Tuesday, February 16, 2010

Time to end the Client State

Whatever happened to the word "enterprise"?

Once upon a time, the political discourse in the UK was all about it. Now it is scorned: deregulation is considered to be one of the major causes of the economic crisis that we now face. Yet how can free enterprise be considered to be triumphant when the number of people working in the private sector is at its lowest level in over a generation? It is as though the Thatcherite revolution had never happened. Britain is now dominated by not just state power, but state ownership.

I hold a few non executive directorships in businesses that I believe in. As a result I am on a register- a mailing list for people seeking to take on other non executive roles. I would say that more than half of the non executive roles that are advertised are in state or quasi-state bodies: NHS Trusts and the like. Nor are these the sinecures that you might imagine- the remuneration that one can expect from a state body is higher than the equivalent in the private sector. In the NHS alone there is a supervisory payroll of tens of thousands of people whose combined remuneration is at least a billion pounds.

Yet this supervisory regime fails to ask the most basic questions: "is this expenditure actually necessary?" The result has been an extraordinary expansion in the scope and costs, not just of NHS activity, but the entire public sector. We have workers who are paid more than their private sector colleagues and who also have more job security and generally better conditions. We have an army of directors and administrators who are exceptional well remunerated. We have suppliers who gold plate their contracts, safe in the knowledge that expenditure is not properly queried. In short there are now millions of Britons who have a huge vested interest in the perpetuation of a monstrously expensive and very wasteful public sector.

What then about the perceived failures of deregulation?

There is no doubt that bad regulation in the financial sector failed to control dangerously excessive risk taking. There is equally no doubt that the banks who took such excessive risks bankrupted themselves. In a genuinely capitalist system, they would have ceased trading. The problem was that if they had ceased trading, then the impact would have meant economic collapse becoming a real possibility. Now, as the newly state owned banks begin to work themselves out of their debts, we discover that the staff are not accountable to the shareholders- that they continue to reward themselves with large payments for failure. Yet, in my view, this is not a regulatory issue. The private shareholders should have investigated their asset more carefully- and there remains every regulatory power for them to do so. The state shareholders should have said no to excessive demands until the bank is private once more- and to have skewed remuneration to that end. The fact is that the banks have continued to prop up the housing market, even though the tsunami of debt is already visible on the horizon- a tsunami that will wash away both mortgage banks and house prices.

Again this is not a regulatory issue: it is at least partly the fact that the banks have no moral hazard now they know that the state will back them no matter what.

The state believes that it knows best. It has supervised and intruded on an ever larger part of society and the economy. It has backed banks when it should be pulling them apart into smaller and more manageable sizes- which is what the market would have done without state involvement. The state has concentrated risk still further, and the danger is growing of a second bank meltdown.

All the resources of the British government are not enough to stave off a further credit crunch and a further fall in the value of the Pound. The increase in inflation shows you that the economy is losing efficiency and competitiveness every month.

The only way to even begin to fix this is to alter the fundamental structure of the British economy. To disband the power of the state dramatically across the board. The alternative is the breakdown of the economy.

The question is whether those millions who have become wealthy clients of the public sector understand the fact that the party is over, or whether they will continue to treat the the country as a bottomless pit.

But it is not just corporations that go bankrupt: it can happen to countries too: Mexico, Argentina, Poland are just a few examples.

When an enterprise goes broke, it hurts the employees and the shareholders. When a state goes under, it hurts everyone.


Newmania said...

I was able to get a few words at /to Norman Baker last Friday . I was asking him to guarantee that under no circumstances would he countenance a fifth Lib Lab pact. He said he could give no such assurance.
I also complained the the Liberals Party had spent most of the last ten years advocating higher spending and higher taxes and might fairly be said to be left of New Labour .
Norman admitted this was the case but he said he thought if it as him standing still and everyone else shifting right.

So there you have it , whilst I agree with every word you say , this would all have been much worse had anyone been listening to your Party.

I think the words that have been unaccountably missing from the fray are "Supply Side"

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Voter said...

I have written a blog post in relation to this. You may wish to read it