Wednesday, 10 October 2012

Exogenous Reality Shocks: Conservatives, Cuts and Conference

David Cameron's conference speech mostly retreads the same old ground, but one passage about developing country competitiveness stuck out:

"What do the countries on the rise have in common?
They are lean, fit, obsessed with enterprise, spending money on the future – on education, incredible infrastructure and technology.
And what do the countries on the slide have in common?
They’re fat, sclerotic, over-regulated, spending money on unaffordable welfare systems, huge pension bills, unreformed public services."

This is a common argument from moderate voices on the right - that we should be spending money on education, on infrastructure, on things that boost the economy and competitiveness, rather than squandering public money on welfare. It combines a defence of the importance of opportunity-enhancing public goods with a crusade against the wasteful bureaucracy and poor incentives that stem from overly generous welfare systems. In general, I'm very sympathetic to this argument, and Cameron (incongruous 'fat' comments aside) makes it pretty well. It's the argument I'd be making, if I was a conservative.

Of course, I'm not a Tory, and won't be so long as the NIMBY populists continue to outshout the free-marketeers on immigration and on Europe. But Cameron's speechwriters are definitely onto something here. Sadly, policymakers aren't helping out - as it turns out, the government is spectacularly failing to 'spend money on the future.' As this graph (courtesy of Jonathan Portes) shows, investment is the last thing on the Coalition's agenda:

The basic problem here is exactly the same problem that austerity governments always have. It's very difficult to cut spending. If you try and cut spending, what you end up cutting are the least visible elements of government spending, which also often happen to be the most important. That means cutting infrastructure, maintenance and R&D, where the costs of doing so are much less visible than those of taking Gran's winter fuel allowance away. It means cutting funding for administrative staff, so that you can boast about protecting frontline services while highly-paid police and doctors are forced to waste more time filling out paperwork. And ultimately it means that you end up making things worse and discrediting deficit reduction when really you started out with mostly good ideas.

Of course, the extent to which this is excessive electioneering by the Tories, rather than the unfortunate consequence of misaligned political incentives, is debatable. But the right could be doing this so much better.

1 comment:

  1. totally agree with you! especially vividly expresses the schedule that you have provided