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Right-wing think-tank demolishes public spending myth

In one sense we should be grateful to the right-wing Reform think-tank for demolishing the myth that we can combine deep public spending cuts with protection for front-line services. Its report, The Front Line, published today, argues:

“The basic cost of front line services means that the deficit cannot be sufficiently reduced without tackling the front line… Contrary to popular perception, the great majority of the public sector workforce are front line workers. Of the 1.4 million people working in the NHS, for example, only just over 200,000 provide administrative support.”

Reform’s response is to embrace such cuts with relish - and propose removing one million public sector jobs. Our response must include:

1) Spelling out how reducing the deficit now will undermine recovery and further damage public finances through reduced tax take. Letters published in the Financial Times and Telegraph yesterday made precisely this point (we co-signed the latter).

2) Making the case for progressive taxation to pay for extended – not reduced – public services. Compass showed one approach in its compelling report In Place of Cuts, published last month, and Unison made a similar case in its “recovery budget” published yesterday.

3) Reporting on the reality of cuts on the ground. The effects are particularly acute in Conservative “easyJet” councils – and range from library closures to the suspension of social care for the most vulnerable residents.

But in waging defensive battles, the left must not lose sight of the need to develop and spell out its own alternative vision for the public sector. Some public resources have been squandered – and services held back by misguided command-and-control management models – not least because of the growing attachment to market-based solutions over recent years.

We’ve previously reported on some alternative approaches, and organised exploratory meetings, but it’s a theme we plan to pursue much more in coming months.

 

Posted by Other TPA at 01:44pm on 8 December 2009
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I’ve always noticed how right-wing “think-tanks” always deal in the most brutal pseudo-simplicities: “Of the 1.4 million people working in the NHS, for example, only just over 200,000 provide administrative support.” —they assume that the 200,000 non-clinical staff have no valuable role. Therefore once they’ve been put on the dole appointments and letters will both write and post themselves, payroll and IT will work by magic and equipment will repair and clean itself now that technicians are no longer required.

Posted by Kevin Hall at 04:20pm on 8 December 2009

Clifford

I appreciate that you’re a busy man but how about adding some instructions to the site so that those who are appalled by the one-sidedness of reporting, be it the BBC in this case or journalists who can’t be bothered to give opposing views equal prominence, have a pointer as to where they should write to complain.

Posted by nick james at 04:56pm on 8 December 2009

I always think that comparisons should be made to private companies. Obviously the state run banks, but also other companies have responsibilities too and are likely to be owned by most people through their pension arrangements. These seem sacrosanct to right wing think tanks because of what they see as the beautiful self-correcting market which essentially seems to mean to make those at the bottom work harder pay them less, to make those at the top work harder pay them more.
I also find it hard to believe that these bankers threatening to leave could not easily be replaced - they seem to think they have talent eg like a footballer, I do not accept this and suggest it is contacts and qualifications which could be replicated by any reasonably intelligent person - I’d like to see a TV programme made like the film Trading Places.

Posted by Niall at 08:21pm on 8 December 2009

eg Paul Dacre editor of daily hatemail earning £1.64 million pa
http://www.guardian.co.uk/media/2009/dec/08/paul-dacre-daily-mail

Posted by Niall at 10:41pm on 8 December 2009

Kevin makes a very good point - cuts in “back office” staff often impact directly on front-line services by increasing the administrative workload of front-line staff.

It’s worth pointing out that there are benefits to business in having good public services - what would employees do if they had to pay for healthcare, education, etc. on the market out of their existing income? This would surely lead to higher wage demands and falling productivity.

We should be clear of our successes - the Tory line has shifted to a more nuanced view of spending cuts. Our goal should be to get people to think positively about how we can improve public services by empowering staff and service-users, unlocking that ‘tacit knowledge’ that Hayek talked about!

Posted by james at 03:25am on 9 December 2009

Nick - you’re right on all counts; adding more about making media complaints is on the (long) To Do list.

And I certainly agree with the comments about the false distinction between frontline and back office staff.

Posted by Other TPA at 11:49am on 9 December 2009

There’s more on the Reform report here:
http://www.leftfootforward.org/2009/12/new-reform-report-should-be-welcomed-by-progressives/

Posted by Other TPA at 11:50am on 9 December 2009

Poor pay in the public sector is a disgrace. We don’t pay much and, let’s be frank, an awful lot of public sector workers don’t do very much. Public sector productivity is a real issue whether you are a leftist, a neck kneeling capitalist bastard or a Daily Mail reader.

But my real point is the growth of the payroll vote and the geographic distortion economic policy has engendered over the last 50 years.

However you slice the numbers, the public sector is now somewhere around 25% of the economically active part of the economy. Which is unsustainable. Add to this the concentration of these jobs in Scotland, Wales, the north east and other hot spots and we have all the ingredients for a recipe of future, growing strife.

Administration numbers must be cut - compare the number of head office to shop staff in an organisation like Corals or DFS to the NHS ratios for an idea of what can be done - but, in reality, for the good of our democracy, and the country’s finances, real, significant reductions in the numbers of public sector jobs must take place. Those that remain must be better paid.

Better use of computerisation would help, eliminating unauthorised absence would be a major step forward but, at the end of the day, arbitrary reductions will be needed as will the elimination of whole job types: classroom assistants, “plastic” policeman, outreach workers, and so on.

A freeze on recruitment at all levels - forcing organisations to train and develop the staff they’ve got rather than employing additional new people - for the life of the next parliament would be one way forward. Natural wastage would then accomplish much of what is needed. (And before you all start screaming that such a freeze is impossible I would ask, “what do you think has been going on in the private sector for the last 3 to 5 years?”)

Unfortunately, this process won’t work in the areas of concentrated public sector employment I mentioned earlier and, sadly, a straightforward programme of compulsory redundancy and re-location - breaking massive, centralised offfices into regional centres linked by high speed networks would play a part in this - will be necessary to correct this problem.

I appreciate this is a counsel of the impossible but we must keep this problem - and the need to do something about it - somewhere near the front of our minds even if we put any solutions off until tomorrow, next week, next year.

Posted by Brian Smith at 01:07pm on 10 December 2009

Brian, we know that unemployment is high, that there are fewer jobs advertised and that private investment has fallen significantly.

So to cut the numbers of public sector employees would not benefit the economy - it would lead to more people claiming welfare benefits, more people chasing fewer jobs, and thus have a downward pressure on wages, hindering the recovery (consumer-spending and consumer confidence levels are great drivers of private investment).

Public sector workers and the ordinary people they serve aren’t the ones who wrecked the economy. I think it is shocking that the private sector has been slashing jobs and wages - but that is no reason to impose the same hardship on more workers.

Posted by James at 01:05am on 11 December 2009

James

I agree with what you say; the structural problems that have grown up around the size and concentration of the public sector have accrued over 50 years as I say. Putting them right can’t be done overnight but we must begin to tackle it.

Where I disagree is with your notion that someone is to blame for where we are; and furthermore must be punished. To ascribe some kind of malevolent intent to a section of the economy or workforce makes no sense. The idea that some group of workers or firms must take the blame and be hurt in turn for the hurt they have caused us is, I am afraid, childlish.

What is becoming clear is that governments all round the world watched as financial institutions carried on a line or lines, of business that were high risk. They allowed this to continue - bought off by the tax revenues it generated - and did not put in place any sort of plan for what would have to be done if it all went to hell. Which, as we know, it did.

The companies buying and selling these debts were unaware of the total risk their individual firms were accumulating and did not have the systems in place to identify them.

Governments did not have systems in place to measure and monitor the overall level of debt across these companies that was building up.

We have, I am afraid, spent the last 5 or 6 years in a financial laboratory where the experimenters didn’t know what they were doing and their supervisors knew even less. And we all have to pay the price.

Posted by Brian Smith at 01:11am on 12 December 2009

No one to blame?

No one benefited?

“Governments did not have systems in place to measure and monitor the overall level of debt across these companies that was building up.”

No one lobbied for deregulation?

No one wined and dined MPs on their yachts? No one gave ex-ministers cushy jobs?

I find it hard to believe that.

We’ve actually spent three decades in the neo-liberal laboratory - good for capitalists, bad for the rest of us.

Posted by James at 01:40am on 12 December 2009

i think you need to face up to the fact that the uk’s shrinking private sector will soon be unable to carry the weight of a bloated public sector of 6.1 million with its huge pensions, long holidays and generous sick pay ,shorter hours , and now also better pay for much longer , i think you know this really !!!! be honest !!!  btw   which union is paying for this site ? lol

Posted by peter at 02:13am on 3 January 2010

How will cutting public spending boost the private sector?

Investment in the private sector has not increased dramatically over the last thirty years, despite the deregulation.

Perhaps if capitalists invested more in employing people in this country instead of exporting jobs to low-wage economies then there would be ample tax revenue to deal with the deficit?

Posted by james at 02:26am on 3 January 2010

James

Purposeful argument between diametrically opposed views - like between the left and the right in politics - is difficult enough without their occasionally being based on completely wrong premises like yours. The growth in the size and cost of the public sector - investment, if you and Gordon Brown prefer, or public spending as realists would have it - has been substantial and especially over the last 8 - 9 years. This is easily verified by reference to OECD and other neutral bodies’ reports.

It is also a major claim – for positive recognition by the tax payer as a “good thing”  – by Gordon Brown in his every utterance.

And by the by, manufacturers don’t move jobs around out of spite or ideology, they move them because of economic necessity. Operating costs – Gordon Brown has increased the cost of every job paying over £20,000 by more than 40% since coming to power – are the key here alongwith the availability of labour, premises, infrastructure, access to markets etc. Movements in manufacturing or operating base are very rational and very predictable. Watch what happens to the financial sector over the next few years for an object lesson.

Posted by Brian Smith at 01:37pm on 3 January 2010

Brian, the loyalty of capitalists is to profit, I am well aware of that. Public spending has grown, this I know to be true also. Purposeful debate should not be difficult, then.

But I fail to see how public spending cuts will result in a growth of private sector activity, especially since many private firms are depending upon contracts with public bodies. Consider the growth in the public services industry, private firms that have gained from an expansion of public spending.

We know that in the short term deficit spending can stop recession spiraling into depression. The private sector could not overcome this problem, there was no bailout fund which private banks had invested in.

It is interesting that despite earlier saying that there’s no group of people to blame, you mention Brown, who after all did exactly as requested by the capitalists as Chancellor…

Posted by james at 04:07am on 4 January 2010

Peter - “which union is paying for this site?” If this site was funded rather than voluntary, I’d pick up on daft comments like yours quicker instead of switching off for Christmas.

Brian - James is right: The crisis facing the private sector is one of investment and demand, and slashing the public sector will worsen this. Reinhart and Rogoff, in new study of banking crises - This Time is Different - say the average unemployment rise following major banking crises since 1930 is 7% of the workforce, more than we’ve experience this time. I’m no great fan of Brown - on the question of “blame” see my other site Bubblewrapped - but I’ve no doubt that Cameron’s response to the crash would have put many more people on the dole.

Posted by Other TPA at 01:47pm on 4 January 2010

James, the “many private firms are depending upon contracts with public bodies” are nothing more than an extension of the public sector. It’s a cycle of inefficient money circulation, with public administration taking a slice, and is not making any fresh contribution to the economy. The taxes that these private firms pay on these contracts are also recycled tax money. The only real contribution made by a private firm is when it trades elsewhere, and where the money ultimately comes from trading with other countries.

Posted by Jeffrey at 09:15pm on 4 January 2010

Hi Cliff

Gresham’s Law applies to money making as well as money itself; public sector employment drives out private sector entrepreneurial activity. It does this for lots of reasons; better pay and conditions rob private firms of quality staff, simple survivability means that the public sector outlasts the private. The public sector sets the operating standards and norms; and uses this power to eliminate competition as we saw with the private nursing home sector, legislation like TUPE, and so on.

The private sector would take up the slack, if it were allowed to. Pay and conditions might not be as good, job security would be worse but people and their local economies would be self-sustaining. This would be good for communities currently totally dependent on public money (Scottish independence - what a joke that is with over 60% public sector - mainly servicing English demand - dominance), good for the economy in terms of greater resilience and good for democracy in the lessening of the payroll vote it would bring in its wake.

Posted by Brian Smith at 11:58pm on 4 January 2010

Jeffrey - you miss my point. I was arguing that large-scale cuts in the public sector would not revive the private sector - at least not in the short term.

Brian - the reason why regions of the UK have large concentrations of public sector employment is precisely because they also have high levels of unemployment… The dislocation costs of the kind of change you propose would be huge in communities that are already suffering from the effects of market failure.

Posted by james at 12:46am on 5 January 2010

James

Wet pavements do not cause rain. The effect you fear is, in fact, the cause.

High unemployment, in the regions that concern me - if it in fact ever existed - was due to the inevitable decline of “traditional” (at the time) industries.

The private sector was never given a chance to address this, public policy moved too fast. Solely in order to placate the payroll vote that socialism depended on for its survival.

Posted by Brian Smith at 01:34am on 5 January 2010

“The private sector was never given a chance to address this, public policy moved too fast. Solely in order to placate the payroll vote that socialism depended on for its survival.”

Socialism? Are we talking about the UK still?

You’ve lost me Brian. I’m pretty sure this country didn’t have a socialist economy…

Posted by james at 02:59am on 5 January 2010

James

Perhaps I’m older than you but the UK has, for 60 years or so, been saddled with, hamstrung by, a mixed economy that was and is socialist in many parts and aspects. Our largest employers, health and education, are organised entirely along centrally managed and funded lines with just a tiny non-state controlled sector allowed in each area. The NHS is a perfect example of a failed Soviet style system. National spending doubled for a net loss in productivity. Only a 50s style Moscow designed 5 year plan could have wasted more money for so little beneficial effect.

Public policy regarding the non-functioning fraction of the economically inactive portion of our populace is entirely socialist in its approach. The tax basis of the UK pension system - a middle class oasis as far as the socialists were concerned - was deliberately enfeebled by Gordon Brown in ‘97 and the short-term money “raised” wasted on a youth unemployment programme that was a text book socialist model which, as they all do, failed absolutely.

Current welfare policy - the biggest slice of government spending - is purely socialist and, as ever, continues to fail year in, year out.

Public sector employment numbers - the original point of my posting - exceed Cuban levels in parts of the UK and if you don’t think that Cuba is a socialist hell hole I can only suggest you go there.

I’ll finish with what I hope is the simplest, most obvious and therefore unarguable, example of how significant parts of the UK suffer under a socialist government and socialist policies.

When Labour came to power in 1997 employers’ NIC was 10.00%, it is now 12.8% (for 2009/10); a 28% rise (employees’ contributions have also increased substantially but that’s another argument for another day). This is a massive increase in the cost of employing anyone. No government that was serious about reducing unemployment or which valued entrepreneurship, self reliance and enterprise would consider such a policy sensible. It can only be justified within a socialist paradigm where confiscation, expropriation and the deadening of any kind of ambition are OK as long as the pursuit of egalitarian policies is promoted and their interests advanced.

Posted by Brian Smith at 12:27pm on 5 January 2010

So it’s all the fault of the mixed economy now? Personally I blame that communist, Harold Macmillan.

If only the public sector could give us consumers value-for-money like this:
MPs demand inquiry into great energy ‘swindle’.

Posted by Other TPA at 03:01pm on 5 January 2010

Afternoon Cliff

Not the mixed economy; the socialist parts. The right/left wing consensus that existed in the UK from 1945 onwards - and which allowed/tolerated the excesses of the mixed economy I complain of - is probably the single biggest error in policy making this country has had to endure.

Regarding the energy companies, anybody with ‘O’ level economics could tell you that they epitomise imperfect competition and all the problems that status brings. No truly market based economy would have permitted them.

Competition through regulation has failed, as everybody with half a brain knew it would, and the eventual solution will be a break up a la Bell Corp into baby bells.

As for Harold, the jury’s still out. On both of them. smile

Posted by Brian Smith at 03:34pm on 5 January 2010

There is some serious bollocks that people write on here.

>>Regarding the energy companies, anybody with ‘O’ level economics could tell you that they epitomise imperfect competition and all the problems that status brings<<

No shit. Anyone with any grasp of economics could also tell you that perfect competition doesn’t exist. Furthermore, what anyone with half a brain cell would also tell you is that energy is not a competition based product. The output is identical - energy. It is a natural monopoly. Since it is a natural monopoly it should be under state-ownership. And before you berate the state-sector again for being inefficient - actually think about what you are saying - you are arguing that all of that unproductive administration should be duplicated under the branches of different companies that provide exactly the same procucts.

Posted by Ben at 04:12pm on 26 January 2010

Ben

“Imperfect competition” isn’t a casual phrase I just threw in; it has a precise set of meanings as the extract from Wikipedia sets out.

“In economic theory, imperfect competition is the competitive situation in any market where the conditions necessary for perfect competition are not satisfied. It is a market structure that does not meet the conditions of perfect competition. [1]

Forms of imperfect competition include:

Monopoly, in which there is only one seller of a good.
Oligopoly, in which there is a small number of sellers.
Monopolistic competition, in which there are many sellers producing highly differentiated goods.
Monopsony, in which there is only one buyer of a good.
Oligopsony, in which there is a small number of buyers.
There may also be imperfect competition in markets due to buyers or sellers lacking information about prices and the goods being traded.

There may also be imperfect competition due to a time lag in a market. An example is the “jobless recovery”. There are many growth opportunities available after a recession, but it takes time for employers to react, leading to high unemployment. High unemployment decreases wages, which makes hiring more attractive, but it takes time for new jobs to be created.”

Perfect competition does exist and it can be measured; usually by looking at the behaviour of prices as supply and demand vary. It’s very easy to look at a lot of stuff in economics and see it as just normal use of English. A lot of phrases that sound everyday - like imperfect competiton - do, however, have precise meanings as far as economists are concerned.

Energy is not a natural monoply. It has the classic characteristics - multiple sources of supply, multiple forms, multiple means of delivery, and so on - of a good that would, normally, be subject to competitive influences. Except that the government intervenes to distort the market by introducing non-market pressures. The “regulator” idea is only the latest effort on their part to have their cake and eat it. They want to mess about with the energy market - for political benefit - but they don’t want to suffer the political consequences - or disbenefits.

The clearest example of this meddling is the 14% home heating energy price premium we are paying in this country in order to throw a bone to the carbo-nuts. How many old ladies extra is that killing every winter? An economist could probably tell you to the nearest 100. Sadly.

Posted by Brian Smith at 09:56pm on 26 January 2010

Brian. Without government ‘meddling’ in energy prices, there would almost certainly be more dead old people. Without extra fuel allowances, grants for people improving their insulation and cold weather payments more would have died. To say otherwise is frankly ludicrous.

Posted by ben at 05:01pm on 27 January 2010

Ludicrous? How ludicrous is giving £250 once a year to people like me, working and in no way in need of the money.

Ludicrous? How ludicrous is giving people deperately short of money £250 just before Xmas? Why is that, I wonder? Do you think they put it carefully to one side and use it bit by bit to fill their meters or pay their bills?

Ludicrous? How ludicrous is turning your back on the world’s cleanest, cheapest, most reliable and safest power source? Nuclear energy will belatedly come to our rescue after we’ve been through some terrible winters with insufficient energy supplies. And, of course, let’s not forget the industry’s having to pay the carbon levy even though it doesn’t produce any.

Five minutes with Google will turn up many, many more examples of market distortions imposed on the energy industry for partisan and/or short term political benefit. It is for these reasons that our home heating energy costs are amongst the highest in the EU. Knocking 14% would be a good start in sorting things out.

Posted by Brian Smith at 06:12pm on 27 January 2010

If it is market distortions driving up prices Brian, why is it that countries like Norway have the best energy set-ups? State-ownership, long-term decision making and yes, to be fair certain territorial advantages (although actually Britain is not exactly in the worst position on the latter, and would have been better if we had followed their approach).

Instead, we have to live with short-term profits from unnecessarily duplicated companies selling us the same bloody product.

You might not need the £250 but many do. Of course for someone who has political leanings such as yourself, simply thinking of others is way outside the box.

And although your nuclear point is totally irrelevant to the rest of the debate (since that discussion would need to be had with or without private ownership), nuclear is not cheap. For a start, unless we have a breakthrough with fusion power then uranium supplies will become dangerously low and be a damn sight worse for energy security. Now I’m not out and out opposed to nuclear power but this point is both irrelevant and factually incorrect.

Posted by Ben at 06:22pm on 27 January 2010

I don’t mind trading arguments but I make a point of stopping as soon as personal abuse creeps in. There’s no need for it and I won’t be a part of it.

Posted by Brian Smith at 06:33pm on 27 January 2010

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