On the Today programme this morning, Ryan Bourne said (2'38") that spending cuts need not have "hugely detrimental effects on the public services":
Other countries spend significantly less as a proportion of GDP than the UK. It's a question of political will as opposed to economic feasibility.
I'm not so sure.
First, though, some context. Current Tory plans envisage cuts in public spending, but with health, education and overseas aid protected. This implies large cuts elsewhere. As the OBR says:
By 2018-19 the [resource departmental expenditure limits] for unprotected departments would be 5.4 per cent of GDP, little over half the level spent in 2013-14 and less than half the level spent in 2010-11...In real terms...total RDEL spending in 2018-19 would be 22 per cent down on 2010-11 and for the unprotected departments down 45 per cent. Adjusted for the ONS’s specific deflator for changes in the price of government consumption, the declines would be 9 per cent and 36 per cent respectively. (Par 6.16 of this pdf)
Three things speak in Ryans' favour, but I'm not convinced by any of them.
1. The cuts envisaged for 2015-16 to 2018-19 are a bit less than those we've already had.
I'm not sure, simply because we should have picked the low-hanging fruit by now, and further cuts will be harder. Also, whilst one or two years of pay restraint is feasible - especially when private sector wages are squeezed - it's not obvious that many such years are possible.
2. There have been cases of big cuts in public spending without disastrous effects around the world.
However, many of those cuts came from lower interest and welfare spending rather than departmental spending. And they came at a time when the macroeconomic environment was conducive to the possibility of expansionary fiscal contraction.
3. As Vito Tanzi and Ludger Schuknecht have shown, newly industrializing countries, such as South Korea, have combined low public spending with good social indicators.
The problem here is path dependency. It might well be possible to have small effective government if you're starting from scratch. But we're not. And big government can lead to big government for at least two groups of reasons:
- Vested interests. Years of big government create a client base for big government and thus pressures to maintain it. I'm not thinking here merely (or even mainly) of public sector unions. There are also capitalist interests in favour of big government, not to mention public sector managers who have more incentive to maintain their positions than to enhance efficiency.
- Cognitive limits.The difficulties the government has had with Universal Credit and free schools shows just how hard it is to actually implement change. And whilst it is possible in theory to cut waste, the (correct) Hayekian strictures that central planners have bounded knowledge warns us that waste can't be identified from the top-down.
I say all this for two reasons. First, to note an irony: the same free market theory that calls for spending cuts also tells us - through the economics of public choice and bounded knowledge - that such cuts are hard. Secondly, to note that if cuts are to be reconciled with decent services, the solution might lie in abandoning top-down managerialist conceptions of how to run those services.