Thursday, 17 September 2009

Culture not constitution? The economic consequences of Mr Brown

A slightly misnamed book, as its subject matter is New Labour's progress on social policy goals, not economics. But, like most policy debates today, it's taken from an old Keynes quotation, so I guess that's OK.

The author, Stein Ringen, led a debate at the RSA this week. The core thesis of the book is that the Labour government which took power in 1997 was well-intentioned, sincere, competent, visionary and had the economic wind at its back - but still achieved almost nothing in its four key social goals: health, education, reduction of crime and poverty.

Ringen suggests that this failure arises from a built-in conservatism in the British constitution and political system. Because of centralisation of power in the prime minister's and chancellor's offices, there is nowhere in the political process to conduct a well-informed critical debate. Because of politicians' inability to "mobilise the effort of millions" towards new ideas, all policy becomes technocratic. And technocratic policies, however well-managed, do not bring about real change.

Despite the title - which is explained when you realise that Ringen includes all domestic policy under his banner of 'economics' - there are some simple economic blind spots in the book. He says:
The combination, in the public services, of more money and less productivity is a mystery. Why would doctors and teachers respond to more money with working less productively?
But to any economist, this is not a mystery at all. It's called "diminishing marginal returns" and what happens is this: Some of the extra money goes to paying existing doctors and nurses more; but more of it goes to hiring new doctors and nurses. If you increase the number of doctors by 20%, there is no way they are going to do 20% more work. Apart from anything else, there are not 20% more patients to treat. Also, new employees are less productive than old ones; if they weren't, the new ones would have been hired already.

So the working hours of doctors are reduced instead; the existing workload is shared out among more workers, and while the total output does go up, it goes up less than the number of doctors. Targets and wage inflation may (debatably) have an impact on productivity too, but they are second-order effects.

But economics is not really the point of this book, so it's not quite fair to criticise it on those grounds. The real question is: is his diagnosis right, and will his prescriptions work?

It's very hard to confirm the diagnosis because we have no counterfactual. We don't know whether, if Labour hadn't been in power, health and education outcomes, crime and inequality would have been worse than they are. There is lots to debate in the detail of public sector performance since 1997. But let's say we accept the interpretation that Labour has managed to achieve virtually no meaningful social change in twelve years. What should be done to enable a future government to do better?

The solution Ringen proposes is:
  1. Parliament to retake its role as the primary seat of political authority; new legislation to be properly scrutinised and debated, and the executive to move to a position of leadership not management.
  2. A reinvention of local democracy.
  3. Replace all private funding of political campaigns with public finance.

But for a writer who criticises technocracy, this is a rather technocratic set of changes. Fortunately we can look at other polities where similar structures are in place, and see how they work.

For instance, the United States. Obama's healthcare proposals are a good example of the kind of social justice policy that New Labour might have tried to implement, had they inherited the US system. And the US constitution certainly meets at least two of Ringen's three criteria: there is no doubt that Congress is the real seat of (policy) power, and that there's a thriving local and regional democracy, much more powerful and independent than in the UK. American political funding is clearly far from perfect, but is arguably more regulated than in the UK; at least there is some role for public funding, which (apart from party political broadcasts) doesn't really exist here.

And yet, the kind of healthy scrutiny and debate that Ringen calls for doesn't seem to be happening at all. Instead, a vocal and unrepresentative minority shouts down the changes and manages to steer the debate onto its terms. Wouldn't this happen in the UK as well?

This minority is probably acting rationally - in a certain sense - with regard to its own material interests, but despite the rhetoric, has no commitment to working out the best solutions for the whole of society.

I wonder, therefore, if the real need is not for constitutional fiddling but for a change in political culture. I don't mean the culture of politicians, but the political attitudes and behaviours of the other sixty million of us. I am wary of the common left-wing idealisation of the continental European polities, but it does seem that in the Netherlands and Scandinavia, there's a more informed and constructive debate on most policy than in the UK or the US.

Surely the only way for leaders to "mobilise the effort of millions" is to have both the grass-roots structures to do so, and the cultural expectation that it is an appropriate thing to do. I doubt there are any shortcuts to this cultural change - education, consistent use of political capital, and appropriate policies in the public-service media will all make a difference, but only over a period of decades. It's hard to be sure that governments or any other institutions will be able to act consistently over a long enough timescale to create this change, but it will certainly take a lot more than three easy constitutional tweaks.

Update: Matthew Taylor, chief executive of the RSA, makes some similar points on his blog.

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