Are the Conservatives ideologically driven state-shrinkers?

Are David Cameron and George Osborne small government ideologues hell-bent on shrinking the state? Simon Wren-Lewis thinks so:

The goal is to reduce the size of the state, and because (with his encouragement) mediamacro believes reducing the deficit is the number one priority, he is using deficit reduction as a means to that end…. [W]e have a Chancellor that quite cynically puts the welfare of the majority of the UK’s citizens at major risk for ideological and political ends.

He says something similar here:

[T]he real long-term plan was an initial two years of sharp cuts to public spending and the deficit, to be followed by budgets involving tax cuts that would allow growth to resume but rather less deficit reduction. If this combination was enough to win the subsequent election, the recipe could be repeated all over again. Indeed, this is what George Osborne’s post-2015 plans look like. All done in the name of deficit reduction, when the real aim is to reduce the size of the state.

Danny Alexander thinks so too, as do many of the left. This discussion comes up at every budget and autumn statement. The cuts to welfare and public services advocated by the Conservatives are so extreme, they must be motivated by an ideologically driven plan to dismantle the state. Or so the story goes.

It can be fun to depict George Osborne as a cartoon villain. I’ve done it myself on the odd occasion. But I still find it hard to believe that he, David Cameron and the leadership of the Conservative Party have a Machiavellian plan to shrink the state.

Chris Dillow has written a few pieces about this (here, here and here) pointing out that, if the Conservatives were planning to significantly shrink the state, they have done remarkably little groundwork.

Public attitudes to state spending have shifted slightly in recent years but only from favouring more spending to keeping it the same. There has never been much appetite for a big reduction in public spending and there still isn’t.key_findings_figure_0.3_499x317.jpg

Source: British Social Attitudes Survey

Allowing public services to collapse would therefore be electoral suicide, unless you could convince the voters that getting rid of them was a good thing. On this, says Chris, the Conservatives haven’t even made a start.

What would I do if I were a Chancellor wanting to shrink the state when there was little popular demand to do so?

What I’d do is create the demand – shift the Overton window. I’d get junior MPs to campaign to reduce government functions. I’d encourage sympathetic journalists – of which Osborne has many – to write about excessive or wasteful spending. I’d commission management consultants and civil servants to show how to improve the efficiency of each government department. And I’d find some economists to show that a smaller state tends to promote growth.

In short, there’d be a cacophony of voices calling for a smaller state. Economists such as Vito Tanzi would be as fashionable as Thomas Piketty. “The Chancellor has done well so far, but must go further” would be the cry.

But this is not happening. Sure, the usual suspects are making the usual noises, but no more so than normal. The “shrink the state” amp hasn’t been turned up to 11. The Britannia Unchained mob are quiet, and one Tory advocate of limited government has buggered off to Ukip. Yes, there’s some (silly) welfare-bashing, but there isn’t the ideological clamour for a smaller state.

For a brief moment, around the time of the last election, it looked as though we were going to get a serious debate about the size, role and shape of the state in the next decade. The Labour government’s Total Place pilots had shown that central government, the NHS and councils working together to redesign local services could potentially deliver big savings. There was excitement about the Big Society, social innovation and social enterprise. Lots of people were talking about alternative ways of delivering public services. The long process of designing the state for the 2020s seemed to be getting underway.

Thee was a lot of excitement about this. Many people from across the political spectrum realised that, over the long term, the state couldn’t go on in its current size and shape. A debate on this, even one led by the right, was at least a good start.

As Chris says, an ideological state-shrinker would surely have seized the moment. Here was an opportunity to change the conversation and shift people’s expectations about what the state could provide.

But then it all went quiet. Total Place became Whole Place and then Community Budgets. Each time, we heard a bit less about it. Sure there is still some good work going on but it lacks the transformational vision and rhetoric of 2010. The only evidence of the heady optimism of five years ago is in defunct and no longer updated websites. It’s like looking at the ruins of a once-great civilisation.

The Guardian’s Jane Dudman was one of the first to rumble the government’s total lack of strategy, only a couple of months after the Coalition had formed. The penny dropped for me a few weeks later after noting some early fiascos and talking to some senior public sector managers. By early 2011 I was convinced. This lot were winging it.

I haven’t seen anything since to change my mind. The public debt targets imply a big reduction in public services and/or welfare spending but the specific cuts identified so far are tiny. Some of the planned austerity was shunted into the next parliament so the train crash many of us expected hasn’t happened yet but if these cuts are implemented, it will.

Those who think the Conservatives are ideological state-shrinkers reply that this is the strategy. The Tories, they say, despise the public sector so they will just keep cutting and let the state collapse in a totally random and unplanned way. But if they were to do that they would never be elected again. If local authorities and NHS trusts fell apart, would a Cameron-led government really stand by and watch it happen?

Past behaviour suggests not. Sure, there’s a lot of rhetoric about improving NHS efficiency by allowing failing hospitals to go bust but every time one looks like it might, the government bails it out. As soon as there is a bit of political pressure, more money is usually found. It’s the same with welfare. The options for finding £12 billion in social security cuts are already limited. David Cameron limited them even more last week when he promised to ring-fence child benefit. The Conservatives might talk tough but put them in front of  group of angry parents or NHS patients and they cave in almost immediately.

So I don’t believe that a Conservative government would cut spending to the bone, allow public services to collapse and the working poor to be evicted from their homes. As soon as they faced angry voters at the next photo opportunity, government ministers would magic up some more money, just as they have done in the past.

But if that’s the case, what is the strategy for eliminating the deficit? My guess is that Dave and George are hoping for a sudden boost in productivity after they are elected. Under the OBR’s most optimistic projections, increased productivity and economic growth would lead to higher tax revenues and lower welfare costs, meaning that the deficit would disappear without the need for any spending cuts at all.

There is much talk on left-wing blogs of secret plans for slashing welfare and dismantling the NHS but I don’t buy any of it. I just can’t see David Cameron and George Osborne as the Dick Dastardly and Hooded Claw of state shrinkage. They are not evil men and they are certainly not stupid. They probably dislike the big state in that visceral drive past the council offices and say ‘God knows what they all do in there’ sort of way but nothing in their past behaviour suggests that they are ideologically driven small staters. They have, though, set themselves an enormous task and they don’t seem much idea of how to go about it. Right now, their focus is on getting elected, after which they will work something out and hope that something good turns up. It is a strategy that owes more to Micawber than to Machiavelli.

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27 Responses to Are the Conservatives ideologically driven state-shrinkers?

  1. John says:

    The Tory high command is not bothered about the working poor being evicted from their homes.
    They can rationalise this on the basis that the poor are unlikely to vote for them – or anyone else.
    The Tories historically are highly un-ideological.
    Their principal concern is getting and keeping power.
    After all, are they not the natural-born rulers of the country?
    Look at their credentials: Eton; Oxbridge; Bullingdon Club; Conservative Party.
    Thatcher was an aberration but even she knew her limits..

  2. Nick says:

    They always seem to find money to prop the housing bubble..
    HTB/SDLT/QE/FLS/ZIRP…

  3. AJ Thomas says:

    “The Tories, they say, despise the public sector so they will just keep cutting and let the state collapse in a totally random and unplanned way. But if they were to do that they would never be elected again.”
    But of course they don’t believe that there will be chaos if they cut carefully. Their ideology says that private and charitable solutions will fill the gap e.g. food banks.

    Certainly it appears Osborne thought his cuts would bring growth and changed course when it didn’t appear, but his Orwellian repetition of “Long Term Plan” suggests he’s trying to convince himself it was alright after all.

    The way I read their “plan” such as it is, and it’s shared to a large extent by New Labour, is to cut taxes to promote growth and rely on “trickle down”. When there aren’t enough tax revenues then they decide to cut.

    The hard right of the party is ideologically small state, and it’s the centre right of the party still in control, but the overall lack of belief in the benefits of redistribution and benefits of collective action will always pull them towards cuts.

  4. Sorry Rick, I have t0 disagree.

    Osborne has declared himself a small-stater. The reason he has not made much progress is because he is incompetent. Plus the fact that the realities of office, to which you allude, restrict his actions.

  5. sdbast says:

    Reblogged this on sdbast.

  6. david says:

    seems too much to hope for

  7. Dave Timoney says:

    “Shrinking the state” implies the government stepping back from certain areas of public service provision and leaving it to the market. There has only ever been one substantive initiative of this kind in the UK, and that was the decision to end council housebuilding. I need hardly point out the consequences.

    Since the 90s, privatisation has meant the transfer of taxpayer-funded service delivery and capital-funding to the private sector, i.e. rent-extraction. This has produced high capital costs (e.g. PFI), inefficient use of capital (e.g. free schools creating over-capacity), and state bailouts (e.g. various rail franchises). In a sense, the bank bailouts were normalised over the preceding 15 years.

    Cameron and Osborne intend to shrink the public sector, but that is not the same as shrinking the state or reducing public expenditure as a share of GDP. The state will continue to guarantee revenue through tax but will take every opportunity to transfer control, and thus rents, to private sector operators.

    Health and schools have been ring-fenced from austerity not for any ethical reason but because they are sites of profit. Welfare bears the brunt of austerity because there is little private profit to be made, with the notable exception of housing benefit cash diverted to private landlords.

  8. Truth to Power says:

    In 1993 Alan Greenspan (Chairman of the US Federal Reserve) was appointed by William Clinton (US President) to address US deficit reduction. By 1998 Greenspan convinced Clinton of the benefits of ‘Free Markets which he thought would self-regulate themselves. During this ‘experiment’ Greenspan could not understand why the US GDP was rising without any evident increase in US productivity. By 1998 Gordon Brown was following Greenspans lead had de-regulated UK banks, and had adopted a ‘soft touch’ form of management. By 1998 ‘Soft Touch Management’ had become the buzz word within UK government and its Civil service. Like the US the UK GDP started to grow dramatically thus providing Labour with the headroom to implement its ‘socialist policies’ without any insurance to protect us against failure (paying back our debts). The ‘Soft Touch Management’ phrase was even appearing within the UK Ministry of defence. We now know that this increased GDP was caused by ‘froth’ and ‘bubbles’ growing within our banking systems.

    Gordon Brown and his chums, Ed Balls and Ed Miliband, used that headroom created by the increased GDP to fund Public Finance Initiatives (PFI), new General Practitioner (GP) contracts (most GP’s were so highly paid they started to work part time hence the shortage of GP’s).

    Following the recession GDP had fallen by 8% and so our spending on ‘social services’ did not match what the country could afford. This shortfall caused the deficit and the huge ‘UK Net Public Debt’ … do the analysis yourself and you will begin to understand the problem. Labour should take responsibility for what it did and stop winging … a Labour government, the SNP, Plaid Cymru and the Greens are living in a ‘Fairy Tale’ world and would be a disaster for our country.

    Conservatives have been embarrassed by this and have sought savings in other parts of Government Services … they should speak ‘Truth to Power’ and act accordingly – the Conservative government have done a poor job. It is completely wrong to assume that the ‘education’ and ‘social services’ should be exempt from clearing this mess caused by Labour. The public need to take responsibility for voting in Labour in the first place.

    Yes austerity must leads to a smaller state … how else can they reduce the deficit?

    • David says:

      Precisely .

    • John says:

      On your basis, Britain should never have fought the Nazis or established a welfare state.
      I wonder what sort of your world we would all be living in now?

      • Truth to Power says:

        That is not what is said.
        – We most certainly should and did fight the Nazis.

        – The wealfare state is not a problem. But it be a safety net for UK citizens … not a way of living.

        The goverment should defend our country, maintain our laws, respect our privicy, create and maintain a climate within which ‘capitalism’ and our people can thrive … but it is not an end in itself.

    • metatone says:

      I don’t have time to take all of this on – but it’s worth noting that the proportion of GPs working part-time had reached all-time highs before the new GP contract that Labour introduced. Said contract actually reduced the numbers going part-time for a while, but then the demographic issues (women, finance industry, etc.) started to tell again.

      • Truth to Power says:

        I don’t have the data to analyse – my observation comes from the chart on the wall of my doctors surgery which shows that many of them are part time, often with children.

        My son (a paramedic) ofthe complains that the ambulance service spend a lot of time dealing with drunks (that the police don’t want to deal with) and ferrying patients to A&E because of doctors not wanting to go out and 911 calls. Emergencies are few and far between.

        GP’s are seen as being over paid.

    • AJ Thomas says:

      You’re explaining a small structural deficit, and suggesting this caused “the mess”. This analysis overlooks the elephant in the room, which is the crash and the bailout, this is where the main problem comes from.

      Osborne would have matched the Labour spending, but surely would not have raised taxes so he would have had a deficit at least as bad. The Conservatives would have had less regulation of the financial sector, and their hesitation over the bailout could have been devastating.

      So Labour have plenty of faults but in no way can this be “Labour’s Mess”, and the last five years have proved categorically that the Conservatives cannot be trusted with the economy.

  9. zc says:

    I read you and Chris Dillow regularly and with great interest. But I cannot see why you have a problem with this. The argument that they should have prepared the ground is rely weak. The plan is to get elected any way they can, cut the state as quickly as they can, lie and bribe selected groups to get ‘re-elected if they can, and repeat. Just because they are winging.it doesn’t mean they don’t mean it. I don’t k.ow your background Rick but I think that Chris may not have appreciated how full of baloney these people were when he was at Oxford. Just look at Boris.

    • Truth to Power says:

      The world has changed.

      Honnesty, and integrety are out of the window.

      The politicians, and most of the people, are now driven by their most basic instinct … ‘survival’.

  10. Dave Timoney says:

    @Truth to Power,

    The phrase is “light touch”, not “soft touch”, and it refers specifically to the regulation of financial markets, not the economy more generally. You are trying draw a link between New Labour’s indulgence of the City and its supposed indulgence of welfare, wholly ignoring the fact that Blair/Brown (like Clinton before them) were actually following the neoliberal playbook, making welfare less attractive and subsidising low wages.

    US productivity growth under Greenspan was actually higher than the long-term trend (3% vs 2.5%) due to an IT-driven acceleration in the 90s. However, this did not lead to any significant increase in GDP growth, which had been fluctuating around 3% since the 1970s, largely because most of the above-trend productivity gains went to capital and the top 1% of income-earners. Similarly, GDP growth in the UK did not “dramatically” increase in the 90s but continued to follow the long-term trend of 3%.

    PFI (which was introduced by the Major government) did not recycle the “headroom created by the increased GDP”. Instead it sucked in foreign savings seeking secure assets. Just as the global savings glut helped power unproductive property bubbles, it also enabled more productive infrastructure investment, albeit at the cost of fat fees for the City and high returns for foreign investors.

    GPs (more specifically, self-employed GPs) have been “highly paid” (relative to their peers in other countries) since the foundation of the NHS. This is a not a new policy introduced under Labour, unless you want to blame Nye Bevan for his original compromise with the BMA in 1948. The takeaway here is that the incursion of private business into the NHS drives up costs.

    A government deficit can be reduced either by cutting public expenditure or by increasing tax revenues (or a combination of the two). Standard practice is counter-cyclical – i.e. during a recession you increase the deficit to prop up aggregate demand, hasten recovery and boost the speed of recovery (causing the classic “bounce” profile in GDP and productivity growth).

    The UK was following that pattern in late 2009/early 2010. The coalition’s austerity programme then killed off the recovery in 2010-11, which Osborne tried to blame on the EU. While they quietly eased off the cuts in 2012, they haven’t done enough since to boost demand – outside of inflating property prices. This has led to economic stagnation: low capital investment, weak productivity growth and a worsening balance of payments.

    This in turn produces weak tax receipts (an increase in employment won’t help unless wages are high enough to generate taxes). It is this, rather than “indulgence”, that has caused the coalition to fail to reduce the deficit.

    • Truth to Power says:

      ‘The phrase is “light touch”, not “soft touch”, and it refers specifically to the regulation of financial markets, not the economy more generally. You are trying draw a link between New Labour’s indulgence of the City and its supposed indulgence of welfare, wholly ignoring the fact that Blair/Brown (like Clinton before them) were actually following the neoliberal playbook, making welfare less attractive and subsidising low wages.’

      Happy to be corrected. It may well have been specific to the ‘financial markets’, however, the attitude within MoD was that this approach should be adopted to manage both the research and equipment programme, I’m sure that this was also true in other departments … a style of management which has led to problems.

      ‘US productivity growth under Greenspan was actually higher than the long-term trend (3% vs 2.5%) due to an IT-driven acceleration in the 90s. However, this did not lead to any significant increase in GDP growth, which had been fluctuating around 3% since the 1970s, largely because most of the above-trend productivity gains went to capital and the top 1% of income-earners. Similarly, GDP growth in the UK did not “dramatically” increase in the 90s but continued to follow the long-term trend of 3%.’

      Greenspan was a member of the Ayn Rands ‘collective’ which had a major impact upon his thinking. I believe that you will find that US GDP increased which he could not explain in terms of increased productivity … his conclusion was that it was something to do with the IT networks used by the banks controlling the economy making the politicians almost redundant. Eventually Greenspan started to suspect the creation of ‘bubbles’ within the economy. The ‘bubbles’ burst in 2007/8.

      ‘PFI (which was introduced by the Major government) did not recycle the “headroom created by the increased GDP”. Instead it sucked in foreign savings seeking secure assets. Just as the global savings glut helped power unproductive property bubbles, it also enabled more productive infrastructure investment, albeit at the cost of fat fees for the City and high returns for foreign investors. ‘

      Yes Major did introduce PFI, however, it was Brown that used this to excess and hiding these massive items of expenditure from the taxpayer. This initiative is proving to be very expensive and probably explains the extra £8B that the NHS now needs.

      ‘GPs (more specifically, self-employed GPs) have been “highly paid” (relative to their peers in other countries) since the foundation of the NHS. This is a not a new policy introduced under Labour, unless you want to blame Nye Bevan for his original compromise with the BMA in 1948. The takeaway here is that the incursion of private business into the NHS drives up costs.’

      It was Labour who changed to GP contracts which has put strain on other parts of the NHS.

      ‘A government deficit can be reduced either by cutting public expenditure or by increasing tax revenues (or a combination of the two). Standard practice is counter-cyclical – i.e. during a recession you increase the deficit to prop up aggregate demand, hasten recovery and boost the speed of recovery (causing the classic “bounce” profile in GDP and productivity growth).’

      Agreed you could increase taxation, however, the politicians and the people take great pleasure in kicking and reducing the size of the Civil Service.

      ‘The UK was following that pattern in late 2009/early 2010. The coalition’s austerity programme then killed off the recovery in 2010-11, which Osborne tried to blame on the EU. While they quietly eased off the cuts in 2012, they haven’t done enough since to boost demand – outside of inflating property prices. This has led to economic stagnation: low capital investment, weak productivity growth and a worsening balance of payments.’

      In real terms the UK GDP has followed a linear trend from 1980 until now. The period from 1997 to 2007/8 increased at a much steeper rate. From 2007/8 it follows the earlier trend. Being a scientist I would want to know why.

      Consider the following: when Labour took power in 1997 they found that they were receiving larger than expected pay checks. Most people would have want to know why this was happening, however, Labour decided to spend this windfall by increasing ‘pensions’, ‘NHS’, ‘Education’, and ‘welfare’. To support their spending habit they were taxing students for their university courses (they called this taxation student loans). In parallel they borrowed, effectively selling schools and hospitals to the PFI institutions and increased the ‘UK Public Debt’ (with the exception of 2001 when the debt fell). Responsible people would have put those monies into their bank account (in case it has to be paid back) and whilst they find out what is happening. By 2007/8 they had spent the moneys, the people had adapted to their higher standards of living – so our governments borrowed more to maintain that lifestyle.

      ‘This in turn produces weak tax receipts (an increase in employment won’t help unless wages are high enough to generate taxes). It is this, rather than “indulgence”, that has caused the coalition to fail to reduce the deficit.’

      I agree but the coalition has failed to reduce the deficit because they are politicians and want to be re-elected.

      They do not speak Truth to Power.

      • John says:

        As I recall, I think one of the other reasons for choosing PFI for new schools, hospitals, libraries etc. (apart from them costing nothing for politicians to officially open and claim the credit) was because they were off the UK balance sheet in terms of public sector borrowing, designed to assist the UK in meeting the ERM criteria for joining the euro.
        Ironic, really, in that we ended up not joining anyway and lost £billions in the process.
        Still, it is nice to know George Soros did well out of it, isn’t it?
        Another aspect to PFI is not only the initial contracts (and the secondary derivatives market in them) but also high cost maintenance deals also agreed over 25 years.
        Initial PFI and maintenance contracts yielded around 25 per cent ROCE.
        Where can you get that level of profit margin now?
        Even the Tories were forced – eventually – to abandon PFI contracts as unaffordable.
        Of course, by then their chums in the City (who fund the Tories) had already cleaned up.

  11. John says:

    I suspect Dave Timoney is correct when he states the policy was ‘light’ rather than ‘soft’ touch.
    Still, the Freudian slip involved does make one think, does it not?
    I recommend reading ‘Fragile By Design – The Political Origins of Banking Crises & Scarce Credit’ by Charles W. Calomiris (Columbia Business School) and Stephen H. Haber (Stanford University).
    I found it enormously helpful in answering the question “Why are things the way they are?”

  12. Truth to Power says:

    The logical and sensible way forward would have been for the Conservatives to have followed Joseph Schumpeter … it is all part of ‘Creative Destruction’.

  13. Truth to Power says:

    Agreed.

    PFI is bad news for the taxpayer and probably explains why the NHSneed an extra £8B … and this is just the start. It has been claimed that in comming years it will cost the taxpayer a further £300B. It strikes me that Labour may have ruined the NHS, the taxpayers and our children.

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  15. RES says:

    Let’s imagine the Tories want to shrink the state, but haven’t laid a groundwork. The question to then ask is: do they need to?

    You are probably right that they would not risk collapsing any public services. However they could, for instance, introduce a £10 charge to see a GP or force local councils to cut mass transit subsidies. You can still see your GP and there’ll still be a bus, but private citizens pay more relative to the taxpayer.

    In this way, the government can shift expenditure towards the private in small ways; small enough ways the public may grumble but think it reasonable, no doubt greatly encouraged by the government and right-wing press. 300 million annual GP consultations at £10 makes for a tidy £3 billion, for instance; it can be further justified by saying it will dissuade time-wasters. It can be argued that people who use buses should pay for them, not people who walk, cycle or take cars. The government can also more easily attack local council services by decreasing their funding, because people will be more inclined to blame the council.

    As long as the services maintain quality there is no popular revolt, so the principle embeds itself in the population as “safe”. Once done, such tactics can undoubtedly be expanded to more services, or the amount of private contribution expanded. Justification for the state being shrunk can thus effectively be achieved by the processes of shrinking it.

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