Leading article: When it comes to the state, it is not size that matters most

Where government action is necessary it must be effective

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David Cameron's speech to the Conservative Party conference in Manchester earlier this month had a strong and clear theme. And that theme was the perils of "big government". The Independent's opinion poll today suggests there is a significant level of public support for that diagnosis. 67 per cent agree with the Tory leader that the British state ought to be smaller. Just 28 per cent disagree.

It is certainly not hard to point to instances where the hand of government has blundered in recent years, some of which Mr Cameron highlighted in his speech. Consider the grossly disproportionate Vetting and Barring Scheme, which will require a quarter of all adults to register on a database if they want to work with children. Or consider the case of Ofsted's recent intrusion into the childcare arrangements of two policewomen. The state has also plainly overreached itself with its ID cards scheme.

Yet the Conservative leader's claim that all of society's ills can be laid at the door of an over-active states is too simplistic. There are also areas of public life where the state has plainly not been active enough. The Government has failed to do enough to stimulate investment in renewable energy technology and infrastructure. The result is that we lag far behind the likes of Germany in the development of solar energy and wind power.

And one of the reasons we got into this economic mess was the prevalent political ideology that said financial markets were always self-correcting and should be left to their own devices. The banks blew up a destructive credit bubble without facing any meaningful controls from the regulator. For Mr Cameron to argue in his speech that our economy is broken "because government got too big" was bizarre and wrong. Spain and Canada had considerably tighter financial regulation, and the banking sectors of neither witnessed blow ups in the manner of HBOS and The Royal Bank of Scotland.

There were contradictions in the Conservative approach on show yesterday. The shadow chancellor, George Osborne, gave a speech calling for the Financial Services Authority and the Treasury to intervene to stop state-supported banks from paying employees cash bonuses more than £2,000. He was right to do so. Strong state direction is warranted in this area. While banks are still failing to supply credit to viable small companies and while their capital levels are still below safe levels it is absurd that they are planning to pay generous cash bonuses to their employees. Yet how does this fit with his leader's reflexively disdainful attitude towards "big government"?

Strong government action is also needed to deal with the banking empires that have emerged from the rubble of last year's crisis. Not only do these institutions enjoy an unmerited de facto state guarantee of their liabilities, they often work against the interests of households and businesses. Yet market forces will never break them up and deliver a competitive market in financial services. Only the state can achieve that.

The "big government" versus "small government" opposition is, in many respects, a false one. There are areas of British life where the state's activities are distorting and it should pull back. But there are other areas where government ought to be more activist in pursuit of the public good. Our political leaders need to decide where government has a role – and then concentrate on making it as effective and productive as possible in fulfilling that role. The true enemy is not "big government" but "stupid government".

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