Cutting waste

There's something we've not heard very much of recently - the government's hopes to cut "wasteful" public spending. There's a reason for this. The Tories don't want to cut waste. Nor, for that matter, does Labour. I mean this in (at least) four different senses:

 - The war on drugs costs a fortune in police time and in incarcerating drug dealers, but its benefits are elusive.

 - The war in Afghanistan cost billions and might not have achieved proportionate benefits.

 - It cost £1.6bn to police our borders last year - more than was lost to benefit fraud (pdf) - and given diminshing returns, it would probably cost much more to police them effectively. But there are no big economic benefits from restricting immigration.

 - The DWP spent (pdf) £7.4bn on administration last year, and lost another £2.1bn in fraud and error. In the long-run, a large chunk of this cost could be saved by the simplification involved in a citizens basic income.

However, neither party seems keen on acknowledging this waste nor - aside from surrendering in Afghanistan - doing anything about it.

You might object that this is because these aren't forms of waste at all, but rather simply the costs of giving voters what they want. This would be true if these voters wanted these policies for their intrinsic qualities. But do they?

Take, for example, immigration controls. If people want these because they simply have a taste for exluding migrants, then fine. (Well, not at all fine but that's another story.) But what if they want them because they believe immigration is bad for the economy? If this is the case, then we could relax border controls and "save the tax-payer money" with no ill effect.

I suspect that if voters were asked: "do you think we should spend more on border controls than we do on benefit fraud without getting any macroeconomic benefit?" support for them might diminish.

Or take the admin costs of the DWP. These aren't waste if you think a complex benefits system is a good thing in itself, but they are waste if you think the purpose of the benefits system is to provide a basic minimum income for all.

My point here is a simple one. Governments cannot reduce "waste" merely by increasing efficiency. Even in the private sector, remember, efficiency increases not so much by individual firms becoming more efficient, but by firms entering (pdf) and exiting (pdf) the market. If governmental efficiency is to increase, it will have to be through a similar mechanism - the government exiting from some functions and rethinking how it provides others.

Oh yes: From a Keynesian point of view, of course, even "wasteful" public spending has a role in boosting aggregate demand. I'm ignoring this, and assuming that productive public spending is better than unproductive.

Comments

[Nick]

I wish I could carp about something in this article, but I can't. Its faultless. I thought the best thing the Borders Agency did a couple of years ago was randomly let people through during busy times when they were short of staff. They got roasted for it.

[Jim M.]

There is one thing to carp about... namely, the complete lack of perviness and no trace whatsoever of depressing sexism.

I, for one, feel short-changed!

[Keith]

This is amusing or depressing.

What you are really saying is that policy is not rational. Rather than looking for policy that might increase human happiness the idea is to sell policy that fails but looks tough or hard. Pander to ignorance and arrogant imperialism and you will go far. Well at least allow you a few years in the Cabinet before you go to run international rescue.

[rogerh]

Plainly inefficient, so cui bono? Perhaps the administrative class can see what happened lower down the pile and can feel the pressure of the Tarquins and Jemimas squeezing into a smaller and smaller cushy-job market. So, borrowing from the Old Spanish Practices manual - declare 'its always been done this way, mate'.

Westminster seems very similar to the court of Louis Quartorze but with a distinct squeeze being felt at the edges - trouble coming but too far off to worry about today. Then there is a symbiosis with the modern-day courtiers and mini-monarchs, they don't want the boat rocked either. There seems some pressure to reform the Civil Service and it probably needs it, but care is needed, a good Sir Humphrey is a useful counter to the politicos.

If reform is contemplated it is likely the uber-administrators - the consultants - will get called in, but they are a wily bunch and can see where the bread is buttered, their host must be kept alive and never learn to resist. Plus ca change.

[fake]

I've never seen anyone argue immigration is bad for the economy.

I've seen people argue it is bad for wages for a certain sector (tradesmen, labour), and it's bad for social cohesion.

I've yet to see decent rebuttals to those points.

[Liz]

The war on drugs does make sense, if you start from the premise that the global mega-banks are far more powerful and greedy than any mere elected government. If you accept that premise, the war on drugs is a great idea all round for the mega-banks:
- restricting the supply of a product that is in very strog demand pushes up the price, resulting in very wealthy drug dealers
- governments cannot tax a product that is illegal, therefore the drug dealers can keep 100% of their profits
- drug dealers need to launder the majority of their profits through banks
- AML and Know Your Customer laws can be politely ignored by the banks (HSBC, anyone?), safe in the knowledge that no government would dare to jail an almighty banker. The very occasional fine of a billion dollars or so can be considered just a cost of doing business in one of the most profitable industries of all time.

[gmail hack]

great article i liked it..