Government must get its hands dirty

Common Weal could offer the incoming Scottish Government all the policy it needs, but its problem isn’t policy. Its problem is that it doesn’t have a theory of how government works so it doesn’t understand why it isn’t working just now.

If I had a single piece of advice for an incoming government in Scotland it would be as follows: stop obsessing about policy and focus on theory for a change. And instantly I realise that this is going to take some explaining...

As someone who set up a policy think tank to influence an institution that operates on the basis of devising and implementing policy, it will seem strange advice. Policy is crucial, but the SNP (who will almost certainly be the next government) has policy coming out of its ears. It's manifesto reads like they decided to have a policy for everything.

That's the problem – they've been having policies for everything for a long time now, and they seem to keep mixing up the difference between 'policy' and 'announcement'. That's why there is so much failure to implement policy and so much policy which fails. Press releases don't solve problems.

So why theory? Because it's not navel-gazing – physics is a theory and when your bridge doesn't stand up you don't develop a new policy, you look at the physics. It's the same in government. There have been millennia of thinkers analysing how government and governance is done and many, many suggested ways to do it best. What we do is only one of many options.

But do politicians understand this? Not in Europe, as best as I can tell. They have a fish/water relationship with what you might call the Standard European Government Model; it is so ingrained in political consciousness that at times they seem to forget there was ever a before.

So what is the Standard European Government Model? Basically, the role of government is to facilitate markets by manipulating macro policy levers. Everything from electricity to housing to wage policy to environmental protection are functions of the market and understanding how to incentivise those markets is the primary role of government.

But part of the ideology of managing markets is that when a market doesn't want to do something that needs to be done, the state has to take that burden from them – unless the market wants to do part of a role which is profitable but not another which isn't. Hence we deregulated postal services, letting private interests run the bits with big profits leaving us to cover the costs of the expensive public service bit.

This is the lesson – markets are so far away from pursuing the public good that it is bizarre that we think they do. The natural behaviour of markets is to reduce pay and supplier costs, take out as much profit as possible for owners while investing as little as possible back in, creating monopolies to prevent unhappy customers from going elsewhere and using this dominant position to shape politics.

The whole point is that government is supposed to stop this happening because none of it is in the public interest. Far from encouraging this state of affairs, government is meant to regulate it – anti-monopoly enforcement, strict regulation on banking and finance, clear and realistic ways of representing the interests of labour (trade unions), stronger worker protection, tax disincentives to taking profit out rather than investing it back in...

We basically play a sport where the government referees a game where one team get to make (and change) the rules and send the other team to hospital where the government pays for their care while the winning team takes all their money.

Let me give you some quick numbers (the article they are taken from is very much worth reading). First, since the financial crisis of 2007, French and German wages have risen by ten per cent, UK wages have risen by zero. Second, since the banking reforms of the late 1980s, the drop in total private investment in Britain is an eye-watering 76 per cent while the share of profits directed into finance more than doubled and from there into the bank accounts of the wealthy as share dividend payout ratios rose from 30 to 40 per cent in the 1970s to 60 to 70 per cent by the 2000s.

And yet the entire set-up of politics in Britain actually rewards facilitating this outcome. This great analysis explains how there are two kinds of politicians – 'grown-ups' who keep this failing system going and 'not fit to governs' who suggest we need to change it. Keir Starmer is therefore either the greatest success or greatest failure in modern political history, depending on how you look at it.

The second theoretical problem that makes the Scottish Government so bad is its rigorous belief in macro measures. This is the belief that government should do no more than create the conditions that incentivise behaviour and then others will ‘just’ do the thing the government wants done – and that is rubbish.

Let me put this really simply; create an incentive and I will certainly exploit it but not necessarily in the way you want. Increase landfill tax to reduce waste and I could recycle more or I could fly-tip. Make it easier for me to build houses anywhere through planning change and I might build fewer houses but in areas where I can sell them at high prices where I couldn't previously build.

This is the European malaise – it keeps pushing at levers that are made of string and don't move the thing on the other side in the direction they intend. The Scottish Government has taken this stupidity to a new level. It's favourite way of making social outcomes happen is to say 'here's ten million quid – we'll give it to anyone who can make social outcomes happen'. Let's just say that this doesn't work and leave it at that.

There is a final theoretical issue; if markets are the ultimate goal, everything should run like a market. Hence the marketisation of public services (internally and externally). This should be patently the stupidest application of this idea of all. Markets do one thing efficiently – they let people make money by guessing correctly what will make them money.

You are aware that lots of them don't guess right and go bankrupt? A properly market-run NHS would let anyone carry out heart surgery, qualified or not, so long as they produce accurate data on how many people they kill. The consumer can then choose the best surgeons. Problem solved by the market.

Except you really can't kill any of them, so market is meaningless. Grab the frayed end of this silly argument and keep pulling and before you know it you're saying 'wait, what is this internal market for again?'.

“Doing something is always going to be your best chance of getting it done...”

OK, now let's reverse these theories. That is what the Scottish Government ought to learn if it wants to turn around its poor performance. The first lesson is that markets do not produce public good on their own. The job of government is not to facilitate markets but to balance them. This is not a radical idea by any stretch of the imagination – it is the basis of good-old Keynesian economics. Government controls and corrects markets for the public good.

Housing is a prime example. The problem is that the market does not build affordable housing fast enough. Of course it doesn't – where is the stupendous corporate profit in that? The Scottish Government basically tries to build houses through absolutely any means whatsoever other than building houses.

Planning reform? Tick. Subsidies? Tick. Suppress building standards? Tick. Give them lots of public land cheap? Tick. It doesn't work (I'm describing 1995), so let's do more of it (2005), and then more of it (2015) and then more of it (2025). Yet frustratingly it still doesn't work. They won't build the houses because it reduces their profits.

So build the houses yourself. In Keynesian economics this is known as counter-cyclical or demand-driven investment. Either you take direct action which is the opposite of what the market is doing in a down-cycle (which solves the problem and accelerates an exit from the down-cycle) or you address demand directly where the market doesn't.

The second corollary of the analysis above is that twiddling around with macro conditions will only take you so far. The Scottish Government still seems to think that you can create a high-pay economy by raising minimum wage. You can't, because if all other things are equal, businesses will just do the same things they were doing before and pass the additional cost on to consumers.

A high-pay economy needs high-pay jobs and they will not create themselves. If the market isn't doing it then you need to intervene in the market – which in this instance is known as an industrial strategy. If you want a proper bioplastic industry, use public contracts to make all your disposable cups bioplastic, get Scottish Enterprise to find companies that might diversify and then get the National Investment Bank to offer them loans to achieve that diversification.

We need much more focus on these kinds of micro action, getting something done by doing it. Because doing something is always going to be your best chance of getting it done...

Finally, ask yourself over and over what market discipline is actually contributing and therefore why you assume it's a better way to run complex systems. The NHS is the case study of how imposing artificial fake markets for purely ideological reasons is the opposite of efficient.

Theories of government don't get more long-lasting than Plato's and he was very clear on this; if you let the interests of wealth and the power of government merge, the rest of society will suffer. That is what has happened here. This Standard European Government Model is an almost literal merger of commercial and state interests and it has done exactly what Plato said it would.

We have a system of government which only works in one direction – everything but everything it does must increase the wealth of the wealthy and if it tries to do something which is against the interests of the wealthy, the system strikes back. The fact that government can't get anything done is somewhere between a side effect and the whole point of the system.

This is the lesson for the government; stop worrying about housing policy and just get on with building high-quality public rental housing. Stop trying to bypass UK minimum wage legislation and work on an interventionist industrial policy. Stop treating the NHS like a spreadsheet to be managed from the top and start trusting staff to manage it outside of market doctrine.

Don't see private care homes as the solution to care because they are 'the market' but a primary problem to be removed. Big business is not a 'partner' for government any more than a leach is a partner for your bum. The whole theory of government is wrong.

Stop announcing things. Stop pulling levers you know don't work. Stop believing markets always give you good outcomes despite all the evidence. Stop being so pleased with yourself for conforming to a failing system and being called 'the adult in the room'.

In other words, my strong advice for an incoming Scottish Government is that you should try to govern this time, not hold the jackets for big business and pretend that is the same thing. You have tried this 'easy route' where you take no risks and outsource your hopes for the nation to foreign corporations. It is failing woefully.

It is time to engage with the real, hard work of running a country. It is time to get your hands dirty.