Public spending – a looming trilemma?
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.
The pro-social council – what is to be done?
So here, in outline, is the argument I made to the Association of County Council Chief Executives yesterday morning….
This week’s budget confirms we are entering a long period of public sector austerity, yet needs – particularly those associated with population ageing – will continue to rise.
Even without the specific fiscal challenges we anyway faced what Professor Niall Ferguson described as a ‘trilemma’ (a situation where you can have two out of three outcomes but not all three). Ferguson’s trilemma (and he was addressing his arguments from a right of centre perspective) is between open market globalisation, social stability and a small state.
Public opinion finds it hard to accept this reality, which is why opinion polls suggest people want a Swedish welfare state paid for by American tax rates (although, judging by the generally favourable response to the budget tax increase for the wealthy, this may be changing).
The future looks depressing and even frightening unless we can close what I described in my first RSA speech as the social aspiration gap. To create the future most of us aspire to we need citizens who are:
• More actively engaged in collective decision making at every level
• Living more self sufficiently
• Contributing more to the collective capacity of society
More and more evidence tells us that the crucial determinant of citizens’ ‘prosociality’ is the thickness and range of social networks they belong to and quality of social support they receive. This evidence comes not just from sociology but from evolutionary psychology and behavioural science.
So the question for local government as it seeks to protect (or even improve) social outcomes with shrinking public investment is: how can it grow prosocialism, particularly through the fostering of stronger social networks. Another way of putting this is: how can public investment achieve a stronger social multiplier effect?
Here – in a highly abbreviated form – is a six point checklist for a council genuinely committed to this goal:
a) Spend less on opinion polling but seek to gain much more insight into how people actually live their lives and how they frame their social reality
b) In seeking to strengthen social networks start from those that already exist and seek to support and stretch them rather than trying to create new social infrastructures dependent on time limited public funding streams
c) Mainstream social network building. Don’t let this agenda feel additional to all the other targets and pressures; do the tough intellectual work of disclosing how stronger social networks can contribute to existing public service outcomes (like raisings school standards or improving public health)
d) Social networks are about relationships, behaviours and conversations. Behaviours matter more than words. If local authorities want to promote deeper more generous relationships between citizens then councils’ own practice must reflect this. Local Strategic Partnerships, for example, must be truly transformative spaces in which service leaders are willing to see beyond their own organisational imperatives to the fundamental needs of the locality
e) Engage local councillors in a redefinition of politics and social change, moving from a government-centric to a citizen-centric model. Support and incentivise councillors to be capacity builders (if this sounds crazy, there are places it is happening)
f) Understand that the evidence of greater cohesion and capacity lies not in everyone agreeing with each other or with the council, but in people disagreeing creatively (see cultural theory blogs passim).
It was a great session yesterday. My ambition now is for the RSA to develop a consortium of local authorities signed up to this kind of radical agenda and willing to work as an innovation set (each council committing to innovating and learning from others’ innovation).
And, by the way, there is also a lesson here for central Government: it has potentially an important strategic and network-hosting role in fostering this kind of practice in local government. But when it comes to the complex, locally-grounded, task of community capacity building, central Government intervention is much more likely to be damaging than constructive.
The crisis is an opportunity but only if public sector leaders are willing to think big and be brave.
George Osborne: new ideas and new questions
Just come away from the Great Room after responding to a speech by George Osborne - you can see a short interview with him below. The Shadow Chancellor concentrated mainly on the case for new and better forms of oversight and intervention in financial markets.
My response covered three points:
I welcomed George’s interest in behavioural economics (the RSA is, after all, the leading public platform for thinkers in this area). But I suggested that once we recognise that individual short term choices don’t always add up to the best aggregate outcome the discussion about ‘nudging’ takes us into even bigger debates about the relationship between affluence, economic inequality and well-being. Although David Cameron opened up the well-being debate a few years ago, this is still challenging territory for the Conservatives.
Second, I asked about how the Conservatives are now thinking about the role of the state. The state can be big or strong in three different ways. It can employ lots of people and provide lots of services, it can collect and redistribute a lot of money, or it can pass a lot of laws that intervene in people’s lives. Take one example: we might address the growing crisis of social care by the state expanding public provision of care, by the state taking more tax giving this to people with care needs who are free to spend how they will, or we could pass a law forcing everyone to look after their grannies. Ideological anti-statists will tend to oppose each of these forms of state power.
The Tories advocate nudge-type policies which seek to shape behaviour. George suggested in his speech today that the Bank of England might have a general power of intervention over and above any regulation, or that the Government might break up the big banks. It seems that the Conservatives are recognising that Government needs to be more interventionist while presumably continuing to be sceptical about the state, for example, as a mass provider. I suggested it would be interesting to hear about how today’s Conservatives conceptualise the state we need for the world we are moving into.
Third, echoing my blog yesterday, I asked how economic policy might contribute to building civic capacity; how can we better fuse enterprise and the pursuit of profit with social good and civic renewal?
George gave positive, if rather broad brush, answers to each of these questions so maybe we can get him back to the RSA again soon to elaborate further.
‘The market is bust but so is the state’
This is the headline of Philip Stephens’ piece in today’s FT. The intriguing thing about Stephens’ discussion of the relative merits of state and market solutions is that he fails to make any mention of the third – or civic sector. The growing economic and social crisis will turn into reality the warning we have been given by many social and political theorists: state and market alone are not sufficient for sustainable progress – indeed both state and market rely on the civic sector.
The big question for the coming decade is this: in the face of a depressed market and an indebted state, how can we enhance civic capacity? Unless we are individually and collectively more able to develop and to meet our own needs then it is difficult to see how we face anything other than a decline in the quality of our lives and the fabric of our communities.
But this issue is still only at the margins of debate. There are now more examples of new and reconfigured public services which draw on capacity outside the state:
- The Youth Opportunity and Capital Fund provides money which young people control and decide how to spend on activities and facilities in their area. An amazing variety of processes have developed to engage young people and an even more impressive list of initiatives in areas ranging from community cohesion and sport to culture and environment.
- Direct payments enable social care clients and carers to access payments directly and decide how to spend them. In just a few years this revolutionary idea has spread from the disability movement to being rolled out in councils across England. As more and more people sign up, so new ways for people to collaborate on buying and providing services are starting to emerge.
- In March 2009 the Government announced the £30 million Community Assets Programme. This allows local third sector organisations to apply to gain control of and refurbish underused local authority assets. This initiative, recognises the impact that has been made by community organisations like ‘friends’ of local parks who have worked with councils to revive dilapidated and under-used public spaces.
Arguably, the single biggest example is domestic refuse recycling where responsibility for managing domestic waste has shifted from being primarily the responsibility of the local authority to being a shared responsibility between householder and council.
Yet still this is at the margins. Every public service manager needs to have an account of not just how they provide an efficient service but how they contribute to civic capacity. And the private sector too faces searching questions about its impact on our social resilience and well-being.
When it comes to the ability of Britain to survive and grow from adversity, statists and free market absolutists are like Jorge Luis Borges’ ‘two bald men fighting over a comb’. In this new world, the state cannot succeed and the market cannot thrive unless we attend to the civic foundations upon which both edifices rest.
New times, new politics?
There is a brilliant piece by my old friend Martin Kettle in today’s Guardian. In all the political breast-beating about the world after the crisis he sees something I sensed but could not name (though it echoes the thesis of my first annual RSA lecture).
The political classes are arguing about which of them and which of their ideologies is best suited to manage the post-crisis world. What none of them seems to get is that any plan that understands people as the object (whether they are the object of markets or the state) rather than the subject of change is doomed to failure. The current argument between left and right about how best to empower people is like a man with a fork and a man with a sieve fighting over how to bail out a sinking boat.
This is a problem of social buoyancy. Politicians can only steer a boat that has the capacity to float. But over recent decades we have thrown too much civic ballast over the side and we have dragged on too much individualist cargo in its place.
This sounds like a counsel of despair. And if we had to rely on an ontology derived from an admixture of Cartesian dualism, neo-liberal economics and our flawed intuition, so it would be. Now is the time for us to call on a wealth of powerful analysis derived from neuroscience, behavioural economics, social psychology and moral philosophy to recast our very notion of who are and how we thrive as human beings.
Take just two insights and imagine, really imagine, how different our world would be if we lived according to them.
First, our personalities are less fixed and more dependent on the context in which we place ourselves than we think. While the things that make people feel good (family, friendship, altruism, good health, fulfilment in our work) are much more universal and constant than the booming messages of consumer capitalism beg us to believe.
Second, our brains are much more plastic (changebale and adaptable) than we imagine. All of us have huge scope to develop as human beings throughout our lives. What matters to that development is to do with inner reflection and social connection more than material success or hierarchical status.
This may sound pious and irrelevant to today’s scramble out of crisis. But one of the reasons the new world will see the West decline and the East rise is that, all in all, the citizens of the East have a more realistic and sustainable (which to some extent means humble and resigned) idea of what life involves. The simple fact that most of the West consumes more than it produces while most of the East produces more than it consumes is a powerful symptom of cultural difference.
We cannot simply abandon our own cultural traditions, and there is much of the West to cherish and preserve. But for leaders to construct a feasible future for our societies means citizens reimagining a feasible and fulfilling way of life for themselves.
But when will politics get anywhere near questions like this?
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