The 2017 Conservative Manifesto opens with the statement that “now more than ever, Britain needs a clear plan”. In the spirit of due diligence, Abby Innes offers the first in a short series of articles on the political economy of the manifesto. Here she considers how the party’s strategy towards the state compares with reality.
“We need a state that is strong and strategic, nimble and responsive to the needs of people”. (p.8)
The 2017 Conservative Manifesto speaks highly of the state, and it speaks highly of the market. But even by the standards of enthusiasm in a political manifesto, this text operates in a fiction of archetypes. The juxtaposition of the manifesto’s celebration of a high-functioning state with the reality of its current institutional crisis verges on the hallucinatory. And yet we need to know how the political parties intend to approach the UK state because the next incumbents will remake it to an unprecedented degree.
Theresa May has promised a “mainstream government that will deliver for mainstream Britain” and this is marked in the manifesto by a rejection of the anti-state language of the last thirty years. On the face of it, we have a return to the classic ‘One-Nation Conservative’ narrative of partnership between said strong and strategic state, a dutiful citizenship, and an enterprising business sector. Throughout the text, the terms ‘government’ and ‘public service’ are used in preference to ‘the state’, so long maligned, but the manifesto opens with an argument “for the good that government can do”.
What is missing from the text is any acknowledgement that the state on which this idea of partnership depends – clearly bounded, neutral, commercially strategic but disinterested, institutionally coherent – no longer exists. Over the last thirty years, liberal market economies in general and the UK in particular have transformed the character of their states through privatization, outsourcing, internal managerialism and agencification, through the development of quasi markets in welfare and the rejection of industrial policies. At the same time, permissive tax and regulatory regimes have allowed large corporations to opt out of their former social obligations in the name of greater competitiveness. It is worth noting that insofar as the European Union became the transnational champion of these measures it did so at the UK’s constant urging.
This systematic reform of the state was a core part of the neo-liberalism or ‘supply-side’ reforms introduced by Margaret Thatcher, experimented with further by New Labour, and extended with a particular zeal by the next generation of David Cameron’s Conservative ‘modernisers’. The supply-side critique of the state is, unfortunately, flawed in both diagnosis and outcome. Supply-siders see the state as a monopoly firm that seeks to exploit its position for private gain and succeeds because voters are radically dispersed and inattentive shareholders.
The solution that follows is to break the monopoly down through market forces. But this was to base reform on the ideologically-loaded metaphor of Chicago School economists rather than analyses founded in the historical evolution of the actual state. As Hans Werner Sinn notes, since governments have stepped in when markets have failed historically, it can hardly be expected that a reintroduction of the market through the backdoor will work. More problematically still, supply-side reforms assume that if you bring businesses into the state, you get the best of states and markets and not the worst of both regimes: a lean and more efficient bureaucracy and not an informationally and organisationally fragmented state increasingly beset by conflicts of interests; the dynamism of competitive enterprises and not the financially extractive practices of low-performing public service industry monopolies.
The challenge that faces the next government is that these reforms have failed in the terms by which they were justified. Ruth Dixon and Christopher Hood find that reported administration costs in the UK have risen by 40 per cent in constant prices over the last thirty years despite a third of the civil service being cut over the same period, whilst total public spending has doubled. Running costs were driven up most in the outsourced areas and failures of service, complaints, and judicial challenges have soared. Government has attempted to resolve these self-inflicted market failures with regulatory oversight to codify tasks – consider teaching or medical care – un-codifiable in their most important aspects. Bureaucratic monitoring at levels un-dreamed of in the 1970s has joined informational and structural fragmentation, professional demoralisation and increased costs. After a sabbatical in the Cabinet Office in 2005 Matthew Flinders reported that UK central government had lost the capacity to operate ‘meta-governance’ over state authority owing to the disintegrating character of reform.
Nevertheless, this process of fragmenting state-capacity only intensified after 2010 and 2015 under the renewed zeal of the coalition and the Conservatives. Post-GFC coalition expenditure on outsourcing doubled from £45 to £88 billion pounds in just four years. All of which begs the question of how a Conservative government would re-establish the ‘strong and strategic state’ it calls for.
The 2017 Conservative Manifesto presumes a state that is ready to answer the ambitious challenges that the Party has set itself. It presumes a state that is not beset by cuts of nearly 40 per cent to local authority income since 2010; that we are not in the midst of an unprecedented staff retention crisis across the NHS, social care and education; that the state is not characterised by a poorly regulated porosity to private businesses and a revolving door in employment between politicians, civil servants and corporations that drives public distrust in the political elite. It ignores the uncoupling of rising administrative costs from improvements in capacity and service quality. It ignores the fact these mutually reinforcing stresses precede the demands of Brexit.
When you set this renewed faith in the state alongside the manifesto’s calls for fiscal conservatism (‘sound finances’), ‘the lowest possible taxes’, less regulation and free trade, the unanswered questions mount. The manifesto talks of the good that government can do but it also insists on the “threat” to firms and households from a “government’s thirst for their cash”. It talks about “recruiting the best and brightest graduates” into the civil service, and even about renewing the physical estate of the NHS and rewriting the contracts of both GPs and hospital consultants, but on what institutional or financial principles might this happen?
Would a 2017 Conservative government end the use of private finance initiatives or increase them in the name of sound public finances? Would it reverse or reduce public sector outsourcing anywhere, or continue to use it in the predominantly anti-competitive conditions of contracts characterised by unequal information and strategic oversight between the buyer and seller and limited practical possibilities for market exit (e.g. in a contracts for prison services)? Would a new Conservative government introduce a lobby register or an Advisory Committee on Business Appointments that are fit for purpose? When the Manifesto promises “strong local institutions” to renew the economy beyond London is that a commitment to rebuild local government?
A voter could not tell from this manifesto whether a Conservative government would restore the integrity of the state or follow along the path of its supply-sider predecessors whose striking achievement has been a creeping corporate extraction of public authority and funding. It is worth remembering that their putative goal in theory was the night-watchman state of libertarian fantasy: a state that protects only contract, property rights and sovereignty and that has never existed in the history of capitalism, let alone democratic capitalism. The evidence of May’s current administration is that she endorses the supply-side diagnosis. The Conservative leadership is waving Disraeli’s hat but it is still wearing Milton Friedman’s trousers.
Abby Innes is Assistant Professor of Political Economy in the European Institute, LSE.