and Institutions

You want ‘the good that government can do’? You’ll get the bad as well

On Conservative Home, Paul Goodman defended Theresa May’s defence of the state as the entity that does good.

When the state tries to become a force for good by doing positive things rather than simply creating the conditions in which all can flourish, several points have to be borne in mind. If we ignore them, we are simply ignoring important aspects of human nature.

Firstly, however, a fundamental question needs to be asked. Why is it that the Government can do things that cannot be done by civil society or by the private sector (otherwise why have the Government do it at all)?

There is only one reason – the Government can coerce. When it comes to the provision of law and order, of course that power is necessary. All of the other reasons for the state doing things come back to coercion. What about economies of scale? They only exist because the Government can coerce or civil society would take advantage of such economies of scale. Of course, assuming that politicians were angels and had the knowledge to avoid the unforeseen consequences of their actions, the power to coerce could more rapidly achieve some good things that we all want to see. However, we cannot simply assume away important characteristics of human nature for several reasons:

  1. Politicians do not, in fact, have the requisite knowledge to avoid unforeseen consequences.

  2. Powers will not only be used by those of us who actually want good things.

  3. The fact that the power to coerce can be used by the state will create more hostile battles to control that power to coerce thus undermining the peaceful co-existence of society (Paul should not dissociate the disintegration of the 1970s with the rise in the power of the state that preceded it).

The arguments from post-war history that Paul used to make his point, in fact illustrate the opposite point to his very forcefully. He argues that, in the post-war period, there was a stable and prosperous society, families could get by on one wage and there were good cultural norms. He asks why aren’t there jobs around today similar to those available at that time. There is absolutely no doubt that changes in technology have played a role. Paul dismisses this and seems to imply (in a line of argument that is not totally seamless) that, if we had had more government intervention, we would have more jobs similar to those of the supposed golden era of the 1950s and 1960s. But, if that were the case, countries such as Spain, Italy and Portugal would be bastions of job security rather than places where youth unemployment is up to 40 per cent.

Apart from technology, we have to look elsewhere. Four places come to mind.

Firstly, there is the soaring cost of housing. From 1961-2009, real incomes for the poorest ten per cent of the population increased by just over 50 per cent. If it had not been for soaring housing costs, they would have more than doubled.

Secondly, we have a tax and benefits system that strongly discriminates against single-earner families and family formation. Back in the 1960s, a married man with a couple of children on around average earnings would probably have paid no taxes. Contrast that with the situation today. No doubt family formation would have declined due to cultural factors that have nothing to do with the state or the benefits system in any case. However, the state has, by acts of deliberate policy, reinforced that trend. No Conservative government has done anything to reverse such policies at any time since the 1950s.

Thirdly, we have demographics. In the 1960s and 1970s, we had a relatively young population, something that is changing. The resultant rising tax burdens are a consequence of state-designed pay-as-you-go social security and healthcare systems that focused on the short term and made no provision for the future.

Finally, government in the 1980s (supported by many people who want a small state, it should be said) tamed the power of many of the institutions of civil society (unions, organisations such as stock exchanges that regulated securities markets, professional associations, and so on). Those actions might have been good on balance given the way the powers of those bodies were often abused (though I have strong doubts in many particular cases), but the state here quite deliberately attacked the fabric of civil society.

Paul makes some reasonable points about some of the things that the state can do other than the provision of law and order (help the destitute and so on). He also makes some highly contestable points, backed up by Adam Smith, about the state having to have a role in the provision of infrastructure. This is simply wrong and I do not know why people keep quoting Adam Smith on this particular topic. Canals, roads and railways were financed and built by the private sector in the UK in the century or so after Adam Smith made his assertion. It was just a bad prediction, but that is no reason to keep making the same bad prediction 200 years after the event.

The above reasons for the decline of family and cultural life and the increasing difficulties families have getting by financially all have one common root. They all derive from the action of the state. The state may not be the only actor but it has been a major actor in creating the very difficulties Paul raises. And the question for practical policy is this. Given that we have a state which has an extraordinary hold on the planning system; that has produced a bankrupt social security system; has promoted a tax and benefits system that discriminates strongly against family formation; and which is already spending 45 per cent of national income, do we want more of it or less of it?

There is no point saying that we only want the good that government will do and not the bad. To reason as such simply ignores human nature as well as the nature of government – you get the good with the bad. Furthermore, I simply see no sign that this Government wants less of the bad things that government can do and more of the good things. Its proposals for firms with foreign workers are simply awful. It is ploughing ahead with HS2 whilst ignoring profitable infrastructure projects. And there is no talk of a fundamental review of tax and social security that would end the inter-generational injustice of current systems of the discrimination against family formation.

In this debate, it is worth making one final point. Paul rightly says it was rash of May to lump together the libertarian right with the extreme left. But why was that so? There is an important answer to this question. The left believe that there is no “knowledge problem”. That is, they believe that government can acquire the knowledge to centrally plan society and the economy successfully. Libertarians believe that this is simply impossible. The pragmatists (“Goodmanites” and “Mayites”) believe that somehow it is possible to work out when it is possible to regulate and control the spending priorities of society to promote the greater good – in other words they believe that they have the knowledge to work out when the knowledge problem is not a problem. And they have confidence that the “right” people will be in charge taking the decisions. But, the problem is that we don’t have the knowledge to make such judgements. Yes, the state can resolve clear injustices; it can ensure that the destitute do not remain destitute; and so on: but, it does not know its own limits.

So, I would settle for two things. Firstly, I would like less of the harm that government can do. That would be a great blessing. Secondly, I would like the Government to do well those things that only the Government can do. That promotes peace and harmony because there is broad agreement about such things.


This article was first published on Conservative Home.

Academic and Research Director, IEA

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

Leave a Reply

Your email address will not be published. Required fields are marked *