Monday, April 18, 2011

Do I support the economic policy of the coalition government?

Can a social liberal support neo-liberal economic policy?

In my last post, I identified myself as a social liberal, and explained why I am a Liberal Democrat.

SO, as a social liberal, I must therefore reject the policies of the coalition government then? After all, surely it is not possible to be a social liberal and support the imposition of neo-liberal economic policies based firmly upon the monetary policies of Margaret Thatcher?

First of all what is neo-liberalism?

The main policy goal of neo-liberalism is to transfer the control of the economy from the state to the private sector, in the belief that the private sector is better able to deliver more efficient government and service delivery than the public sector.  That is, that having the means of production and government in private hands is more efficient and effective than in public sector ownership.

There are ten policy positions which neo-liberals propose and are broadly supported by major financial institutions e.g. the World Bank and the IMF. Please see this link (  

  • Fiscal policy Governments should not run large deficits that have to be paid back by future citizens, and such deficits can only have a short term effect on the level of employment in the economy. Constant deficits will lead to higher inflation and lower productivity, and should be avoided. Deficits should only be used for occasional stabilization purposes.
  • Redirection of public spending from subsidies (especially what neoliberals call "indiscriminate subsidies") and other spending neoliberals deem wasteful toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment
  • Tax reform– broadening the tax base and adopting moderate marginal tax rates to encourage innovation and efficiency;
  • Interest rates that are market determined and positive (but moderate) in real terms;
  • Floating exchange rates;
  • Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by law and relatively uniform tariffs; thus encouraging competition and long term growth
  • Liberalization of the "capital account" of the balance of payments, that is, allowing people the opportunity to invest funds overseas and allowing foreign funds to be invested in the home country
  • Privatization of state enterprises; Promoting market provision of goods and services which the government cannot provide as effectively or efficiently, such as telecommunications, where having many service providers promotes choice and competition.
  • Deregulation – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions;
  • Legal security for property rights; and,
  • Financialisation of capital.
The ten policy positions outlined above are sourced from Wikipedia, but appear to be broadly accurate.

In all honesty, I would have to say that I broadly agree with the majority of the above principles, however the devil, as always, is in the detail. I do not think however that the private sector is inherently more efficient than the public sector; the private sector does not have the same concerns or pressures of the private sector; for a start the private sector has less meddling from politicians!

NHS Reforms
The NHS is an enormously complex, bureaucratic organisation which has helped save the lives of millions of people since it was established in 1947.  It is expensive - its annual budget is over £110 billion, or over 7% of GDP.  60% of its budget goes on staff costs - it employs 1.7M people.

The question we as taxpayers and patients ask is do we get value for money?  Does the NHS work? We all have horror stories about patient care and waste, however you also hear fantastic compliments.

The problem as I see it is one of scale.  The NHS is one of the largest organisations in the world, and managing such a large organisation centrally is close to impossible.  To become more efficient, decision making needs to be decentralised, and decisions about clinical funding needs to be taken by medical professionals, not Whitehall bureaucrats.  I would favour a radical break up, with accountability and governance handled at a local level, but procurement may benefit from being a centrally provided service so that hospitals benefit from economies of scale.

I am torn by the proposals - I can see benefits, but huge risks as well.  My main hope would be that the NHS becomes an independent body, free from the control of politicians and able to determine its own destiny, similar to the Bank of England.  One thing is for sure - the NHS must remain free at the point of provision to those in need.

What about the cuts?
tAs at March 27 2011 The national debt according to the Office of National Statistics, stands at £875.8 billion.  This represents 58% of GDP.

If all financial sector intervention is included (e.g. Royal Bank of Scotland, Lloyds) , the Net debt was £2,252.1 billion  or 149.1 per cent of GDP.

The bald figures speak for themselves.  The UK is horrendously in debt, and that debt is growing daily because of the interest we pay on what has been borrowed. This is approximately £43 billion per annum  In order to fund government spending (which includes Defence, NHS, Welfare etc.) the UK will need to borrow £149 billion.

We can all argue about the cuts.  We all have differing priorities, and views on where the cuts should fall. I personally do not envy the government's task of getting public sector finances under control. I do not feel qualified to comment further.

What I can say though is that in 2002, gross national debt stood at 30% of GDP.  In less than ten years our debt has increased from 30% to 58% of GDP, and the responsibility for that lies squarely on the Labour Government.