by
Dr Madsen Pirie,
President of the Adam Smith Institute
Frédéric Bastiat famously made the distinction between that which shows and that which does not show. He anticipated one of the major planks of public choice theory, by showing that what can be seen carries more weight than that which does not show. The industry protected by tariffs is grateful to the legislators who saved it: the people who have to pay the higher prices which result do not realize they are victims.
Why, when I talk about progress in the UK, do I begin with this? It is because of the huge contrast there between that which shows and that which does not. A few years ago we left the world of politics in Britain and entered the world of spin. It is not what happens which matters now, but what government spokesmen say is happening. Spin is the emphasis put upon things. Spin doctors, as they are called, are more important than politicians. It is as of we had entered a virtual reality world in which everyone concentrates on what appears to be happening.
Let me give a brief example. The Blair government pledged it would not raise income tax. This was a brave promise for a Labour government. It was able to claim credit at the recent election for honouring this pledge. The reality is that while income tax rates were not increased, nearly everyone is now paying more than they were. They introduced 45 new invisible taxes (we call them stealth taxes), such as those on insurance, pensions, air travel, fuel, and so on. Over half of these fall on business, but the spin has been that this government has been uniquely friendly to business.
The problem is that the present government in Britain thinks it can spend our money better than we can. It takes as much as it feels it can get away with, and uses concealment, complexity, and subterfuge to shield it from criticism. There is one global figure which it cannot escape, however. Each year the Adam Smith Institute calculates and publishes Tax Freedom Day. If you have to work from January 1st to pay off your taxes, Tax Freedom Day comes when you have done so, and can start working for yourself. If government takes 40 percent on average, Tax Freedom Day will come 40 percent of the way into the year.
The figures give bad news. On average in Britain we all now have to work 13 extra days for the government before we can start earning for ourselves. It is well into June before we have any freedom to allocate our own resources. Until then it is the government which decides how to spend our money. The spin is of a responsible government which has not raised taxes: the reality has been that of a sharp increase in the burden of taxation, and of government spending.
When we look at what the money is spent on, we see the same distinction between the spin and the reality. There have been huge increases in spending on the public services such as health and education. The increases have not been as large as those announced, because the government has an endearing habit of announcing every increase three times over, so people think that three separate amounts of money are being allocated. It also sets out a three-year programme in advance, so people think that the three-year costs are being spent each year, rather than being spread over three years.
The result is that it sometimes claims credit for spending nine times what it is actually spending. However, even without the spin, there have been big increases. Both the National Health Service in Britain and the state education service cater for about 90 percent of the population, meaning that 90 percent use free state health and none other, and 90 percent receive free state schooling and none other. They are financed out of taxation and run from the centre by the government, and in both cases the quality can be good at the top, but very poor indeed at the bottom.
The Labour Party promised 4 years ago that it would cut both hospital waiting lists and school class sizes. At our recent general election it hailed these among the pledges which it had kept, but this was spin, not substance. It is true that the numbers of patients who have been seen by specialists and await treatment have been reduced somewhat. But the numbers waiting to see those specialists have increased. In other words, the number on waiting lists has been reduced, but only by increasing the number waiting to get onto those waiting lists. This does not make life any easier for the patients.
The story with schools is that class sizes for the younger children have indeed been reduced. The target was to have none of them taught in classes of more than 30 students. This has been achieved by increasing the class sizes for the older children. Teachers have been allocated to reducing class sizes in one sector, reducing the numbers available elsewhere.
The Labour government in Britain took office 4 years ago thinking that if it made priorities like this, it could achieve results. More money would bring down hospital waiting lists and class sizes. It has taken 4 years for some of them to learn that this is not true, and that you can spend an infinite amount of money on public services without improving them. Mr Blair himself is now a convert to the view that it is not the finance of public services which needs to be reformed, but their very structure. Unfortunately for him and his government, the public sector unions have gone through no such conversion.
We now stand at a crucial point for our public services. Mr Blair looks ahead to the next election. He sees that despite the extra spending, there will still be waiting lists and overcrowded schools. There will still be poor services, and people will ambush him in the street during the election to shout abuse at him for the poor treatment their relatives received. No politician wants this to happen, especially not one who likes to be liked. So Mr Blair has to reform the public services, against the will of his natural supporters in the public service unions.
He is not quite sure what to do, but fortunately this is not a problem, because I know what to do. Britain's public services have been run on the Soviet model, even the Stalinist model, of central direction. The money and the orders are sent downwards through layers of bureaucracy until people at the bottom receive a free school place or a course of hospital treatment, and have no control over the quality, or any choices over what they receive.
This has to be changed into a system under which people choose their school or hospital, and in doing do, tell the state where to send its funds. In other words, the public services have to be restructured so that they meet the needs of consumers, rather than those of producers. The schools and hospitals will have to be attractive enough so that people will freely choose them. The state's money will follow those choices, and a system of continuous improvement will be set in motion.
I know that, even if Mr Blair does not know that, and I know that he has only four years to put enough of it in place to generate the first visible improvements. After that, he has to answer to the electorate. If he has not done it, the British people will probably elect a party which will do it. But I have to say that I think he will do it. He is already talking in the language of partnerships between the private and public sectors.
In the real world which you and I live in, the easiest way for the government to reduce hospital waiting lists is to pay for its patients to be treated in private hospitals. The easiest way to get children out of incompetent and low quality schools is to pay for them to be educated in private schools. You and I probably have no ideological problems or hang-ups about this. I do not think Adam Smith would have worried about this, and I cannot think that Frederic Bastiat would have disapproved, although both of those gentlemen might have wondered what the government was doing getting involved in health and education in the first place, and how it had got into such a mess.
The problem is that some members of our governing party do have hang-ups about that obvious solution. They think a public service means public producers, with government employees and state-owned institutions. Talk of private producers is heresy to them, and betrays the principles of collective provision. After all, if government buys services on behalf of its people, why should they not move on to the next logical step and buy it for themselves, cutting government out of the process altogether? Why not indeed?
I spoke to the Cercle Bastiat just after Mr Blair had been elected, and answered the question "Is there a Third Way?" I concluded that there was not. I said it was the first way, of market capitalism, but put more gently. I described it as Thatcherism spoken in softer tones, or even Thatcherism without the handbag. I have since decided that maybe there is a third way. It is not the third way between Socialism and Capitalism which Mr Blair would like to believe. It is rather the third way between America and Europe. It is a third way between a Europe in which government spends over 50 percent of the economy, and a USA in which it spends 28 percent. It is a third way between a Europe of inclusive and costly public services, and a USA of mostly private provision.
The current state is that Britain stands between Europe and the USA. It has 40 percent of its spending in the state sector; it has a mix of public and private, nowhere more so than in its pensions sector. It represents a compromise, albeit a messy one, between the free-booting American model and the continental European social market economies. In this sense it is a third way. It creates growth and jobs, but not as much as in America. It is flexible, quick to adapt and to modernize, but not as much as in America. There are inequalities of income and wealth, but not like those in America. There is social exclusion, but not as dramatic as happens in America. Britain is pulled politically and economically in two directions, and has settled in an uneasy position between them. This is its third way.
What then of progress towards the liberty which Frederic Bastiat espoused? The economic liberties have been eroded, but not by much. People's dependence on the state has increased a little in some areas, and decreased in others, such as welfare. It is in the area of civil liberties that this government has set the alarm bells ringing. There has been a general air of conforming with political correctness. Houses cannot be built with doorsteps any more, in case this restricts access by disabled people. You cannot buy aspirin or paracetamol in packs of more than 16 tablets in case people use it to kill themselves. You cannot buy unpasteurized cheese in case it makes you ill. And so the list goes on.
Even more alarming are the changes being made to our criminal law. The ancient guarantors of freedom and justice are being swept aside one by one in order to make prosecution more easy. For example, people are losing the ability to choose trial by jury for a great many crimes. This is because juries sometimes obstinately acquit people. The right of an accused to remain silent is being done away with, so juries may now interpret this as a sign of guilt if they wish.
The presumption of innocence will no longer apply to serious fraud cases; you will have to prove you came by the money honestly. Our courts used to have limited jurisdiction, having no power to punish you for what you did in other countries within their laws. Now we can punish paedophiles and war criminals for things done abroad, and, in the case of the latter, with retroactive legislation on things which may not have been illegal when they were done.
The state used to have one shot at prosecution. If you wee acquitted, you could not be put in double jeopardy by being tried again for the same offence. This protection will disappear under our current Criminal Justice Bill, and it will be made retroactive. We used to operate on the principle of conviction before sentence, that you had to be convicted before you could be punished, but now we can take money from suspected drug dealers and criminal gangsters if we suspect that it was amassed illegally.
Another principles under threat is habeas corpus, which prevents the state from holding you for long periods without bringing you to trial. This has been weakened for cases involving suspected terrorism. Finally, our freedom-loving police are investigating ways of prior restraint, of acting to prevent you breaking the law in the first place, instead of punishing you afterwards as they have had to do so far. They are looking at ways of cutting out car engines if people try to speed.
These principles are being struck down one by one, almost as if the government had a checklist of the ancient principles of freedom, and were crossing them off systematically. Of course, it is all done in the name of catching fraudsters, gangsters, drug dealer, paedophiles, racist thugs and war criminals. The problem is that individual cases have always made for bad laws, and we discard our own protections in order to prevent a few guilty people from escaping justice.
Is there an overview of progress in the UK? Yes, but it is a mixed one. Economic freedom has been eroded a little. The ancient principles of the rule of law are under threat. On the other hand there is less pressure for social conformity, and a more relaxed attitude to alternative lifestyles. There are tentative moves to liberalizing the laws on soft drugs, which we may well see within the lifetime of this parliament.
If the present British government were to examine its soul, and say what it wanted for Britain, it would say it wanted a modern country, an efficient one, and a fair one. It will do its best to achieve those aims, and when it falls short, it will use a formidable public relations machine to say that it has succeeded.
It will look at Britain's current problems and try to be seen to be solving them. It will look at the state of farming, at the railways, at the London Underground, and most of all at the public services. These all attract much criticism, and therefore invite the government's attention. Frederic Bastiat would notice straight away that these are the areas least subject to market forces, and most ruled by regulation and subsidy. But the British government will not be as wise as M Bastiat, and will not heed the lessons it should learn on the 200th anniversary of his birth. However, its successor might do so.