29 October 2015

Owen Jones is wrong. The idea we live in a world dominated by ‘neoliberalism’ is laughable


When one starts debating the size and scope of government in the UK, often figures on the left and right speak past each other. Owen Jones’ recent book The Establishment suggested that, overwhelmingly, a commitment to neoliberalism is the ideology that dominates our elites and politics. According to him, the last three decades have seen an unprecedented experiment in a radical slashing of state spending, an erosion of the welfare state, privatisation, outsourcing and deregulation.

Yet, at the very same time the libertarian journalist and thinker Martin Durkin has described the elites of the UK as the “vast, tax-eating, paternalist, public sector “New Class””, running a “bloated public sector”, drunk on spending and with a desire to regulate everything in sight. How can two intelligent people reach such starkly different conclusions?

Jones is certainly right that in the period since the 1980s global trade has become freer and capital more mobile, while we removed controls on prices and incomes, privatised the old nationalised industries, reduced the power of trade unions and allowed resources to flow freely into and out of the UK.

But in truth, these policy changes have largely been minor aberrations from a long-term trend over the past century of greater government control – of politicians and civil servants centralising power, and taking decisions away from individuals, families, civil society institutions and local government. In other words, the very opposite of classical liberalism or ‘neoliberalism’.

In terms of spending, government is as big as it ever was. Adjusting to government spending as a proportion of GDP at factor cost (to allow accurate long-term comparisons given changed tax regimes) shows it increased from around 10 per cent of GDP at the beginning of the 20th century to 47 per cent in 2014. Despite claims we live in a neoliberal age, this was higher than in any year between 1947 and 1979 – the supposed big-government post-war consensus.

The scope of government has grown massively in that time too. As A.J.P Taylor explained, most law abiding Englishmen in 1900 would only encounter the state through the Post Office or by passing a policeman on the street. Then, state expenditure on welfare, health and education was just 1.6 per cent of the UK’s national income. These services were overwhelmingly provided by civil society institutions, such as friendly societies. Now, expenditure on welfare, health and education make up 63.5 per cent of overall state expenditure – or 29 per cent of national income.

Unlike in many other supposedly ‘social democratic’ countries, the UK government actually overwhelmingly provides these welfare services rather than just funding them.  In supposedly ‘neoliberal’ Britain, the NHS is a state backed monopoly. Supposedly ‘social democratic’ countries, often held up by Jones and others, have much more pluralistic provision. In Germany, the independent private sector (including not-for-profit) accounts for more than half of the total number of hospital beds. If neoliberalism is so dominant here, why haven’t we seen much more outsourcing of state financed activity?

Indeed, far from slashing the welfare state, the coalition government actually expanded it with more state funding for pensions, childcare and the provision of ‘free’ school meals. Spending on health, education and social protection rose in the last Parliament. It was the traditional ‘liberal’ functions of the state – defence, policing, local government – that took the hit.

The growth of government functions and spending has also led to more centralization. In the 1920s and 1930s, local government accounted for 45 per cent of total government spending. Now, just 25 per cent of government expenditure in the UK takes place at a sub-central level. More importantly, less than 5 per cent of overall government tax revenue is raised locally, making us one of the most centralized polities in the developed world. Even where councils have powers, how they provide those services is largely determined by Westminster. In effect, local government is just a branch office of central government. This centralization of power is far from the neoliberal ideal.

But it’s probably in the area of deregulation where Jones is most misguided. Far from being a deregulated free-market utopia, the degree of legislation and regulation has grown hugely in the UK in the past century. The most sensible measure of legislative activity is probably the combined number of pages of acts and statutory instruments. This has increased by a factor of 20.

13 per cent of all UK jobs now require some form of licensing, registration or certification from government – a proportion that has doubled in the last decade or so. The employment of temporary workers and migrants has been subject to increasing levels of regulation. Mandated benefits such as parental leave, holidays, and reduced working time have been introduced in recent years. There is increasingly a desire for significant regulation of lifestyles.

Certainly, regulation of financial services has been an utter failure. But even here, it’s not a simple story of ‘deregulation’. In fact, in the 1980s there was a huge shift from self-regulation to state-led regulation, which has mushroomed in the sector since 1986. The number of regulators has increased from 1 for every 11,000 people employed in the financial sector to 1 for every 300 in just thirty years. If it carries on at that rate for another 60 years, there will be more financial regulators than people working in finance – that’s excluding compliance officers working for private firms.

This all matters, because many on the British left have a caricatured view that any poor outcomes or government failures are a result of this wicked neoliberalism, which simply doesn’t exist. There are certainly many things we must improve, but this worldview leads us down an intellectual cul-de-sac, missing the true causes of failure and inadequacies arising from public policies, which are often multi-faceted and complex.

Today marks the launch of the Institute of Economic Affairs’ Paragon Initiative. It’s a 5-year body of research that will assess all major functions of government activity and the causes of failure in each. It will attempt to offer genuine alternatives and proposals for reform. But if we are going to assess every major activity of government, we have to accurately account for where we are. In historical terms, the UK has incredibly centralized government, very high public spending, monopoly state provision of services, and increasing regulation in almost all areas. A neoliberal paradise? Certainly not.

The Paragon Initiative has been launched by the Institute for Economic Affairs today. A copy of the launch paper and associated public opinion polling can be found here and here

Ryan Bourne is head of public policy at the Institute of Economic Affairs and director of the Paragon Initiative. Tomorrow, Ryan will write on why government fails.