According to former US President Ronald Reagan, the nine most terrifying words in the English language are “I’m from the government and I’m here to help.” Indeed over much of the past 40 years, Anglo Saxon economies have tried to shrink the size of the state in the belief that the markets are more efficient at allocating resources. In a narrow sense this may be true since the private sector has an incentive to generate the lowest cost solution in order to maximise profit.
But it is increasingly evident that rolling back the state does not always generate outcomes that are in the interests of wider society. The Private Finance Initiative (PFI) in the UK has incurred billions of pounds in extra costs to deliver infrastructure projects for no clear benefit. Indeed, recent PFI contracts – for schools, hospitals and other facilities – are between 2 and 4 per cent more expensive than other government borrowing, and involve significant additional fees. There is also widespread criticism that the chief executives of formerly publicly-owned utilities receive huge salary packages whilst not delivering any improvement in services.
In other words, the ideological basis of Anglo Saxon economic policy over the past four decades is not all it is cracked up to be. The model took a massive hit following the financial crisis of 2008 and governments around the world are still struggling to cope with the changed economic and political realities. Efforts to resume business as usual have struggled to gain traction and governments are increasingly struggling to retain the trust of their electorates. We see it in the populist surge across Europe and in the conduct of US politics, and it is evident in the rise of strongman administrations in places such as Turkey and the Philippines. In some ways the perception of government failure is unfair – in other ways not. But the widening gap between the perceptions of politicians and the electorate is both unfortunate and dangerous.
It is unfortunate because in western democracies politicians are representatives of the people. They are us and we are them – something that is too often forgotten by the body politic. It lies within the power of the people to change the status quo. In France, this led to the formation of a new political party which in the space of a year had propelled Emmanuel Macron to the presidency, although it has proven more difficult to replicate this strategy elsewhere. But the widening gap between people and politicians is also dangerous because it creates space for populists who advocate simplistic solutions to complex problems. The inability of the established political powers to counter these problems runs the risk that nominally sensible politicians will be forced to ape populist measures in order to stay relevant, thus taking politics in an unfortunate direction. Moreover, when the populist solutions are shown to have failed how will electorates respond?
Despite the strains which have been placed on western economies in recent years, they have just about managed – and so far, at least, rather better than in the 1930s. But continued fiscal austerity threatens the social fabric in ways that will only become evident in the longer-term. Greece and Ireland have emerged from a period of EMU-imposed belt-tightening, which has left the Greeks in particular significantly worse off. And I have long pointed out that the fiscal austerity imposed in the UK is outright regressive as it takes the axe to welfare spending. But for an example of how fiscal austerity can be taken to unacceptable limits, recall the experience of the city of Flint in Michigan.
To summarise, Flint had suffered huge employment losses over a period of many years as GM, the city’s main employer, cut back on local jobs. This adversely affected tax revenues and by 2011 things were so bad that the governor of Michigan declared a state of financial emergency, appointing an emergency manager to cut costs to the bone. Alongside such measures as reducing the size of the police and fire departments, the authorities decided in 2014 to cut costs by switching the city’s water source from Lake Huron to the heavily polluted Flint River. In order to save yet more cash, the authorities opted not to add anti-corrosion agents to the water which would have prevented the pollutants from causing lead to leach into the town’s water supply.
Despite mounting evidence to the contrary, officials continued to deny that the drinking water in Flint was unsafe. When Dr Mona Hanna-Attisha published her work in September 2015 highlighting the health risks associated with high lead concentrations in the drinking water, her research was initially ridiculed. A Michigan Department of Environmental Quality spokesperson accused her of being an "unfortunate researcher … splicing and dicing numbers" and causing "near hysteria.” But she was right and they were wrong. As a result, huge amounts of extra spending were required to replace pipes and ensure a supply of clean drinking water until the operation was complete, and criminal proceedings were launched against a number of officials involved in the scandal. Ironically, the cost of adding anti-corrosion agents to the water in the first place would have cost only around $36,500 per year versus an estimated $97 million over three years to replace the plumbing.
This is a classic example of short-sighted policies that are consistent with the Bluffocracy. By focusing only on one policy objective – saving money – the authorities ignored the non-pecuniary costs associated with their strategy. Worse still, the authorities failed to address residents’ concerns – the very people who they are supposed to represent. When this happens on a national scale you get politicians like Trump filling the gap. A decade ago, we were concerned with market failure as the global financial system tottered on the brink of disaster. Today, we are more concerned with government failure and nowhere is this more evident than in the case of Brexit – the subject of my next post.
No comments:
Post a Comment