Public spending – a looming trilemma?

May 1, 2009 by matthewtaylor
Filed under: Credit crunch, Politics 

Do we have to choose between social justice and universal public services? This was one of the issues raised at this morning’s 2020 Public Services Trust seminar.

Paul Johnson from IFS opened the seminar by explained the full scale of the fiscal crisis. The top line is that from 2011 the public sector faces a decade of year-on-year substantial real terms cuts. It is inconceivable that cuts like this can be made without a concrete and visible impact on public services.

This prospect framed the response from Lord McNally, whose distinguished past includes his time as a senior advisor to James Callaghan between 1976 and 1979. While recognising the scale of the crisis, he warned against alarmism, citing three sets of decisions:

• Roy Jenkins’ fiscal tightening in 1970 which many believe lost Labour the election of the same year         

• Denis Healey’s agreement to IMF demands for cuts in public spending (cuts which some economic historians now argue weren’t necessary). It was this that led to the winter of discontent, Labour’s defeat in 1979 and its subsequent decline into near political suicide 

• Margaret Thatcher’s economic and fiscal policies which – whatever their economic upside – led to huge social dislocation and the running down of public services.

The priority for McNally was the maintenance of social cohesion, even if this meant higher taxes and a large ongoing public deficit.

The economist and business woman Bridget Rosewell countered by, first, by questioning whether most public spending really did contribute to social cohesion and inclusion, and, second, highlighting the risk that a Government not seen by the markets to be facing up to its fiscal responsibilities would be unable to finance its debt.

The subsequent conversation reminded me of the concept of the trilemma: a situation in which policy makers may be able to achieve two out of three aims but not all three. A classic trilemma in pensions policy comprises: incentivising saving, targeting the poor and limiting expenditure. Recently, speaking to a centre right audience, Niall Ferguson suggested free marketers faced their own trilemma: free trade globalisation, social stability and a small state.

In the face of the structural public spending deficit do we face a new trilemma? This is between national economic viability, protecting the poor (those already being hardest hit by the downturn), and welfare state universalism. As an example of this kind of thinking, it is significant that Conservative MP David Davis yesterday advocated means testing child benefit as a way of saving a few billion.

If protecting the poor while safeguarding the economy means reassessing universalism  the implications are huge and very troubling to progressives.

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Comments

5 Comments on Public spending – a looming trilemma?

  1. carl allen on Sat, 2nd May 2009 8:17 pm

    2. RSA 02.04.09

    Concept of the trilemma: a situation in which policy makers may be able to achieve two out of three aims but not all three.

    But what are the assumptions behind the trilemma concept that are open to challenge and how to recognise the contradictions, dilemmas, paradox, paradigm shift that may be required and so on.

    Some assumptions to be challenged

    1. What the policy maker cannot achieve, then those affected cannot achieve

    2. On the timeline, there is an imperative that all 3 must be achieved at the same sequential time

    3. Mao … where would China have been without the one child policy

    4. Any 2 of the aims cannot be converged into one leaving a dilemma at a point in time

    5. When we make something heavy, then something else must become light i.e. the laws of normal physics apply even in a non-physical policy trilemma

    There are a number of other points.

    But let us wait and see what the so called policy gurus come up with, remembering that in policy making, consultation is a substitute for analysis of an issue.

  2. WP on Sat, 2nd May 2009 9:24 pm

    3. Matthew – interesting article. I’m sure you’re right that there will be a crucial debate over the coming years of whether we really are now in an age of austerity. The Tories are possibly going to be coming into power at a time when both the economic and political circumstances, are more favourable to retrenchment of the welfare state than when Thatcher came to power in 79.
    Do you not believe that in terms of protecting universalism, New Labour should have avoided the numerous moves towards selective means-testing of benefits? While the arguments for increased selectivity may have seemed favourable, i’m sure you agree that each move towards selectivity weakens the coalitions needed to sustain the welfare state during economic downturns, and periods when a centre-right government is in control, let alone when both are combined.

  3. carl allen on Mon, 4th May 2009 7:10 pm

    4. CORRECTION

    Consultation is a substitute for analysis of an issue is present practice but present practice is not good practice.

  4. matthewtaylor on Wed, 6th May 2009 7:38 am

    5. Hi Will. It is a difficult issue. The classic trilemma is in welfare benefit/pensions policy and comprises; controlling spending, targeting the poor and maintaining work/savings incentives. There are lots of problems with means testing (most obviously the poverty trap) but universal benefits are very expensive. Thanks for the comment.

  5. Beware false spending cuts : Matthew Taylor’s blog on Wed, 6th May 2009 9:08 am

    6. [...] can close the funding gap simply by getting rid of unpopular one-off programmes. The reality is – as I argued last week – that the coming spending crisis will only be tackled if we are willing to look bravely and [...]

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