Wednesday, 6 October 2010

No, I do not buy the big society

The ConDem leader’s speech provided much less material for this particular
Better Way
blogger than Gideon’s lesson in mendacity. Nevertheless, a few nuggets caught my eye:

Cameron Quote You [Labour] want us to spend more money on ourselves, today, to keep racking up the bills, today and leave it to our children – the ones who had nothing to do with all this – to pay our debts tomorrow? That is selfish and irresponsible”.

I agree that out children never had anything to do with this but NEITHER DID WE!!

Let’s get the economics out of the way: when the economy is operating so far below capacity, when unemployment is high, when the proximate risk is deflation not inflation, when interest rates are already close to zero, when export markets are stagnating…worrying about the deficit is wrong headed. I know this is counter-intuitive to many people; there is a plausibility about the ‘hard times call for hard measures’ approach. But if we want out this mess, if we want unemployment to fall and the economy to grow then Government has to move to fill the output gap. Of course it is neceessary for Government to target this investment in ways that 1) keep people in work and 2) improves the prospects for long-run sustainable growth.

And now for the morality: why is it a bad thing to leave our children higher debt (assuming for a moment that higher spending at this time would worsen the long run fiscal position - it wont) but ok to leave them with a smaller, less stable and more unequal economy  and (assuming that some people have children who are already in or about to enter the labour market) their life chances ruined by prolonged periods of unemployment while young?   

Cameron Quote: “Too many people thought: "I've paid my taxes, the state will look after everything."

Does anyone actually thinks along these lines? I mean really? I never hear normal people talking about ‘the state’. Never.

Cameron Quote: “The old way of doing things: the high-spending, all-controlling, heavy-handed state, those ideas were defeated. Statism lost ... society won. That's what happened at the last election and that's the change we're leading”.

On the one-hand we have the ‘all-controlling state’. On the other we have Labour failing to regulate the City properly? Nothing like consistency of argument. I know the media are on your side but really…

Cameron Quote: From state power to people power. From unchecked individualism to national unity and purpose. From big government to the big society”.

He can’t stop himself…from the ‘all controlling state’ to unchecked individualism’ in one easy move. Hilarious.

Cameron Quote: “Many government departments will have their budgets cut by, on average, 25% over four years. That's a cut each year of around 7%. Of course, that's big. But let's remember, a lot of businesses have had to make the same or bigger savings in recent years”.

I am so sick of the ConDem’s comparing the Government to either households or businesses. The country is not a company. The country is not a household. This is what’s known as the fallacy of composition and it is explained here.

Cameron Quote: “I'll always remember what the owner of a small business told me once. He said "when I was starting out the government didn't lift a finger to help me. Then as soon as I start making money they're all over me trying to take it away." That is completely the wrong way round. We need to get behind our wealth creators”.

Government doesn’t lift a finger? I beg to differ.

Government 'helps' small businesses by providing:

1)                             Property rights – it provides the legal system and security necessary to protect private property. This is why there is no such thing as a ‘free’ market. This is why there must always be taxation. This is why the ‘tax is theft’ argument falls at the first hurdle;
2)                             The education and health services which provide small businesses with a pool of skilled and able labour;
3)                             A range of other services which help expand labour supply –childcare services for example;
4)                             The infrastructure without which businesses of any size could not function – roads, energy networks etc;
5)                             A supportive regulatory environment – I will come back to this below;
6)                             Business support services – advice, export support, links with academia etc. This can amount to not very much if you are opening a small store on the local high street. If you are spinning out a firm from academia developing products with global potential this can amount to an awful lot. This is as it should be;
7)                             Direct subsidy – R&D and innovation grants, SME loan funds, skills training support, investment grants etc.

The list is not exhaustive.

Why do politicians of all stripes fell compelled to pander to the most feral elements of the small business lobby? It is bad at UK level (thanks David for providing a neat quote in this regard) but, if anything, worse in Scotland. The view that small businesses are over-regulated and over-taxed is so deeply embedded that to challenge it in a public forum invites ridicule.  

There is a lot of international comparative evidence on the regulatory and taxation ‘burdens’ (I hate, hate, hate that word in this context) and it confirms, quite unequivocally, that the UK is a good place for small businesses. See World Bank Ease of Doing Business Rankings for a start. The OECD and IMF have often assessed the UK as having the product and labour market regulatory ‘burdens’ (eeek!) in the advanced economies. Business taxation in the UK is consistently shown to be around the median for OECD nations. What do Cameron and his apocryphal small business owner mean by Government being all over small businesses trying to take their money away?! This is really silly stuff.

It might not matter if it ended with daft party conference speeches.  But this pandering to small businesses undoubtedly inevitably results in bad policy; it means we end up with a regulatory environment that is not only bad for workers, communities and the environment but it forces firms down low road competitive strategies with negative long run consequences for jobs, productivity and growth. I’ll change my mind on this when I meet the small business lobbyist who admits that final demand matters in an economy.

In Government circles, despite what employers might tell you, it is taken for granted that small businesses, with their limited resources, simply can’t cope with regulation of any kind. At the same time it is assumed that our dynamic small business sector will drive GDP and employment growth. Doesn’t quite add up does it?  

If nothing else surely if we could expect to have emerged from the crisis with a slightly more sophisticated understanding of how public, private and voluntary sectors work together to create wealth. The view that one sector crates wealth and the other spends it can hardly be sustained in the aftermath of a crisis in which the public stood behind the private to the tune of £1.25trillion.

Cameron Quote “Slashing red tape”.

He thinks this is a good thing apparently. Does he clarify what he means by red-tape? Of course he doesn’t…because worker, consumer and environmental protection measures are popular with the public.

It’s also, again, misleading. The ConDem’s are not slashing red-tape; they have introduced the risible policy of ‘one-in, one out’ – what one Guardian writer memorably described as the ‘nightclub bouncer approach’ to business regulation.

In all fairness, this is a Lib Dem initiative. It is suitably bizarre. If a regulation is no longer required then it should be scrapped – with appropriate consultation with those who might be affected. If a regulation is required, then it should be retained.  

Stephen Boyd

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