Monday, 18 April 2011

The Wrong Plan for Growth?

“…Yet the contrast between this political certainty and the underlying nature of the problem is a stark one. In the policy debate, the term ‘regulation’ lacks a commonly agreed definition, and the causal link between an increase in regulation and lower economic performance is at best crudely described….The policy positioning is largely devoid of convincing empirical support – as if it were so obvious as to need no justification. It is hard to think of any other area of government policy where the gap between public policy assertions and an evidence base is wider”. Deiter Helm, Oxford University

Put a business lobbyist together with 1) another business lobbyist or 2) a journalist or 3) a politician and you can be sure that the chat will soon turn to the ‘burden’ of regulation, ‘red-tape’ or bureaucracy – call it what you want – constraining the economy, lowering economic growth and generally making life miserable for the Randian superheroes of the entrepreneurial class.

Take a brief look at any of the manifestos for the Scottish Parliament elections and you could be forgiven for believing that the business lobbyists are correct; the burden of red-tape must indeed a major barrier to economic development in Scotland if our politicians are to be believed. I know from years of experience that to challenge the consensus on this topic is to invite ridicule. That Scotland as part of the UK is an over-regulated economy is treated as a revealed truth; a fact that requires to be asserted, never justified.

Some of us thought the banking crisis – manifestly a crisis (at least in part) of weak regulation – might provoke an open debate on the role of government regulation in an advanced economy. We were wrong. If anything, the hand of the red tape warriors has been strengthened. How did it come to this?

Well, the regulation of the economy is a boring and technical subject. It’s also a slippery one. Regulation’ is used as a catch all for very different issues: regulation of the workplace (minimum wage, health and safety, employment protection), regulation of the environment and the regulation of utility industries. It is the first of these (but also the second – they don’t understand the third) that tends to animate the business lobbyists. But they are rarely specific; by and large complaints about red-tape are general in nature, probably because lobbyists understand that the minimum wage and protection from irresponsible employers are actually quite popular with the public.

This approach is apparent in the Coalition’s Plan for Growth; a plan predicated on the assumption that the UK is hugely over-regulated (and over-taxed). In announcing his recent Budget the Chancellor argued that the UK’s competitiveness had slipped and that we had been overtaken by other countries – specifically Germany, the Netherlands, Denmark and Finland. The evidence cited? The World Economic Forum’s Global Competitiveness Report 2010-11.

Does this Report support the Government’s approach? No, it doesn’t. Indeed, it suggests that the deregulatory, low tax approach is exactly the wrong way to go if we want to improve competitiveness (let’s assume for the moment that the validity of the concept of competitiveness isn’t very dubious – which it is) in a similar fashion to the Germans, Dutch, Finns and Danish. We are already under-regulated in comparison to these nations and we are also lightly taxed.

For my sins I’ve now read all 501 pages of the Report and the fruits of my labour are now available in the STUC report, The Wrong Plan for Growth? Budget 2011, the Global Competitiveness Report and the dangers of formulating policy on a false premise which can be found here.

Problem is that there seems to be no political appetite whatsoever for an evidence based discussion on these issues. Wonder why?

Stephen Boyd - STUC

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