Transcript Week: 5 Government Beyond the Centre - C

The Extended State:
Public Ownership, Regulation
and Quangos
Introduction
• The growth of state intervention (known also as
‘the public sector’) has been one of the defining
features of British government since mid-C19th.
• Almost all countries, regardless of their system
of government, have witnessed an expansion of
state activity, especially during periods of world
war and also the long post-war economic boom.
• Liberal democracies & their capitalist economic
order, also have state involvement in economic
management (via fiscal policies & nationalisation
of industrial activities) and the redistribution of
resources for reasons of social welfare,
economic necessity and political opportunity.
UK General Government Expenditure as a % of GDP
100
90
80
70
60
50
40
30
20
10
0
1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001
Year
Where taxes come from UK Government Budget March 2005 £487bn
65
138
19
21
41
44
83
76
Income Tax
National Insurance
VAT
Corporation Tax
Excise Duties
Council Tax
Business Rates
Others
Where taxpayers' money is spent UK Government Budget March 2005 £519bn
49
26
146
31
90
16
20
20
23
28
68
Social Protection
Education
Defence
Industry, Agriculture, Employment
Housing
Other Exp
Health
Public Order
Personal Social Services
Transport
Debt Interest
The State and the Economy
Public Sector as a % of GDP - the UK
Public Sector
40.00%
Rest of Economy
60.00%
Public Sector
Rest of Economy
The State and the Economy
Public Sector as a % of GDP - EU average
Rest of Economy
55.00%
Public Sector
Public Sector
45.00%
Rest of Economy
The State and the Economy
Public Sector as a % of GDP - the USA
Public Sector
30.00%
Rest of Economy
70.00%
Public Sector
Rest of Economy
The State and the Economy
Public Sector as % of GDP - Nordic average
Rest of Economy
45.00%
Public Sector
55.00%
Public Sector
Rest of Economy
• The public sector has grown from 10% in 1900 to
c. 40% today with public employment rising
accordingly. Slightly below the EU/OECD mean
• The public sector is more than just ‘the state’ but
includes a variety of institutions:
– central government departments & agencies
– local authorities
– public corporations (including nationalised
industries)
– non-departmental public bodies or quasi-non
governmental autonomous organisations
(‘quangos’)
– other public bodies and agencies
The Growth of the UK State
• A V Dicey et al observed the rise of collectivist
tendencies with society during the C19th as a
product of industrialisation and urbanisation
• K Marx et al believed the state was an essential
feature of a capitalist society - indeed, it was a
‘capitalist state’ geared to promoting the longterm interests & survival of the economic order,
whose actions would be antipathetic to labour.
• Conservative / Imperialist commentators
concerned about the rise of foreign rivals’
military and economic prowess pressed for state
action to promote national wellbeing (e.g. the
‘National Efficiency Movement’).
Karl Marx / Otto von Bismarck
• The ‘New Liberal’ reforms of 1906-14 brought
social and economic measures designed to
combat growing industrial militancy among trade
unionists. Old age pensions, unemployment and
other welfare benefits were introduced.
• Similar reforms overseas (e.g. Bismarck)
• Total war - full mobilisation of national resources
in a battle for survival saw massive rise in state
activity, much of it continuing into peacetime.
• 1945 - a Labour Government formalised ‘Welfare
State’ along with full-scale nationalisation
– pragmatic justifications
– ideological considerations
– the imperatives of capitalism
David Lloyd George
and Aneurin Bevan
• Post-war political cross-party consensus based
on a belief in a mixed economy and active state,
& Keynesian economic demand management.
• Accelerated national relative economic decline &
a fiscal crisis of the state in the 1970s saw a rise
of the New Right & its call for radical action:
– curb the debilitating ‘nanny’ state and restore
personal responsibility and initiative
– monetarism - sound public finance, curbing
public spending and borrowing and lowering
taxes; and,
– promote enterprise and allow market forces to
prevail by ‘rolling back the state’.
• A ‘Conservative Revolution’? Much of economy
privatised by Thatcher & Major (1979-97).
Reversing the Growth Privatising the State
• End the burden on the taxpayers of loss-making
state enterprises, breaking up state monopolies
to promote competition, lower prices and choice
• Creation of a property-owning democracy (‘Sid’
and the rise of the small shareholder)
• Raise revenue for the Government (to finance
other expenditure and/or cut taxes/borrowing
• Challenge heavily unionised parts of the
economy thereby easing labour reform process
Sir Keith Joseph / Milton Friedman
The changing ownership of an
industry- the case of rail
The Recent Experience
• Despite the language of ‘cuts’ & opponents fears
of an end to the Welfare State, overall public
spending rose and the public sector remained
stubbornly resistant to deep retrenchment.
• 1997 - New Labour accepted Thatcher agenda as
irreversible, focusing instead on promoting
‘sustainable’ economic growth & its ‘fiscal
dividend’. Traditional large scale redistribution
rejected in favour of “a rising tide lifts all boats”.
• Renationalisation is ruled out – regulation is the
preferred method of correcting the mistakes and
weaknesses of privatisation
• The UK has experienced a halt and partial
reversal in its post-war relative economic
decline, according to many commentators
• Polarisation between the ‘rich’ and ‘poor’ has
grown under both Conservative and Labour
• New Labour has sort to steer a ‘3rd way’ with
some redistribution to the poor from the middle
classes but leaving the rich to get richer
• Is the US model or Far East ‘Tiger Economies’
more appropriate than the European model?
What will address the UK’s relatively poor
productivity record?
• EMU & the Maastricht criteria on deficits & debt
have obliged states to run tight fiscal policies.
Which model to follow?
Productivity - output per worker
Index Value
150
100
50
0
UK
France
Germany
Country
USA
The Rise of the ‘Quangocracy’
• All governments have made use of ‘arms-length’ forms of
public sector organisation – quangos
• Quangos can be a useful and non-controversial form of
public organisation, especially where a clear need for
objectivity and independence is warranted.
• BUT quangos have come to be viewed negatively
• Types of quango: Judicial, Advisory, Consultative, Crown
bodies, Commercial, Regulatory, Self-financing regulating
agency, Executive
• Major expansion of quangos during the period of
Conservative Government despite earlier pledge
to reduce the numbers, powers and budgets – a
‘new magistracy has been created
• Over 6000 quangos – depends on definition, with
over twice as many people involved as there are
elected local councillors
• Appointed by Ministers but in practice having
tenuous accountability to Parliament
• Aggregate Quango budget exceeds that of local
government
• Centre’s preferred means of bypassing awkward
democratically elected local authorities
• Nolan Committee on Standards in Public Life
investigated the role quangos and concerns over
patronage ‘cronyism’, ‘packing’, ‘excessive’
remuneration, undue secrecy and other high
profile abuses during the Major Government
• Reforms have been made while devolution helps
to put quango activities back under greater
local/regional political scrutiny in Scotland,
Wales, NI, Greater London and – possibly –
English Regions that seek devolution
• Critics suggest that quangos continue to have an
unduly large role in British public life and that the
Blair Government has a comparably poor record
over ‘cronyism’ – the reform of the House of
Lords created, ironically, a major new quango
Lord Nolan
Conclusions
• In common with other countries, the UK State is
an inescapable part of modern society having an
enormous role in the economy.
• Modern liberal democracies are based on a
mixed economy model, with the state accounting
for c.30-50% of overall national output (UK 40%).
• The electoral battle in liberal democracies is
between those favouring a slightly higher level of
state activity and spending (Labour, Liberals)
and those wanting reductions (Conservatives)
Conclusions
• Global economic competitive forces appear to
make large expansion of the state impossible
(due to loss of investor confidence) but domestic
political realities make large contractions
similarly unrealistic (voters reject cutbacks)
• Old ideological battles over ownership between
nationalisation and privatisation have ceased
• The extent of regulation of the economy is now
the key concern with 2 rival models of regulation
- a US (low) and an EU (high) – UK in between
• Quangos remain a favourite device of politicians
despite promises to ‘democratise’ them