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There is only one way to meaningfully reduce state expenditure…

Philip Johnston write that “Vested interests are protecting administrators and forcing cuts to vital services” in an article about PFI contracts (Public Finance Initiative).

But for the most part “privatisation” is a meaningless distraction. The only realistic way to reduce state expenditure is to actually shed state functions as the root cause is not which mechanism the state uses: direct employees funded with taxes or outside hired hands funded with taxes.

Either way, the people who carry out state functions are creatures of a system funded by taxes rather than subject to the rigours of actual market pressures… until everyone in the chain can go broke as a consequence of their actions, it is still a state structure regardless of who is making the wheels go around.

Indeed every time the state bales out a bank regardless of the moral hazard, they spread the decision skewing and insulated-from-consequence disease associated with being supported by taxes.

To reduce state expenditure, you need to get the state out of all but its “core business”. You need to remove whole function of what the state does, not just hire different people to do it. The real problem is a century of ‘mission creep’. Until you can countenance that you are not serious about reducing the bloated state.

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22 comments to There is only one way to meaningfully reduce state expenditure…

  • John B

    “The only realistic way to reduce state expenditure is to actually shed state functions . . “

    I completely agree with you.
    Privatisation did start out like that, I think, Maggie did genuinely hive off state run stuff to private control.
    However after they got rid of her, and probably before, “privatisation” started turning back into more of the same state run, or corporate run, inefficiency.
    I first saw that in South Africa, actually, where “privatisation” was the order of the day in the 1990s and state-run bodies such as Telkom (telephone service) were taken over lock, stock and barrel by private companies, not bid for.
    And guess who was the major shareholder in the private company? The British were no doubt (as ever) more subtle in their approach.
    I think the original idea was indeed to break up the state run giants but the powers-that-be soon found a way around that.
    And that kind of circumvention/neutralising is what any true move from freedom must be able to outwit and survive.

  • Wolfie

    Perry is bang on – privatisation that transfers delivery of tax-funded functions to private companies is not really privatisation at all. There is no voluntary exchange of value between the taxpayer and the service provider.
    There may be some efficiency savings at the outset but that is no going to make a big difference and systems such as PFI (Private Finance Initiative) have according to many accounts actually increased the long term cost of the spending while hiding the liabilities off the government’s balance sheet.

    The privatisations of BT, British Gas etc. did some good in moving those organisations into the private sector. The down side was that the billions of pounds taken in by the government allowed then to increase spending and cut income taxes at the same time.

  • John: indeed the same thing happened in Israel in the late 80s and early 90s. Would it be paranoid for me to presume that all of them are comparing notes? It probably would:-)

  • PeterT

    This idea that you can use the efficiency of the market in a non-market context is very New Labour; very market socialist.

    They did not realise that there is both a demand and a supply side to the market. For it to work both sides must be free, and ideally there should be competition.

    When the PFI projects fail to generate savings they cry: “the market has failed!”. What they fail to realise is that the brilliance of the market is not that individual business are more effective than government (although surely this is often the case); it is that failure is allowed; there are no zombies in the market.

    By the way, quite a lot of pension funds invested in these PFI projects, and some are doing well out of it (although there were a few blow ups – one infrastructure investment fund cleverly invested 90% of its assets in a single construction company – which went bankrupt. Other funds couldn’t cope with the debt they had taken on). There is some poetic justic in this given the hard time the Labour government gave corporate pension funds.

  • John B

    Alisa: Seems like there was some kind of global coordination of approach. Perhaps just flavour of the month type thing.
    A sop to freedom while turning it into more of a rip off – there had been a drive for freedom but it was hijacked and turned around?
    And I think that, in human terms, that’s really all that’s gone wrong and resulted in the current economic disaster.
    The wealth strippers just applied themselves to the blip inconvenience of the emerging economic sanity of the late/end 1970s, contained it, changed the contents, and put it back up for consumption.
    And everyone was too busy stuffing themselves to notice the change?

  • John: yes, except for the global-coordination part – I really should have used the tongue-in-cheek, rather than the regular smiley;-P Definitely more of a flavor-of-the-month (or the decade) thing.

  • Alisa,
    It would be naive of you not to assume that!

    Your post is something I would file under the category “Obvious truths” but I’m glad you posted because I think that’s not a generally accepted filing system. Might I cite the fury of various public sector unions over the years complaining about “privatisation”.

    I actually doubt it. The only people who really seem to benefit are crony “capitalists”. Apart from anything it adds to bureaucracy and muddies the waters as to who is actually responsible. The scope for buck-passing is enormous.

    You saved me a couple of paragraphs. Thanks.

  • In short:

    It is not a private enterprise if it’s major (or only) customer is the government.

    Calling a dog a cat doesn’t stop it chasing sticks.

  • Ian F4

    Absolutely spot on, Perry.

  • Nick, seriously speaking, I actually doubt that there was any real coordination between Bibi and Blair/Gordon or whoever – but what do I know. And I don’t think that it really matters anyway: it’s not like we can prevent them from speaking to each other…wait, a certain Aussie may beg to differ…;-)

  • Neither privatization, nor devolution can work in the absence of the repudiation of collectivist thought.

  • And watch how the ” big society” decentralises the monopoly and does not eliminate it.

  • Tedd

    The real problem is a century of ‘mission creep’.

    Spot on.

    Even so, though, many small improvements can be made by wresting the administration of certain functions from the government. For example, in Canada the retail post offices are mainly in private retail stores now, and staffed by private retail store employees. Postal services are available at much more convenient times, and without having to deal with a government-employed pecksniff.

    I suppose one could argue that this just makes the unbearable more bearable. But, given that I don’t anticipate a major reduction of the size and scope of the federal government in Canada any time soon, I appreciate it being more bearable.

  • guy herbert

    Many on left and right assume that PFI threatens the interests of civil servants, and that respectively it is in some sense bad or good.

    Nothing of the sort. The wonderful thing about PFI from the point of view of Whitehall, is that it insulates the department’s chosen way of doing things from political pressure, and locks down policies by contract for decades – decades during which Senior Civil Servants may even retire and wish to supplement their £80K+ public pensions with some non-executive work advising companies providing public services according to contracts that need to be executed in accordance with civil service ways of doing things.

    PFI shuts out both the market and democratic politics, under the colouration of serving both.

  • John B

    “Nick, seriously speaking, I actually doubt that there was any real coordination between Bibi and Blair/Gordon or whoever . . . “

    Alisa, I don’t think any coordination would be between Bibi, Blair or Mandela, but rather between the people who actually run things.

  • John B

    The most obvious answer would seem to be those most involved financially or otherwise and that stand to lose from a reduction of centralised control. This would include the administrative machinery of the state but more importantly the central banks, the major shareholders or leaders of the industries or services involved, NGOs, international NGOs such as the UN, universities and academics involved in consultancy work, etc.
    One would need to identify the people involved in one activity and see how they appeared in others. Or resign from one and move to another.
    That there is manipulation of events is fairly clear as Paul Marks indicates in his recent comment about how chaos in the streets is promoted in order to be controlled and extend control.
    Sean Gabb in his Culture War book refers to a loose coalition of big business, finance, government and academia. (Link)
    Possibly it could be even more specific than this.
    According to Nigel Farage, leader of UKIP, Herman van Rompuy, President of the EU, openly states that the EU is a try out model for world government.

  • Wolfie

    I don’t think any co-ordination or guiding “intelligence” is needed. Politicians are always looking for new initiatives that make them look like they are doing something, so imitating other governments that seem to be having some success (in their terms) would be obvious.

    The big problem for politicians with stuff done directly by government is that the workforce is usually heavily trade-unionised and very difficult to control. Money can be saved through outsourcing to companies or “the Big Society” and that does make for cost savings up to a point. The politicians can then divert the money to their own preferred ends.

  • John B

    Wolfie: Agreed insofar there is not necessarily a coordinating intelligence or formal situation, but rather a confluence of interests, people working with shared goals, but I think that would lead to some very strong ties being established. Such as led to ex-investment house boss, working for the Fed, bailing out investment houses. (But then again, that particular agenda goes beyond that to establishing state control, or centralised control, of banks and finance houses.)
    Or Tata’s boss becoming chairman of the UN climate change body.

    But privatising, yes probably it was just a shared policy (or joke) among people who ran those industries or services in various places, once they had got rid of those who were actually pushing for real private ownership.

  • Paul Marks

    I agree with Perry and the commentors.

    The only way to really reduce government spending (given present circumstances) is to pick out FUNCTIONS (things the government does) and not do them anymore – that way you not only save money on whatever it is, but you also can abolish the whole administration structure in charge of delivering the function.

    If you (for example) “abolish a quango” without abolishing the thing it is supposed to be doing – you just transfer the admin structure into some other part of the government machine.

    Still now for the list of stuff that could be abolished right now.

    Membership of the European Union – and all the lobbying and so on (that goes right down to local council leve) that goes with it.

    The Department of Culture, Media and Sport (and all its functions).

    International Aid – an absurdity as Lord Peter Bauer showed years ago (see “Dissent on Development”). And get out of the U.N. and the IMF (and World Bank) also. Get out of the whole nonsense.

    “Regional Policy” – another absurdity.

    “Industrial Policy” – including the department of trade and industry (or whatever it is called now).

    And, of course, get rid of the BBC – what Dr Sean Gabb (no great pal of mine – but correct on this one) rightly calls the heart of the enemy class.

    I repeat – the above could all be done AT ONCE (with no widows and old people starving to death in the freezing cold).

    Need more savings?

    O.K. – Free the universities. That (academic freedom) can only be done by ENDING ALL GOVERNMENT FUNDING DIRECT OR INDIRECT.

    Oh dear students (who can not win scholarships) will have to go and work for a living – I will shed no tears over that.

    Of course I would also like to hit the Bank of England and the whole spider’s web of corporate welfare.

    However, that deserves a post on its own – and people must be bored with me attacking such things by now.

  • Laird

    I agree with Perry’s fundamental point, that the only meaningful way to shrink government is to rid it of functions which are not properly within its sphere. But there is a bit of a definitional problem here which seems to be causing some confusion. If the government contracts with a private firm to manage some function, that’s not “privatization”, it’s merely “outsourcing.” True privatization is the government selling off the function and getting completely out of that business. Such as if the US government were to sell the Postal Service to UPS. Outsourcing is only about economic efficiency, whereas true privatization is about combatting mission creep.

    So to that extent I disagree with Perry’s statement: privatization is no “meaningless distraction”, it is the only means by which we can hope to wrest some functions from the dead hand of government. It is to be celebrated.

  • Paul Marks

    The use of language is difficult – for example “privitization” used to mean the same as “denationalization” i.e. getting something out of state ownership and allowing people to buy, or NOT buy, the product.

    However, today the word can mean the same as “contracting out” of even (and much worse) a “public-private partnership”.

    It should not be forgotten that. for example, such creatures as the Economist magazine pepole do not regard Obamacare as a take over of medical care (the last nail in the coffin of freedom in health care – in a process of cost increasing abuse that goes back many decades) at all.

    “No no no – the companies that provide the health care (in the exchanges that you say the higher costs of the regulations of Obamacare will lead to) will all be private – it is just a regulated market, with the government picking up the bill over time”.

    In the face of such wickedness (for that is what such talk is) one must be very careful about the use of the words “private” and “privatized”.

    After all Mr Brown found plenty of private (crony) companies to take part in his PFIs (a terrible cheating of the taxpayer – if one looks long term) and normal government services.

    The activities (in so many fields) of “Capita” (and so on) are hardly part of civil society as libertarians understand the term.

    As for the present government – and its “cut” in government spending.

    Just today we hear that, inspite of all the protests about the violation of private property, the 30 BILLION Pound destroy-the-Chiltons railway line is going to go ahead.

    Just as we heard last week that (inspite of the pius talk about keeping down E.U. costs) the Cameron government’s INCREASE in the E.U. budget had been approved by the E.U. Parliament (this “free market party” dominated body wanted even MORE money).

    And, of course, an unlimited bailout fund for all nations in the Eurozone has been agreed – backed by the British government.

    Do I need to go on?