On ideological blindspots

There's a big ideological blindspot in political debate. To see it, consider two quite different recent texts: Conservatism in Crisis (pdf) co-authored by Kemi Badenoch and many others; and Sam Freedman's Failed State.

Let's take Conservatism in Crisis first. The authors complain of the "rise of a new bureaucratic class" wherein "increasing numbers of middle-class jobs relate more to government rules than goods and services bought and sold in the market." The last two decades, they say, has seen a big rise in the numbers of HR managers, financial regulators, university staff, mental health professionals, and so on.

This is not a new observation or a uniquely rightist one; academics have been writing about the regulatory (pdf) state (pdf) for years. What is questionable is this:

The rise of safetyism, stifling of risk and a bureaucratic class to regulate and control us and protect the marginalised is rising steadily. The result of this has been a collapse in average per capita G7 large advanced economy growth rates...Across the Western world in general growth rates have come down while government has grown.

But, but, but. This is an example of what I've called Scooby Doo ideology - the notion that the economy would have succeeded if it weren't for those meddling kids. It overlooks an important possible direction of causality - that it is our economic problems that have fuelled the rise of bureaucracy, not just vice versa.

This is obviously true of the share of government spending in GDP. It has long been the case that this tends to rise when GDP growth is slow and fall when it is strong. The early years of the Thatcher government saw it rise whilst the early years of the Blair government saw it fall. This wasn't because Thatcher believed in a big state and Blair in a small one, but simply because economic conditions are stronger determinants of the share of public spending in GDP than is the ideology of the government. Given the UK's sclerotic economic performance in recent years, therefore, you'd expect the share of public spending to have increased.

What's true at the macro level is true of specific sectors too.

Financial regulation has increased because the 2008 financial crisis showed us that banks cannot regulate themselves. Other industry regulators such as Ofgem and Ofwat (which are in effect agents of the industries they purport to oversee) exist because there's no effective market to regulate the industries. The Food Standards Agency was created in response to fears about food safety: the salmonella and mad cow scares. Universities expanded in the 90s and 00s in part because the career prospects for less educated people looked grim - as indeed they have proved to be. And the growth of HR managers to deal with labour regulation has happened in part because workers are unable to defend themselves through trades unions and so demand protection through legislation: Philippe Aghion and colleagues have shown that weaker unions are associated with greater labour market regulation.

Now, I'm not saying this is the whole story. In some cases, bureaucracy has been created by ideologically-motivated governments as is the case with the Office for Students, which employs over 400 people. And bureaucracy feeds on itself: academic departments need lots of administrators merely to deal with bureaucrats in the rest of the university. And some of us have been decrying the growth of managerialist ideology for years. And it is indeed plausible that all this bureaucracy might stifle growth simply because there's an opportunity cost: if talented people are pushing paper they are not creating the goods and services that drive a dynamic economy.

The authors of Conservatism in Crisis, however, focus only upon the latter and do not consider even the possibility that the rise of the "bureaucratic class" is at least in part endogenous: it is the product of capitalist failure, not the exogenous cause of it. The inability to even ask this question is an ideological blindspot.

A similar blindspot exists in Sam Freedman's Failed State, wherein he shows how the UK has a " crisis of governance" because of excessive centralization; a weak civil service; inadequate parliamentary scrutiny and "a desire to keep the media beast fed." Worse still, as he is smart enough to say, governments have little incentive to change this: no Prime Minister wants to give away power to local or regional government; or to face tougher oversight from MPs; or to face a backlash from a media not getting what it wants.

Which poses the questions: why are we in this bad equilibrium? Why are there so little external pressures for change? Why has the right (which dominates the agenda) focussed on non-solutions such as Brexit rather than on policies that might improve the quality of governance?

It's because our bad government serves the rich quite well. As the FT has shown, the rich in the UK are doing as well as anywhere: it is the incomes of the median and poorer households that are so low by western standards. Insofar as there is a crisis of governance, it is a crisis for the working class. And it does not have sufficient power to force change.

Let's put this another way. Freedman's description of the failures of outsourcing is in many ways brilliant. But he doesn't ask: failures for whom? He's bang right that outsourcing probation services, care homes or children's homes is brainless if you want decent public services. What it does do, however, is generate profits for a capitalism that is unable to thrive on its own two feet. And that's what counts.

Similarly, Freedman is also right to partly blame the "media beast" for bad governance. Which only poses the question: whose interests does it serve?

Freedman and Badenoch are therefore making similar mistakes. They're not seeing that what they complain about - the "bureaucratic class", bad governance - are endogenous, the product of a capitalism that is failing millions and which grants political power to those opposed to useful change.
Now, I'm not accusing either of being stupid. We all have blindspots. Even Nobel prize-winners*. In Deaths of Despair, Angus Deaton makes much the same mistake as Freedman. Both fail to see that good policy isn't merely a matter of intellect and know-how. It requires the right material conditions, the right power bases. And it is these that are lacking in 21st century UK capitalism**.

Yes, capitalism. And there's the thing. Politicians and commentators do not call capitalism into question, any more than fish question why they are wet. The issue is so far outside the Overton window that even somebody as smart as Freedman doesn't raise it.

But we should, because so many of the problems of which we complain - not just excess bureaucracy and bad government but also things as otherwise different as the housing crisis and rise of right-wing extremism - are the result of a failing capitalism.

There used to be a crude version of Marxism which tried to claim that all social and political developments were caused only by the "economic base". Non-Marxists today have fallen into the exact opposite error, of believing that economic conditions have absolutely no impact upon politics. Such a view surely at least warrants examination. And that's what Marxism asks us to do. You don't all have to be Marxists, but an awareness of Marxian insights would greatly improve the quality of political discourse.

* Yes, including me.

** Those qualifiers "21st century UK" are important. I'm not claiming a universal tendency for capitalism to always produce bad government. Instead, as Edmund Burke wrote, "the circumstances are what render every civil and political scheme beneficial or noxious to mankind."

Comments

[rsm]

《Financial regulation has increased because the 2008 financial crisis showed us that banks cannot regulate themselves.》

What if our blogger has missed the real lesson: why can't the Fed bail out incipient Lehman Brothers situations (as with Silicon Valley Bank) before they cause a spreading psychological panic that has nothing to do with real supply and demand conditions?

[Sam Freedman]

It's an honour to be critiqued by one of my favourite economics writers.

But I would take issue with the idea this is a blindspot (I've been reading you for years so I must know a bit about Marxist ideas...)

It's more that we don't agree on the causal relationships here. I do answer the question as to why we're in this bad equilibrium it's just I don't think the answer is "it suits the rich".

Take outsourcing - it's certainly true that lots of people have made a killing out of it (literally and metaphorically) but is that why it happened? I would argue it's got more to do with frustration with local government experienced by central govt politicians and officials. That led to a capacity gap which private companies were happy to fill.

But as I set out in the chapter it also hasn't gone all that well for many of the companies. Lots have collapsed, others are in trouble. Things are now so bad that govt have just introduced profit caps for children's homes. If you wanted a sustainable route for money making you wouldn't design something like this.

Same with the changes in media. A lot of the problems stem from the fracturing of a landscape that has really not helped proprietors (who have been trying to exercise control via media ownership since the dawn of modern politics).They were quite happy in a world where 3m people read their physical paper every day.

None of which is to say the rich aren't influential in maintaining bad elements of the system, just that I think the reason our form of capitalism is in such a mess is largely because of governance/institutional failures rather than vice versa. After all Denmark has rich people, corporations and populism, but it has a very different governance structure and political culture.

Ultimately my recommendations are all about power - decentralisation, scrutiny, more local media etc...but because I think the problems are primarily caused by governance I think they can be (somewhat) solved by it too.

[Ben Oldfield]

A successful company's aim is to make money to buy shares and so the CEO gets an increasing bonus. Making things or delivering clean water is incidental and is a burden.

[Jan Wiklund]

The curious thing is that those who blame bureaucratism for growing always propose "more control" as the remedy for those swindles that always occur because of market solutions in health-care and education.

In Sweden the administration personnel in healthcare has quadrupled since it was exposed to market mechanisms in the 90s. But the market fundamentalists can't se any relation between the two.

[P S BAKER]

“Contrary to what most economists would expect, the scope of govt has been larger, not smaller, in economies taking greater advantage of world markets. Indeed, govts have expanded fastest in the most open economies.”
https://drodrik.scholar.harvard.edu/files/dani-rodrik/files/why-do-more-open-economies-have-bigger-governments.pdf

[Blissex]

«Which poses the questions: why are we in this bad equilibrium? Why are there so little external pressures for change? [ ...] It's because our bad government serves the rich quite well.»

But it is not just "the rich", it is also the middle class, those @aspirational voters who shop at John Lewis and Waitrose". It is not "the 1%", it is "the 30%", affluent property owning PMC members, pensioners, small business owners.

This is not an irrelevant detail: neoliberalism is the political alliance of the "whig" financialist upper class and the of the "tory" land-rentier middle class to redistribute upwards from the working class and the underclass via finance, property, meaner welfare and public services, tax shifting from wealth and income to consumption.

[Blissex]

«Take outsourcing - it's certainly true that lots of people have made a killing out of it (literally and metaphorically) but is that why it happened? I would argue it's got more to do with frustration with local government experienced by central govt politicians and officials.»

Outsourcing of government services was most famously advocated by Nicholas Ridley:

https://www.theguardian.com/society/microsite/outsourcing_/story/0,,933818,00.html
“The former Conservative environment secretary Nicholas Ridley led the free market charge on outsourcing. His 1988 pamphlet “The Local Right”, published by the Centre for Policy Studies, argued that local authorities should concentrate on enabling  —  rather than providing  —  services. Compulsory competitive tendering (CCT) had driven down costs, he argued, and introduced a new culture of innovation and entrepreneurship. He would say that his ideal council was one that existed  —  perhaps apocryphally  —  in the American midwest. It employed practically nobody and met just once a year to award all the council service contracts to private firms.”

Why was/is that system relatively common in Midwest towns even if managing and auditing outsourced contracts is a difficult and time consuming task? Because in many of those place the local political machine is run by a powerful mob and they own both the local councilors and the local businesses to which outsourcing contracts are given, so managing and auditing outsourced contracts was/is an avoidable expense.

I am not surprised that a tory would regard that as an admirable system.

Outsourcing was also because of a claim by Margaret Thatcher that "the only thing worse than a private monopoly is a public monopoly".

«That led to a capacity gap which private companies were happy to fill.»

As I remember at the time that Thatcher and Blair were pushing outsourcing and PPI so hard the claimed goal was "labour market reform", that is cutting employment and wages. Public workers were described as particularly "lazy, uppity, overpaid" with "gold plated pensions" and outsourcing was meant to replace them with many fewer much cheaper worker driven hard by private employers. The main claimed advantage of outsourcing was a drastic cut in the labor costs of local councils, for the benefit of local ratepayers, in particular pensioners and shop owners.

«But as I set out in the chapter it also hasn't gone all that well for many of the companies. Lots have collapsed, others are in trouble.»

But that claim to me seems based on an astute avoidance of looking at the ownership structure of the outsourcing industry, where the "front" businesses that physically provide the outsourced services often send massive chunks of their revenues "upstream" to opaque networks of shell companies usually offshore using various excuses, from "management services to "trademark leasing", a pretty standard arrangement in asset-stripping based operations.

[Blissex]

«In Sweden the administration personnel in healthcare has quadrupled since it was exposed to market mechanisms in the 90s.»

Obama described well the situation:

">https://www.thenation.com/article/mr-obama-goes-washington/>
«“I don’t think in ideological terms. I never have,” Obama said, continuing on the healthcare theme. [...] “Everybody who supports single-payer healthcare says, ‘Look at all this money we would be saving from insurance and paperwork.’ That represents 1 million, 2 million, 3 million jobs of people who are working at Blue Cross Blue Shield or Kaiser or other places. What are we doing with them? Where are we employing them?”»

And what about all the executives and investors in those companies? Why should their bonuses and dividends be "confiscated" by the government? :-)

«But the market fundamentalists can't se any relation between the two.»

My general impression is that usually "market fundamentalists" do see the relation and are hypocrites or paid propagandists so pretend not to see it.

[Kester Pembroke]

Blissex your view this idea:

https://www.youtube.com/watch?v=dqwpQarrDwk