Public Spending Matters
The National government has never hesitated to put cuts in public expenditure firmly in the front of its shop window. “Smaller government” is in many senses the defining objective of John Key’s administration.
In adopting this stance, our government has made common cause with right-wing politicians across the western world. From David Cameron’s Tories in the UK to Angela Merkel’s insistence on euro-zone austerity to Mitt Romney’s Republicans, all have sought recovery from recession and a brighter future by reducing the role of the state.
None has been deterred by the obvious difficulty, now more than ever confirmed by recent experience across the globe, that cutting government spending in a recession means a smaller economy and a longer and more arduous route to recovery – and that means as well a sterner struggle to reduce government deficits.
But an apparent absence of economic rationality is not the only reason for questioning the government’s sense of priorities over this issue. Ministers seem to assume that not only does cutting public expenditure help the economy, but also that it can be done without losing anything of value.
They largely escape criticism for this because most people have only a partial view of the value of public spending. They make a clear distinction between spending for essential purposes, which they define as those that suit their own interests, and all other spending which they deride as a waste of money. The difficulty is that, not surprisingly, everyone has a different view on which areas of spending fall into which category.
The further problem is that when government support is provided, it is so quickly seen as a natural part of the landscape that it is scarcely recognised as such. So, we are constantly told by those whose activities depend hugely on the help they get from government that the best thing government can do is to “get off our backs”.
Recent events, however, remind us yet again that – contrary to so much popular wisdom – most government spending goes to purposes that matter greatly, both to those who are directly helped and to our efficiency, health and integrity as a society.
Sometimes, for those who care to learn, the lesson is especially direct and painful. If government cuts back on inspecting mines, mine safety is jeopardised and miners can lose their lives. If bio-security border controls are not adequately maintained, destructive bacteriological pests from overseas, like PSA, can decimate a hugely valuable export industry.
If our public service is under-resourced and under-valued, mistakes are made. Standards that we should expect to be maintained are not met; we find, for example, that the privacy of those who reveal their most personal details to government agencies is betrayed or negligently misplaced by an Accident Compensation Commission or an Inland Revenue Department or a Ministry of Social Development.
And that is on top of the inexorable erosion of services that must now make do with reduced resources – from the defence forces and the police to schools, health care and community law services. Those who rely on those services, and that means most of us at some time or another, may not recognise what is happening until a crisis point – the collapse of a platform at Cave Creek, for example – is reached.
The damage done to our public service is not just financial; the impact on morale and professional competence means that we are trying to maintain a first-world performance with what threatens to be a third-world standard of public service. We can go on with this process of attrition, but do we understand how gravely we handicap ourselves as a modern economy if our public administration is significantly weaker than in comparable countries?
It is already the case that the government seems increasingly accident-prone. There is a sense that ministers are poorly directed from above and poorly served from below. The whole process of government seems to be unravelling.
This sense of drift has its origins at the top. We can gain an inkling of what lies behind this from a little-noticed remark made by the Prime Minister in a television interview earlier this year in which he said that “any tax sucks money out of the economy. There’s a limited amount of money in the economy. So when you put up a new tax, or you tax people more, then it sucks that money out.”
Let us put to one side the dubious assertion that “there’s a limited amount of money in the economy”; the really interesting part of Mr Key’s brief foray into economic theory is his apparent belief that money raised through taxation, and then spent on public purposes of various kinds, is somehow no longer part of, or of any value to, the economy.
If it is “sucked out” of the economy, where does he think it goes to – into the stratosphere? And are all of those elements that are critical to our living standards and that are paid for out of taxation, of no economic value? If that is his belief, then perhaps his emphasis on cutting public spending becomes easier to comprehend, if not to support.
Bryan Gould
17 October 2012
This article was published in the NZ Herald on 23 October.
Aiming at the Wrong Target
Labour will be “tougher than the Tories” when it comes to forcing long-term beneficiaries back into the labour market; so Labour’s new shadow Work and Pensions Secretary, Rachel Reeves, was reported as saying last week. The comment, which was presumably made deliberately to secure the headline, seems to be a mistake on a number of levels.
The report suggested that the comment was a response to polling that showed that voters were twice as confident of the Tories’ effectiveness in dealing with the issue as they were of Labour, and was presumably an attempt to nullify the supposed advantage that the Tories enjoyed.
But my own political experience, and particularly experience of campaigning, suggests that the initiative was based on a false premise. Most voters, unlike those who are politically active and committed, do not have coherent political positions that are consistent across all issues. They are perfectly capable of adopting attitudes that contradict each other from one issue to the next.
What determines the way they vote is not necessarily what they think on a given issue but which issues are uppermost in their minds on polling day. History shows that, with their allies in the right-wing media, the Tories are expert at tweaking the issues that give them an advantage at the crucial time.
So, immigration, supposed benefit “scroungers”, trade unions bent on strike action, all attract headlines as part of a deliberate attempt to raise the salience of issues that suggest that our deep-seated problems are caused by failing to rein in the nefarious activities of ordinary people and are in no way the responsibility of the powerful people who run our economy and take most of its benefits.
It is an important part of this well-proven strategy that Labour should be lured into contesting such issues so that public attention is focused on them. I recall that, in the run-up to the 1992 general election, the Tory press provided the “oxygen of publicity” to fears that a new Labour government would raise income taxes.
The Labour response was to launch, at the beginning of the election campaign, a plan to raise National Insurance contributions. The idea was to use John Smith’s Scottish prudence to show that this was a sensible initiative that should not be regarded as an increase in taxes.
Not surprisingly, this proved difficult to sell to the electorate. Labour’s tax plans became the dominant and continuing theme of the election campaign, with the result that John Major’s government was re-elected.
The lesson to be drawn is that election campaigning is largely about controlling the agenda. A successful opposition campaign should be about exposing the government’s failures and focusing on those elements in its own policy that are likely to strike a chord with most voters.
Time spent on trying to negate vulnerability on issues peddled by the Tories, in other words, is likely to be wasted at best and counter-productive at worst. And that is never more true than on the issue on which Rachel Reeves thought it wise to make her own demarche.
Her comment spells bad news for Labour. It focuses attention on an issue which can only benefit the Tories. No one will believe that on this issue the Labour opposition will be as ruthless as the Tories (and heaven help us if they did!) The most the voters should hear from Labour on the issue of benefit fraud is that, as in every part of public spending, dishonesty will be punished and value for money will be insisted upon.
But what it does do is to validate the Tory insistence that benefit fraud and supposed “scrounging” is an issue that deserves to be at the top of the government agenda. The more Labour proclaims its “toughness’, the more voters will believe that this is an issue that deservedly requires priority government attention – and the more likely they are to think that Labour is simply posturing and that only the Tories are to be trusted to take real action.
Worse, it diverts attention from what Labour should really be saying about the fact that so many people are victims of unemployment and are therefore forced to depend on a generally miserable level of benefits in order to keep house and home together.
The most effective means of reducing the number of beneficiaries would be, in other words, not punishing the unemployed further, but restoring something approaching full employment; and the most important obstacle to that is a damagingly under-performing economy, the direct consequence of failed government economic policies and of their insistence on austerity as a response to recession (now disowned by the IMF, no less) in particular.
Nor is it the case that this is an accidental by-product of Tory policy. It is an essential part of the Tory strategy that the burden of getting our economy moving again is to be borne by working people. According to this doctrine, it is their responsibility to price themselves back into work by accepting lower wages, and accepting fewer rights and protections at work – “zero hours” contracts are a good example.
The pressure on beneficiaries is all of a piece with this approach to our economic problems. In the absence of new jobs, forcing the unemployed back into the labour market can only mean that those with jobs will be compelled to withstand that competition by accepting lower wages if they wish to stay in work. The result? Downward pressure on wages as a whole.
Is this the strategy that Rachel Reeves intends to endorse? Wouldn’t she do better to focus on unemployment and its causes, and persuading her colleagues to develop a strategy for dealing with it?
Bryan Gould
14 October 2013
Myths, Politicians and Money
My new book, Myths, Politicians and Money, was recently published in London by Palgrave Macmillan to coincide with the Labour Party conference in Brighton. It has been very well received and reviewed, and has attracted a good deal of attention. It is a comprehensive account of what I think has gone wrong for Western democracies over the last three decades; the argument is summarised in a separate posting (called Myths, Politicians and Money) of a piece I wrote for the Yorkshire Post. Find out more here.
Game On
In a properly functioning parliamentary democracy, voters can do much more than cast a vote from time to time. They should be able to hold their government to account and, if they decide they don’t like it, they can replace it with another – in effect, a government in waiting.
If the system works well, that government in waiting will have been identified in advance, and the voters will have had the chance to compare what it offers in prospect with what has been delivered by its predecessor.
It doesn’t always work like this, of course. In some systems, the voters find it difficult to get rid of the government, let alone identify a credible successor. In post-war Italy, for example, repeated elections were held but voters could never get rid of the Christian Democrats, not because they were so popular but because the opposition parties were so fragmented.
It was often said – with some justice – that this was a particular weakness of proportional representation systems. But it has been the particular genius of New Zealand voters that we have managed to secure through MMP the advantages of a more representative parliament without losing the essential choice between right-of-centre and left-of-centre governments.
There is a further advantage of a system which produces credible competing contenders for office. The effect of that competition is usually to compel the contenders to vie for the support of centre or uncommitted opinion. It is, in other words, a force for moderation in our politics.
That, at least, is how it should operate. But, in the US at present, we see the opposite – an instance of one of the two major parties being taken over by an extreme minority and abandoning the battle for moderate opinion; the Republicans under pressure from the Tea Party element seem prepared to jeopardise the US economy and international credibility in order to express their hostility to a health-care regime that has been endorsed by the voters and championed by President Obama but is reviled by extremists as “socialist”.
In New Zealand, however, we have no such concerns. Despite the occasional (and somewhat ridiculous) charge that the opposition to the present government has moved to the “far left”, we have succeeded in maintaining the battle for the centre as an essential element of that quintessential democratic power to vote one government out and move another one in.
Yet those aspects of our democracy cannot be taken for granted. If our system is to produce its full benefits, it depends on there being a credible alternative to the party in power. An effective democracy depends, in other words, almost as much on the opposition coming up to scratch as it does on the governing party.
With Labour and its potential allies languishing in the polls, there had been something of a phoney war about the political battle. The government could afford to take a fairly cavalier attitude towards other views and to public opinion in general. The Prime Minister and his government were able to convince themselves that the absence of a credible alternative meant that the next election was in the bag.
That is why, while supporters of the present government may take a little convincing, the emergence of a credible Labour-led opposition – and, by definition, a credible government in waiting – is something to be celebrated by all democrats.
Many commentators, whatever their political persuasion, have recognised the sea-change that has occurred over the last month or so. The revival in Labour’s fortunes means that the next election is no longer a foregone conclusion.
We now have a real choice. It is no longer enough for John Key to smile sweetly while coasting and ignoring public opinion. Politics is no longer exclusively about photo ops, phone-ins on talkback radio, and media management. We now have a real clash of ideas.
With Labour not only proving itself to be an effective opposition, but also offering an alternative agenda for the future of the country, there is now an opportunity for voters to think about real politics – and that is how it should be.
The result is likely to be better and more responsive government in the run-up to the election. Ministers will need to think harder about the rationale for their policies and about the interests of those who may be disadvantaged by them. They will have to get used to taking into account not just the views of their own committed supporters but of a wider spectrum of opinion as well.
The voters will have to work harder too. They will be challenged to go beyond the superficial and to make a proper evaluation of competing views as to where the country’s interests lie. Should the government’s belief that advancing business interests produces the best outcomes for the rest of us be supported, or should we pay more attention to the interests of ordinary people?
So, hold on to your hats. The next twelve months will be fascinating. The phoney war is over. It’s now game on.
Bryan Gould
6 October 2013
This article was published in the NZ Herald on 11 October.
Myths, Politicians and Money
In 1989, the American political philosopher Francis Fukuyama published a famous essay which he called “The End of History”. In celebrating what he believed to be the more or less permanent triumph of liberal democracy, he saw the “free market” and democracy as not only compatible but as mutually supportive. The market was in his view the equivalent in economic terms of political democracy, achieving the same dispersal of economic power throughout society as democracy achieved in political terms. He saw no need for democracy to act as a restraint on “free-market” outcomes, and he saw no danger that the “free market” might in some ways prove inimical to effective democracy.
He was confident that the rest of the world would flock to the democratic banner. Just over twenty years later, that expectation has been confounded. Confidence in democratic processes – both here and abroad – is at a low ebb. So, what has gone wrong?
The seeds of the problem had already been sown by the time Fukuyama published his essay. The received wisdom of the immediate post-war years – that full employment should be the prime goal of economic policy, that collective public provision was needed to guarantee basic standards of essential services, and that market excesses would have to be restrained by careful regulation – had been replaced by new ideas.
The individual, rather than society, was seen as the pivotal point of human endeavour and progress; writers like Hayek and Nozick questioned the need for or appropriateness of an extended role for government or the acceptability of meddling in “free” market solutions; redistributive taxation, the provision of taxpayer-funded benefits to the disadvantaged, and the power of organised labour came to be seen as obstacles to economic growth rather than as guarantees of an equitable distribution of wealth; economists like Milton Friedman questioned the efficacy in peacetime of Keynesian intervention and promoted the idea that macro-economic policy was really just a simple matter of controlling the money supply in order to restrain inflation; while global developments such as the oil-price shock of the early 1970s meant that inflation rather than full employment was seen as the primary issue for economic policy.
Many of these ideas had been carried into government by Ronald Reagan in the United States and Margaret Thatcher in the United Kingdom. The two leaders made common cause at the beginning of the 1980s in taking a step whose significance perhaps even they did not fully grasp at the time. The portentous decision was taken in the United States and in the United Kingdom to float their currencies and to remove exchange controls. The way was now clear not only for an explosion in international trade and foreign investment, but for a determined assault by international capital on the political power of democratically elected governments across the globe.
The ability to move capital at will across national boundaries not only meant that international investors could bypass national governments but also enabled them to threaten such governments that they would lose essential investment if they did not comply with the investors’ demands. This shifted the balance of power dramatically back in the direction of capital, and set the seal on the triumph of those “free-market” principles of economic policy that became known as the “Washington consensus”.
It became accepted that the “free market” was infallible and that its outcomes should not be challenged. Any attempt to second-guess the market would inevitably produce worse results. Everyone – it was thought – would be better off if the rich and powerful were subject to no restraint in manipulating the market to suit their own interests.
But the whole point of democracy – that the legitimacy enjoyed by elected governments allowed them to defend the interests of ordinary people against the otherwise overwhelming economic power of those who dominated the market – was thereby lost.
We see the outcomes of this shift all too clearly. Virtually the whole of the increased wealth of the last three decades has gone to the richest people in our society; poverty, even in the “rich” countries, has risen while inequality, with its attendant social ills, has widened; the rights of working people at work have been weakened; joblessness is endemic; and the “free market” free-for-all achieved its culmination in the global financial crisis.
A “Europe” imposed by an elite and constructed in the image and to suit the interests of international capital has come unstuck and flounders in recession and unemployment. The austerity demanded by Europe’s leaders makes a bad situation worse. Popular support for the European Union has nosedived. Major decisions continue to be made by big corporations and not by elected governments. Faith in government and the democratic process is at a low ebb and attempts to consult the people on Europe’s future continue to be resisted.
“History”, in other words, has continued to unfold. Very few seem to realise how thoroughly our civilisation has been transformed by the triumph of the “free-market” ideology. They do not see that western liberalism, which has informed, supported and extended human progress for perhaps 700 years, has now been supplanted by an aggressive self-interested doctrine of the individual which leaves no room for community and cooperation. Even the victims of this comprehensive and fundamental change seem hardly aware of what has happened.
Fukuyama failed to recognise, in other words, that the threat to western democracy came from within those democracies themselves. It came from the greed and self-interest of the rich and powerful and their ability to manipulate the “free” market to their own advantage, but also from the quiescence and apathy of that much greater number who fail to understand that democracy is necessarily sidelined if the market cannot be challenged. The substance of democracy has been hollowed out, so that only the shell, the forms, remain, because we have not cherished and made a reality of what was our most valuable protection and greatest achievement.
Bryan Gould
19 September 2013
This article is based on my new book, Myths, Politicians and Money and was published in the Yorkshire Post on 20 September