Is it just me, or does the mood music from Labour’s potential leaders sound rather like ‘it weren’t me, guv’?
I focus on Labour for purely expedient reasons – I haven’t been a member of any party for many years and have no loyalty to any of them. I’m using Labour merely because they are now the sole major opposition to a government that appears hell-bent on re-shaping the state in fundamentally regressive directions.
I was moved to write this by listening to the predictable, boring and in some cases obviously mendacious tosh been talked by the various leadership contenders. It seems to me they fail to address the central issues facing post-apocalypse Britain, and especially their own part in causing some of the problems we now face.
In several crucial areas of domestic policy the previous government failed abysmally – and these failures have undermined many of the good things they did. Rather like the ability of the banks to create wealth in the good times, only to spectacularly destroy it on epic scales in the bad, New Labour’s errors have catastrophically undermined their achievements.
The first and most obvious is their failures on public finances. How ironic is it that Gordon Brown, who presided over British public spending reaching it’s lowest level (as a percentage of GDP) in decades, should then allow a structural deficit to open up that helped create the current fiscal ‘crisis’.
Labour did indeed, as alleged, fail to ‘fix the roof while the sun was shining’. It allowed a small, but significant, hole (structural deficit) to open up in the second half of its reign and a cumulative public debt to accrue. Had the banking apocalypse not hit, this would have been a problem but not a crisis. The October 2008 near catastrophe of the world financial system turned it from a smallish problem into a really serious one – roughly speaking the annual deficit trebled or quadruppled almost overnight, and the total public debt spiralled almost out of control.
The narrative of the current government is this happened because of profligate spending, which is of course self-serving nonsense from people determined ‘not to waste a good crisis’ and use this one as an opportunity to ‘roll back the frontiers of the state’.
Labour’s spending was not, contrary to popular myth, at epically high levels. Public spending as proportion of GDP, the best measure, was actually at just under the average level for most of the post-war period in 2008 (and lower than the average under the previous Tory government). The problem was Labour’s refusal to ask us to pay for it – tax as a percentage of GDP was too low to pay for this pretty average level of spending.
It is true that, for most of this period, more public spending was actually going on paying for the stuff – public goods and services – people wanted rather than on unemployment and debt servicing, as it had under previous governments. But this was because we had strong economic growth, low unemployment and low interest rates. So arguably Labour’s key error was not to spend too much but to fail to tax enough to cover the costs of what people wanted them to provide. Labour failed to put these choices honestly before the electorate – pay more for public services, or reduce their scope, but you can’t have your cake and eat it.
But there were other, equally if not more important, mistakes.
The first is how they spent the money. Despite all the rhetoric about modernisation and reform, Labour’s efforts to change public services largely failed, mainly because they were misguided. Labour had been bitten by the neo-liberal bug that said the only way public services could improve was to become more like the market. This was somewhat disguised by specious twaddle about ‘post-bureaucracy’ (a theme now pinched by David Cameron), the internet age and other great sounding but empirically unfounded phrases.
This approach ignored one crucial fact: markets meet only those needs that can be funded by the customer. They create wealth, to be sure, and very good they can be at it too – although as we have seen recently uncontrolled markets can also spectacularly destroy wealth too. But generally, markets are an engine for wealth creation, innovation and growth. But they also create, inevitably, inequality – that is in a sense what powers markets – difference: being better, cheaper, more fashionable, or faster. Giving someone the edge, the deal, the profit – inevitably to someone else’s disadvantage. There’s nothing wrong with that, it is, in my view, a part of human nature, but not the only part.
The state exists, in part, to redress the balance and provide for some equality, equity, due process and replace, where necessary, ‘market failure’ with collective action. In short, taxation is the price we pay for civilisation. That too is part of human nature – to want to live in a civilised society and help our less fortunate fellows. So trying to make public services more like markets undermines their very reason for existence.
New Labour’s restless search for ‘modern’ solutions made the task of actually improving public services far harder. Those services for which we have data show a deterioration in productivity. Why? Because, apart from other mistakes, they were subject to constant ‘redisorganisation’ (something the new government is also about to embark on, but that’s another story).
Change disrupts; radical change disrupts radically. In the short run, performance and productivity are likely to fall. If the changes are the right ones, and if they are allowed to settle down, eventually performance can reach new heights – but they are two big ifs that were both usually wrong under Labour.
This not to say public services don’t need reform – they do. But in many cases what they need is to become cleaned-up, well-functioning, bureaucracies not some post-modern, marketised, pseudo-private operation. They need good management, good systems, consistent delivery – all the hard-grind stuff that politicians of all stripes find far too boring and pedestrian. Why bother with trying to make things work when you can reorganise them, better yet around some grand (but utterly unproven) scheme or fancy ‘new’ idea (often a rehash of some old nostrum, that didn’t work last time round either)? The result was that far from going from ‘good to great’, public services largely went from ‘not so good’ to ‘good’, at best.
That is not say, I hasten to add, that ‘market’ solutions are always wrong for publicly funded provision – I’m largely a pragmatist on that. But a pragmatist who prefers evidence to ideology, and all too often ‘market’ type solutions were assumed to be axiomatically better by New Labour, even when the evidence said otherwise.
As for the very real public deficit problem, New Labour has been hemmed in by its acceptance of way too much neo-liberal orthodoxy. The recent crisis was not as bad as World War II in terms of the threat level to national survival, but it certainly wasn’t just a run-of-the mill recession either. Faced with national crises like WWII we have treated the impact on public finances as a long-term problem to be resolved – we only finished paying off ‘Lend-Lease’ in 2006.
Even for far lesser problems we have adopted long-term financial solutions – when the mines were nationalised, the money used to pay off the mine owners was financed through long-term loans which were still being paid off by the time we were closing down the coal industry.
Labour could have come up with far more radical alternatives than adopting a short-term fix. But it didn’t and is now at least partly hamstrung in opposing cuts that are not far off what they would have had to do themselves to meet their target.
Gordon Brown can rightly claim credit for ‘saving the world’ in the sense that he led the charge to recapitalise the banks and prevent a financial meltdown. He certainly hasn’t been given sufficient credit for this, but that’s partly because of two other factors. First, New Labour failed utterly to reverse the ‘Big Bang’ liberalisation of the City ignited by the Tories, and indeed praised it as ‘good thing’.
Second, when the inevitable happened, Labour did move to recapitalise and effectively nationalise the banks and then froze like a frightened rabbit, afraid to do anything much with the situation other than allow the banks to return to ‘business as usual’. Instead of a radical shake-up, cutting the banks down to size so they weren’t ‘too big to fail’, putting in barriers between different types of banking, etc they did – not much. They couldn’t even bring themselves to really go after obscene bonuses being made on the back of public subsidies. This made them look weak and impotent, which in a self-imposed way they were.
A radical intervention into the banking system did not have to look like, or be, a resort to old-style nationalisation. It could have been a get in, reorganise, and get out operation of the type conducted in the USA in the 1930s. But years of bowing to the great God of Finance had left New Labour incapable of anything so pragmatic. ‘What works’ only apparently applies in one direction.
This was itself part of a wider problem – that of inequality. Wanting a bit less inequality is now no longer a matter of ideology or values, it is reasonably empirically well established that more equal societies are happier places to live, for everyone, than less equal ones.
New Labour made prodigious efforts to reduce poverty and inequality, except in one respect. As long as poverty is measured in relative terms, and there are good reasons to do so, allowing top salaries and wealth to spiral out of control will always undermine efforts to reduce inequality. This is not to say that those who perform in extraordinary ways, or take huge personal risks, should not be allowed to reap some (most?) of the rewards for doing so – but there’s an awful big territory between ‘being extremely relaxed about people getting filthy rich’ and ‘equal socialist penury for all’. New Labour was much more at the former end of the spectrum than the latter.
‘It’s the economy, stupid’ is very true, and it was the economy – private and public – on which New Labour ultimately failed.
It failed to manage the public finances, through modest cuts and modest tax rises, when it could have. If it had, it would now be clear that the problem we have with the public finances is mostly to do with market failure and not Big Government.
It failed in modernising public services so the extra resources put into them produced potentially much better levels of service (and wouldn’t have cost as much), mainly through it’s obsession with constant reorganisation and ‘market’ type solutions. Services improved, but much less than the extra resources should and could have produced.
It failed to control the finance sector when it could have, and then failed to follow-through on its decisive intervention to prevent another Great Depression, which would have followed a banking collapse.
And it failed to tackle relative inequality by attacking it from both ends – poverty and obscene rewards – even when it had a ‘good crisis’ opportunity to do so after the banking fiasco. There has probably never been a window of opportunity so big in British politics to have really changed our national direction, away from a US model of liberal democracy and more towards a European one of social democracy, in the broadest sense of that term.
Most of what I’ve heard from Labour’s leadership contenders so far suggests they are in denial about all this. Instead they seem at best confused and ambivalent about it. We already have two major centre-right, neo-liberal, parties in government – we really don’t need a third, do we?
Colin Talbot is professor of public policy and management at Manchester Business School. This post first appeared on Whitehall Watch
