Wanted! Rational policymaking based on non-partisan evidence

Wanted! Rational policymaking based on non-partisan evidence

by Martin Livermore
article from Thursday 8, June, 2017

GOVERNMENTS are elected for a whole variety of reasons, but a key one is that we hope they will spend taxpayers’ money wisely. Bill Clinton’s famous phrase – “it’s the economy, stupid” – really sums up politics in a nutshell. For sure, voters may be tempted to vote for the party that promises the most goodies, but ultimately all the good things in life have to be paid for.

The money may all come directly from taxes or it may be supplemented by borrowing. Many major economies have run large deficits for years, but we as individuals still pay the price of this because some of our tax pounds, euros or dollars are used for interest payments. With global interest rates so low, this may seem like a good deal, but as they inevitably rise at some point, debt financing will becoming an increasing burden. On a more personal level, domestic finances will also be hit hard as large mortgages and car loans become unaffordable. At some point in the economic cycle, this will end in tears.

The soundest economic advice – both for governments and individuals – is therefore always to put money aside for a rainy day when times are good, rather than simply spend whatever comes in. The Norwegian sovereign wealth fund built up from oil and gas revenues is a case in point. Meanwhile, in the UK, the last Labour government increased spending rapidly when times were good, only to be caught out by the 2008 global financial crisis. The earliest the country’s books look like being balanced is now the early 2020’s, with the squeeze on funding of public services becoming increasingly obvious.

Any large organisation has inefficiencies, and national government departments are certainly no exception. Significant costs have been cut at national level without the sky falling. At the same time, local government has had very large cuts to income while managing in most cases to deliver core services satisfactorily. But there is only so far we can go with cost-cutting; the other side of the coin is to increase tax revenues. Facilitating economic growth boosts revenues without most people complaining.

We expect our elected governments keep us safe and put in place policies that enable all citizens to have a roof over their heads with affordable food, heat and light and decent medical care. We also expect an adequate infrastructure for transport and IT. How these basics are delivered is immaterial; it just needs to be done and to be done as efficiently as possible.

Unfortunately, this is where politics comes in. On the Left, there is a belief that “common” ownership (that is, the State) should deliver services, largely because of a distrust of the profit motive. On the Right, there is a stronger belief in free markets as the preferred way to provide things efficiently. In practice, there is a very broad centre ground, in which some form of regulated market economy rules. And there are some things that, flawed as they may be, governments of any stripe tinker with at their peril.

As others have said, the NHS is almost a national religion in the UK. Certainly the revolution in healthcare delivered to all for free (at the point of delivery, but paid from taxes; nothing is really free) by the Atlee government brought massive benefits to many people. But the vast, many-tentacled organisation that is today’s NHS is proving difficult to fund adequately through taxation and has multiple areas of crisis, from staff training and retention to equitable availability of expensive drugs and treatments.

In practice, a significant proportion of NHS expenditure goes through private providers, which has increased efficiency in some respects. And no other country has quite the single monolithic structure that is care provision in the UK. Hospitals run by independent foundations, care funded via insurance schemes, much larger numbers of primary care providers which individual patients are free to pick and choose; all these and more deliver care successfully in other advanced economies. Rather than ask “how do we improve the NHS?” future governments should ask the broader question “how do we deliver high quality care to everyone most effectively?” No lesson from other countries should be ignored.

There are plenty of other examples of the wrong question being asked, inevitably giving the wrong answer. HS2, for example. To be fair, the question in this case was how to increase capacity on the west coast main line railway, which is a reasonable one. But the answer was politically determined, with a new high-speed rail link being built as what can only be seen as a national vanity project. Shortening the London to Birmingham journey time by 2026 at a capital cost of £22bn does not seem like value for money. Extending the lines to the north west and north east by the mid-2030s is likely to cost nearly twice as much.

The project has been justified economically by the assumption that shorter journey times are worth money to people, an assumption that is hard to justify in this age of mobile phones and broadband connections. And the elephant in the room is ticket cost. Already, walk-on rail fares to the HS2 destinations are very high and paid almost exclusively by businesses. HS2 trains are likely to be occupied exclusively by business travellers at peak times and by those who have booked many weeks ahead to get affordable off-peak fares. The elephant in the room may very well turn out to be white.

A better question to have asked would have been “how do we make it easier for people to make north-south journeys when they need to?” The answer may have been to provide more road capacity, which could be used more flexibly by cars and long distance coaches. An alternative may have been to make the existing line suitable for longer, double-deck trains.

Something that affects all consumers as well as all businesses is energy, in terms both of reliability and cost. Energy policy is currently a mess, driven not by efficiency and security targets, but by goals for the reduction of CO2 emissions. This is compounded by requiring politically-driven targets for renewable energy and energy efficiency to be met. The rational answer to the question of how to reduce emissions would be to incentivise organisations to do this in the most efficient way via a flat rate ‘carbon tax’. If applied over recent decades, the result would have been a move from coal to gas (which has already occurred) plus investment in new nuclear stations. Most renewables wouldn’t get a look in unless they were able to operate without subsidy.

Tomorrow the UK will have a new government of one colour or another. Before too long, that government will no longer be bound by EU regulations and should be able to take a more objective approach to policymaking. It will have an obligation to take advice from experts when formulating policy, not just those lobbying for a particular solution. Energy supply, so crucial to all aspects of life, would be a good place to start.

Martin Livermore writes for the Scientific Alliance, which advocates the use of rational scientific knowledge in the development of public policy. To subscribe to his regular newsletter please use this link.

 

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