Stumbling and Mumbling

How to shrink the state

Steve Barclay, the Prime Minister’s chief of staff, says he wants to “restore a smaller state”. This is mere virtue signalling.

For one thing, the Tories’ actual behaviour shows no appetite for a smaller state. Quite the opposite. They oppose drug legalization; have authorized the security services to commit crime; and are seeking to suppress protest.

But there’s something else. It’s that if you are serious about cutting government spending as a share of GDP you need much more than libertarian instincts. You need a strong economy.

My chart shows the point, showing total managed expenditure as a share of GDP since 1955-56.

It’s not easy to discern from this alone any great political changes. Yes, the share of government spending in GDP rose in the 1960s as social democracy became more entrenched, and also grew during the second New Labour administration from 2001 to 2005. But it also rose in the early years of the Thatcher administration – from 41.5 per cent in 1978-79 to 43.3 per cent in 1982-83. And it fell in the first few years of the New Labour government. Few, though, would argue that Thatcher believed in bigger government and Brown in smaller.

Instead, what stands out more are economic booms and slumps. Government spending rose as a share of GDP after the oil shock of 1973; during the recessions of the early 80s and 90s; during the financial crisis of 2007-09; and during the pandemic. And it fell during the booms of the late 80s and late 90s.

The state of the economy is a stronger determinant of the share of public spending in GDP than is the ideology of the government.

We can put this more formally. The OBR has estimates of the output gap going back to 1972-73. Between then and 2019-20 (that is, just before the pandemic), the correlation between that gap and the share of TME in GDP was minus 0.4. A weak economy means a higher share of government spending, and a stronger economy a smaller share.

By contrast, the relationship between the share of TME in GDP and dummy variable measuring whether the Tories or Labour are in government is statistically insignificant. Which tells us that the state of the economy matters more for the size of government than does which party is in government.

Now, you might think that the output gap is a bad measure. I’d agree. But another measure tells a similar story. If we look at five-year changes in real GDP and in the share of public spending in GDP we also see a negative correlation. For the TME share it was minus 0.43 between 1955-56 and 2019-20. And for the share of current spending in GDP it has been even stronger, at minus 0.56. If we look only at the post-1973 period – that is, to exclude the Golden Age of strong growth, the correlations have been stronger, at minus 0.61 for the share of TME in GDP and minus 0.63 for the share of current spending. And these figures exclude the pandemic year, and so understate the correlation for the whole period.

I’m not very numerate – though am more so than many MPs – but I do know that a fraction comprises two parts, a numerator and a denominator. You can reduce a fraction therefore not by reducing the numerator but by increasing the denominator. And history tells us that this has been the main way in which state spending shrinks as a portion of GDP.

If you are serious about shrinking the state, you need to do more than wave Hayek and Nozick at us (or, Gawd help us, Ayn Rand). What you also need is stronger economic growth.

Which brings us to a problem. The Tories cannot deliver this, for four reasons:

 - Brexit red tape is reducing trade and depressing GDP. Free trade agreements with other countries are unlikely to offset this damage.

 - They are still austerians, as we are seeing with Sunak and Johnson’s promise to raise NICs even during a cost of living crisis. The OBR foresees cyclically-adjusted net borrowing falling from 8.3 per cent of GDP this fiscal year to 1.5 per cent by 2026-27. That means weaker growth and hence a still-high share of public spending in GDP: the OBR forecasts that even in 2026-27 TME will be over 41 per cent of GDP, much higher than it was during the New Labour years before the financial crisis.

 - Tories electoral interests militate against promoting growth, even if they knew how to do so. A stagnant economy fosters reactionary illiberal attitudes and hence support for their culture wars.

 - Tory supporters’ and donors’ interests are antagonistic to faster growth. Policies to promote growth would hurt rentiers – such as shifting incomes from incomes to property, liberalizing planning laws or promoting competition. And higher trend growth would probably entail higher real interest rates, thus hurting rentiers still more.

If you are sincere about wanting to shrink government spending as a share of GDP, you cannot support the Tory party as it currently exists. Given the party’s lurch towards illiberalism, however, you cannot support Labour either.

The puzzle of media influence

It’s sometimes said that Johnson is in trouble because his erstwhile supporters in the media have turned against him. I’ve no interest in that claim, but it raises an overlooked issue: why does the media still have so much influence despite collapsing newspaper circulation?

For example, since 1997 the Daily Mail’s circulation has fallen from 2.3m to under one million, and the Guardian’s from 428,000 to 109,000. And although the Sun, Telegraph and Times no longer publicise their circulation, data from 2019-20 show falls of over 50%. Of course, digital readership has risen, but it’s not clear that this sustains their political influence: you can read the Mail’s sidebar of shame without succumbing to the paper’s politics.

Such collapses in circulation, however, have not been matched by a decline in their influence. Nobody says the media is only one-third as powerful as it was in the 90s, although it would be if its influence had matched its sales.

Although it is easy to overstate this power – people can be right-wing idiots without the help of the Sun or Mail – it still exists. Two facts tell us this. One is the age-voting gradient. Older people consume much more legacy media (including the BBC) than others, and they vote right. In the 2019 election over-65s split 62%-18% Tories to Labour, whilst 25-34 year-olds went 23% Tory-55% Labour. The other is that In Liverpool, where the Sun is not sold, the Labour (and Remain) vote has been bigger than in otherwise comparable areas. As Mic Wright says:

Despite declining revenues and readership, the British press (and the broadcast media that hews closely to the agenda it sets) does not simply report the news, it creates it.

Why is this?

One explanation is that the legacy media still has a big comparative advantage. Granted, it is mostly useless at describing longer-term social changes and emergent processes or at scrutinizing legislation: think of the comparative lack of coverage of the police bill. But it is better than other sources at breaking Westminster bubble stories, such as those about the Downing Street parties. This fact alone gives it some influence over party politics.

But there might be more to it than this.

One possibility is that a belief in the power of the press is self-fulfilling. As Duncan Robinson says:

[The tabloids] maintain influence because they shape elite opinion - among ministers and the BBC - not because they speak for the people, who no longer buy them.

The media are like the Wizard of Oz, possessing power because people believe in that power. If a politician believes he can be made or broken by Murdoch or the Mail, he’ll stay in their good books and so they will indeed have power.

Secondly, political careers have become shorter. David Cameron, for example, spent only 15 years in parliament: Thatcher and Wilson were MPs for longer than that before becoming PM. And several New Labour MPs who would now have accumulated to the experience to be “big beasts” have long left national politics, such as David Miliband, Ruth Kelly, Ed Balls or James Purnell. With parliamentary careers truncated, politicians can no longer build reputations through campaigning within the party (the old “rubber chicken” circuit) or through diligent backbench work. Which means they need quicker routes to prominence, and the media offer these.

Thirdly, people don’t see politics as a discrete and separate activity with its own distinct criteria of excellence and failure. In fact, many politicians don’t even realize what the purpose of politics is – the solution or amelioration of collective action problems. Instead, we watch politics in the way our nans used to watch the wrestling, cheering the good guys whilst trying to hit the baddies with their handbags.

This gives influence to the dumbed-down media. Back in 2018 John Humphrys said of Brexit – on one of the BBC’s “flagship” programmes - that this is “all getting a wee bit technical and I’m sure people are fed up to the back teeth of all this talk of stuff most of us don’t clearly understand.” This revealed journalists’ disdain for policy analysis if favour of the “drama” of Westminster shenanigans. If we think of politics as being about policy, such attitudes would render the media irrelevant. But with so many regarding politics as cheap entertainment, so it retains influence.

Fourthly, party membership has fallen. Labour has less than 500,000 members, only half as many as in the mid-1950s, whilst the Tories have around 200,000 compared to a peak of almost three million. This means people are much less likely to hear political news and opinion from doorstep canvassers or (more importantly I suspect) from friends and work colleagues. The media’s influence has thus increased simply because an alternate source of influence has diminished. This is all the more true because people have limited attention. Few want to actively seek out information and ideas, preferring to consume it passively.

Fifthly, there’s an ageing population. Older people are not just more likely to buy a newspaper (pdf) than young ones, but are also more likely to watch TV news: 72% of viewers of BBC One’s news are aged 55 or more. And they are cut off from the effects of being in work – not only from material concerns about wages, working conditions and the state of the economy but also the influence of conversations with co-workers. This means media influence is greater, because a countervailing influence has disappeared – a fact especially true for the many older people who live lonely lives.

The ageing population less rooted in material conditions whilst being big media consumers makes it easier for the media to push the agenda of fanatics and hobbyists, be it Brexit or the culture wars. It might be no accident, therefore, that the salience of culture war issues has increased with the number of retired people.

I say all this for a simple reason. It’s common enough to bemoan the influence of the media – and reasonable, given that insofar as this influence exists it is largely pernicious. What we should ask, though, is: what socio-economic factors sustain this influence? The answer, I fear, is not pretty.

Strategic impotence

You all know a man who pretends to be unable to do basic household chores in order to avoid them and escape to his man-cave whilst his partner does the work: you might even be that man. This is a more widespread tactic than is generally appreciated. We can call it strategic impotence – using a claim to be unable to do something as means of pursuing one’s advantage or cementing privilege.

We’ve seen an example this week when Rishi Sunak claimed to be powerless on the face of rising energy prices:

No British chancellor can stop what is happening in Asia or stop a nuclear power station going offline in Germany

This is true as far as it goes. Which isn’t very far. As Sir Dieter Helm has pointed out, Chancellors could and should have spent recent years investing in greater energy capacity. And France is raising electricity prices by just 4%, in part by squeezing the profits of state-owned EDF. Sunak’s professed lack of control over prices is thus an example of strategic impotence.

There are countless others.

 - Legal defences. Claiming a lack of responsibility is a common plea of innocence or mitigation. One of the most famous uses of this was that of Ernest Saunders who, having been imprisoned for insider trading, was released early from prison after suffering dementia only to make a miraculous recovery.

 - Corporate websites. Making it difficult for customers to cancel their subscriptions looks like bad design, but it’s a way of maintaining income.

 - Lady Macbeth. Lord Ashcroft’s claim that Carrie Johnson is to blame for her husband’s misdeeds denies his agency and responsibility. This follows a tradition of imputing Lady Macbeth-type spouses to powerful men in an attempt to deflect blame from them.  

 - Playing the victim. The right claim to be victims of “wokesters” who are suppressing free speech. This serves to efface the fact that it is the Tories who are the enemies of freedom, for example in criminalizing protest. In the same way, their claim to be victims of “EU bullying” is used to escape their own incompetent negotiations.  

 - Refusing pay rises. Bosses who reject requests for better pay and conditions on the grounds that they can’t afford them are often telling the truth. But sometimes they are not. "My hands are tied" is the slogan of the strategically impotent.

 - Admitting forecasting errors. David Viniar, Goldman Sachs CFO, said during the financial crisis that “we were seeing things that were 25-standard deviation moves (pdf), several days in a row”. And in 2012 Vince Cable justified fiscal austerity in the face of low growth by pointing to the spillover effect of the euro crisis: “no one was expecting that the situation across the channel would deteriorate as much as it has done.” It’s true that nobody can accurately foretell the economic future, but claims such as Viniar’s and Cable’s are inadequate. A policy that is based upon a forecast of a particular outcome is wrong: policy must be based instead upon the range of possible outcomes. These are therefore examples of claims to impotence being used to avoid guilt and maintain power.

Perhaps the most important example of strategic impotence, however, lies in the public finances. The idea that we cannot afford increased public spending because of the state of the public finances is of course plain wrong. At current long-term interest rates, governments can borrow tens of billions and repay less in real terms. As Maynard Keynes said, “anything we can actually do, we can afford”. The constraint on public spending is a lack of sufficient labour and materials, not of money. Denying this fact is strategic impotence. The claim that we cannot do something is used to hide the fact that we choose not to do so.

(We should not here that the BBC has been complicit in this lie, as we saw in Kuenssberg’s talk of government borrowing being “absolutely maxxed out”. Which touches on another example of strategic impotence: the BBC’s claim to be impartial and a mere reporter of events is used to efface the fact that it influences public opinion.)

In speaking of strategic impotence I am of course echoing two closely related ideas. One is Lindsey McGoey’s idea of strategic ignorance, whereby a lack of knowledge – sometimes genuine, sometimes not – is mobilized for political purposes.  The other is capitalist realism, the idea that alternatives to capitalism have become unimaginable. That could be an emergent process (as much ideology is) whereas I’m thinking of instances where strategic impotence is used as a conscious strategy.

Strategic impotence, however, has a flipside. At the same time as the ruling elite deny their own power and agency, they overstate the agency of the poor. The government’s threat to withdraw benefits from people who fail to seek jobs for which they are unqualified overstates the ability of people to find work. It echoes Tebbit’s claim that the jobless could find jobs if only they got on their bike. In the same spirit, Kirstie Allsopp says young people can afford houses if only they stop going to the gym or move to where there are no jobs. (Yes, there is a contradiction there, but hey ho). That attributes to them more agency than they actually have. 

The ruling class and its shills want to deny the obvious fact that there are huge inequalities of power and influence. Strategic impotence is one of the tricks it uses to do this.