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The case for big government By Martin McIvor July 2002 Inch by inch, Gordon Brown is rolling forward the frontiers of the state. It's a turning point of sorts - during Labour's first term, public expenditure actually shrank as a proportion of GDP. But we are now seeing a slow climb back from a low point of around 37.5 per cent in 1999/2000, to the 42 per cent now projected for 2005/6 in the government's third biennial Spending Review. And unlike the over-spun increases of the first term, the boosts for the NHS and schools over the next three years are genuinely historic: as real terms annual average increases, 7.3 per for health, and 6.4 per cent for education, more than either service has experienced in its history and more than Labour has been able to offer thus far. Will it be enough? Andrew Dilnot of the Institute for Fiscal Studies says that while the new money is "significant", "it is not going to turn everything around. I think it very likely that the government will wish to increase spending beyond the plans set out here." So where does all this end? Well, here's the really tough truth that few still dare to own up to - it shouldn't. If we're really committed to providing universal and comprehensive public services, we need to accept that an ever- rising proportion of GDP will must be devoted to them. There are two basic reasons for this. First, in services like healthcare and education, the human factor is essential - teachers, doctors and nurses can't be replaced by machines in the way that assembly-line workers in a biscuit factory can. This means they are inherently less susceptible to productivity increases that technological advances make possible in the rest of the economy, and so bound to become more expensive relative to other goods and services. This is why it makes no sense for Tories and City economists to complain that new money will be "swallowed" by "public sector inflation" and "wasted" on higher salaries for public sector employees. It is true that, according to the Office for National Statistics, costs in the public sector are rising faster than the economy's overall inflation rate. But the fact that the public sector is proportionately more labour-intensive means this is bound to be the case. It also means that delivering better services will generally involve hiring more people at higher rates of pay - especially given the extent to which public sector pay has fallen behind that in the private sector over years of under-investment. The implication, as John Grieve Smith explained in Catalyst's response to April's Budget announcement, is that "real increases" of 2 or 3 per cent a year are needed simply to maintain existing levels of service - as the wage-bill that makes up a large part of the outlay on them will have to keep pace with (and in present circumstances catch up with) average earnings across the economy, which generally increase at a faster rate than inflation. Add to this a second basic axiom of public service economics: what we mean by an acceptable level of healthcare, education and social security is not fixed but socially determined. And the historical trend is always for this demand to rise, as society grows richer, older, and better educated. If we are serious about the public sector ensuring social inclusion by guaranteeing universal and equal access to these fundamental conditions of meaningful citizenship, it must keep pace with these rising expectations. So simply maintaining existing services as they are now is not enough. Clearly, then, we are at a crucial political juncture. Up till now the presumption that the public sector should provide an adequate and sufficient level of service for all has remained well-entrenched in public attitudes. But there are many who will encourage us to recast our expectations of the public sector as a provider of a minimum level of core services to be "topped up" (by those who can afford it) with private arrangements. De facto, the argument is gaining ground with the boom in Private Medical Insurance and after-school tuition, and has all but won in the field of pensions. But on the other side many are beginning to look suspiciously at the unsupported prejudice, inculcated by the New Right, that there must be something wrong with letting the public sector take up a greater proportion of the economy. Germany and Italy tax and spend around 45 per cent of their GDP, France around 50 per cent, and the Scandanavian states 55 to 60 per cent - and it doesn't seem to do any of them any harm. The Sunday Times business section recently conceded that "there is no identifiable relationship between a country's level of taxation and its economic performance". Indeed, the Davos World Economic Forum ranks high- taxing Norway, Sweden and Finland as more "competitive" than post-Thatcherite Britain. Adair Turner, in Just Capital, the book written after standing down as Director General of the CBI, admits that business lobbies' resistance to tax increases on grounds of "national competitiveness" just doesn't stand up. "The link between economic success and the minimal state either doesn't exist or is greatly overstated", he writes. In consequence, the ideal size for the government sector "is not determined by economic science but instead by one's personal preferences for collective versus individual goods and by one's philosophical approach to inequality." This usefully focuses attention on what is really at stake in last month's diversion of another 2 per cent of our national income from private to public spending: not some economic adjustment, but a modest political redirection of society's activity towards collective and egalitarian goals. And why not? Everywhere we see signs of a latent hunger for shared projects and experiences that can counteract the atomisation and social fragmentation of the market. It's in these terms that the shift should be defended, and on this basis that it must be extended. And it reminds us, once again, why we should be worried by the Treasury's continuing insistence on trying to extract efficiency gains by private sector takeovers and market dynamics - because all experience shows how this kind of "reform" undermines the principles of equity and democratic ownership that public services must be built on. There is no point in enlarging the public realm whilst allowing it to be eaten away from within by private interest - for this will be the cure that kills. Published in Red Pepper magazine, July 2002 Martin McIvor is Director of Catalyst |
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