The Extended State: Public Ownership, Regulation and Quangos

1. The Extended State:Public Ownership, Regulationand Quangos

2. Introduction • The growth of state intervention (known also as ‘the public sector’) has been one of the defining features of British government since mid-C19th. • Almost all countries, regardless of their system of government, have witnessed an expansion of state activity, especially during periods of world war and also the long post-war economic boom. • Liberal democracies & their capitalist economic order, also have state involvement in economic management (via fiscal policies & nationalisation of industrial activities) and the redistribution of resources for reasons of social welfare, economic necessity and political opportunity.

10. The public sector has grown from 10% in 1900 to c. 40% today with public employment rising accordingly. Slightly below the EU/OECD mean • The public sector is more than just ‘the state’ but includes a variety of institutions: • central government departments & agencies • local authorities • public corporations (including nationalised industries) • non-departmental public bodies or quasi-non governmental autonomous organisations (‘quangos’) • other public bodies and agencies

11. The Growth of the UK State • A V Dicey et al observed the rise of collectivist tendencies with society during the C19th as a product of industrialisation and urbanisation • K Marx et al believed the state was an essential feature of a capitalist society - indeed, it was a ‘capitalist state’ geared to promoting the long-term interests & survival of the economic order, whose actions would be antipathetic to labour. • Conservative / Imperialist commentators concerned about the rise of foreign rivals’ military and economic prowess pressed for state action to promote national wellbeing (e.g. the ‘National Efficiency Movement’).

12. Karl Marx / Otto von Bismarck

13. The ‘New Liberal’ reforms of 1906-14 brought social and economic measures designed to combat growing industrial militancy among trade unionists. Old age pensions, unemployment and other welfare benefits were introduced. • Similar reforms overseas (e.g. Bismarck) • Total war - full mobilisation of national resources in a battle for survival saw massive rise in state activity, much of it continuing into peacetime. • 1945 - a Labour Government formalised ‘Welfare State’ along with full-scale nationalisation • pragmatic justifications • ideological considerations • the imperatives of capitalism

14. David Lloyd Georgeand Aneurin Bevan

15. Post-war political cross-party consensus based on a belief in a mixed economy and active state, & Keynesian economic demand management. • Accelerated national relative economic decline & a fiscal crisis of the state in the 1970s saw a rise of the New Right & its call for radical action: • curb the debilitating ‘nanny’ state and restore personal responsibility and initiative • monetarism - sound public finance, curbing public spending and borrowing and lowering taxes; and, • promote enterprise and allow market forces to prevail by ‘rolling back the state’. • A ‘Conservative Revolution’? Much of economy privatised by Thatcher & Major (1979-97).

16. Reversing the Growth - Privatising the State • End the burden on the taxpayers of loss-making state enterprises, breaking up state monopolies to promote competition, lower prices and choice • Creation of a property-owning democracy (‘Sid’ and the rise of the small shareholder) • Raise revenue for the Government (to finance other expenditure and/or cut taxes/borrowing • Challenge heavily unionised parts of the economy thereby easing labour reform process

17. Sir Keith Joseph / Milton Friedman

18. The changing ownership of an industry- the case of rail

19. The Recent Experience • Despite the language of ‘cuts’ & opponents fears of an end to the Welfare State, overall public spending rose and the public sector remained stubbornly resistant to deep retrenchment. • 1997 - New Labour accepted Thatcher agenda as irreversible, focusing instead on promoting ‘sustainable’ economic growth & its ‘fiscal dividend’. Traditional large scale redistribution rejected in favour of “a rising tide lifts all boats”. • Renationalisation is ruled out – regulation is the preferred method of correcting the mistakes and weaknesses of privatisation

20. The UK has experienced a halt and partial reversal in its post-war relative economic decline, according to many commentators • Polarisation between the ‘rich’ and ‘poor’ has grown under both Conservative and Labour • New Labour has sort to steer a ‘3rd way’ with some redistribution to the poor from the middle classes but leaving the rich to get richer • Is the US model or Far East ‘Tiger Economies’ more appropriate than the European model? What will address the UK’s relatively poor productivity record? • EMU & the Maastricht criteria on deficits & debt have obliged states to run tight fiscal policies.

21. Which model to follow?

23. The Rise of the ‘Quangocracy’ • All governments have made use of ‘arms-length’ forms of public sector organisation – quangos • Quangos can be a useful and non-controversial form of public organisation, especially where a clear need for objectivity and independence is warranted. • BUT quangos have come to be viewed negatively • Types of quango: Judicial, Advisory, Consultative, Crown bodies, Commercial, Regulatory, Self-financing regulating agency, Executive

24. Major expansion of quangos during the period of Conservative Government despite earlier pledge to reduce the numbers, powers and budgets – a ‘new magistracy has been created • Over 6000 quangos – depends on definition, with over twice as many people involved as there are elected local councillors • Appointed by Ministers but in practice having tenuous accountability to Parliament • Aggregate Quango budget exceeds that of local government • Centre’s preferred means of bypassing awkward democratically elected local authorities

25. Nolan Committee on Standards in Public Life investigated the role quangos and concerns over patronage ‘cronyism’, ‘packing’, ‘excessive’ remuneration, undue secrecy and other high profile abuses during the Major Government • Reforms have been made while devolution helps to put quango activities back under greater local/regional political scrutiny in Scotland, Wales, NI, Greater London and – possibly – English Regions that seek devolution • Critics suggest that quangos continue to have an unduly large role in British public life and that the Blair Government has a comparably poor record over ‘cronyism’ – the reform of the House of Lords created, ironically, a major new quango

26. Lord Nolan

27. Conclusions • In common with other countries, the UK State is an inescapable part of modern society having an enormous role in the economy. • Modern liberal democracies are based on a mixed economy model, with the state accounting for c.30-50% of overall national output (UK 40%). • The electoral battle in liberal democracies is between those favouring a slightly higher level of state activity and spending (Labour, Liberals) and those wanting reductions (Conservatives)

28. Conclusions • Global economic competitive forces appear to make large expansion of the state impossible (due to loss of investor confidence) but domestic political realities make large contractions similarly unrealistic (voters reject cutbacks) • Old ideological battles over ownership between nationalisation and privatisation have ceased • The extent of regulation of the economy is now the key concern with 2 rival models of regulation - a US (low) and an EU (high) – UK in between • Quangos remain a favourite device of politicians despite promises to ‘democratise’ them