Hurray, they've noticed the problem

As the state shrinks, its role must be rethought. Four politicians are offering solutions ...; In contrast to Labour's 'can-do' ideas, those from the Tories are more 'can't do'
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The Independent Online
It has been a really interesting week for anyone interested in British political ideas. I don't mean the day-to-day stuff of party politics, but ideas about the proper role of the state. What functions, 10, 20 or 30 years from now, should be done by the government of the day and which should be carried out by some other part of our society?

In the space of three days, there have been four important contributions to this discussion, two from Labour politicians, two from Conservative ones. The ideas from the left are Gordon Brown's plans to reform monetary policy, disclosed yesterday, and Frank Field's rethinking of the social welfare system in his new paper Making Welfare Work, published by the Institute of Community Studies.

The ideas from the right come in two books published this week. One, Saturn's Children (pounds 16.99, Sinclair-Stevenson), by the Tory MP Alan Duncan and Dominic Hobson, argues that the role of the state should shrink further and be replaced by individual decision-making. The other, Things to Come (pounds 17.99, Sinclair-Stevenson) by the former Education Secretary John Patten, sets out ideas for a Tory government in the early years of the next century.

The two Labour politicians have produced hands-on, "we've got a problem, so let's fix it" policy documents; the Tory contributions, by contrast, are dreamy, "we need to ponder the state of our society" tomes. But all four are seeking to redefine the role of politicians: instead of presenting themselves as all-powerful champions of people's rights, all four in their very different ways, are saying: "Hey, maybe we should not be doing this at all."

This is most directly evident in Gordon Brown's plans for the Bank of England. To anyone interested in financial markets it has long seemed odd that short-term interest rates should be set by a politician. No government in any Western democracy thinks it should control oil prices, share prices or house prices. Nor could it. While governments have some influence over very short-term interest rates, they have virtually none over longer- term ones. And they have zero control over the bond market.

In a world without exchange controls the price of money is largely determined by the markets. Serious politicians know it is silly to pretend you run something when you have only limited influence over it. This is why responsibility for interest-rate policy is gradually being transferred from the Treasury to the Bank, just as in most other developed countries.

But the Bank's current structure is unsuited to taking on a more important role. There is a board of directors (the court) with no power over monetary policy, which is discussed in a small monetary committee comprising entirely of professionals. Gordon Brown's plans are one sensible way of making the Bank fit to take on greater powers. But the really interesting thing is his acceptance that these powers should be taken out of the political process.

Very similar thinking is behind Frank Field's ideas on social security. The Government spends nearly pounds 90bn a year on social security, yet has allowed a new underclass to develop outside the formal job market, encouraged to cheat by the benefits system.He argues for the replacement ofmeans- tested benefit system with two politically independent bodies. One would run a proper insurance scheme with benefits related to the amount paid in; the other would organise the task of spreading private pensions. A state-funded "opportunities agency" would be charged with encouraging people back into the workforce.

Frank Field's argument is not based on any reduction of state responsibilities, rather the reverse. The effect, however, would be to distance the state from the administration of much of the social security system. "Real power," he wrote in an article explaining this scheme in the Independent on Sunday, "is delegated to stakeholder boards. ... stakeholder welfare provision ushers in a period of popular or social, as opposed to state, collectivism."

In contrast to these two practical "can-do" sets of ideas from the Labour side, ideas from the Tories are much more theoretical, much more "can't do", with the can't being the state.

The Duncan/Hobson book is written in a very showing-off way: every page is full of decorative references. John Stuart Mill, de Tocqueville, Bagehot, Keynes, RH Tawney, Francis Bacon, CS Lewis, Matthew Arnold, and Karl Popper all get their little nod, quote or aside. This detracts from the message, which is that government is far too big, that it is destroying individual freedoms, the moral order and the family. The final section, "What is to be done?" takes a mere 45 pages.

This is a pity because it would be very good to know what thoughtful Tories feel should be done about the role of the state. Saying it should be smaller and that, for example, we should cut pounds 20bn off spending by ending overseas aid, is ducking the issue. Voters do want public services; the issue is how to meet their legitimate demands in the most honest and effective way.

Alas, Patten's book does not help much, either. Its style is a bit hectoring: "As the party of capitalism we should realise that capitalism will be driven in the new century by knowledge and education alone, shaping the country in the future." We all know that: what we need to know is how we should modify our educational system, increasing both demand and supply to improve performance.

Still, what Patten's book does do is to look at other countries, instead of discussing British government as though the rest of the world did not exist. To their credit Duncan and Hobson acknowledge the extent to which professionals are mobile, and the uneven performance this country has in retaining its top talent. The idea that governments should compete to deliver a quality product, just as companies are in competition with each other, is something new to most politicians.

In a sense then, the four contributions are complementary. They are all, in their different ways, about how the state might be shrunk. Labour's two are more impressive in that they offer practical solutions to the need for monetary policy and social welfare to be taken out of the hands of politicians. But the two from the Tories at least acknowledge that there is a problem in the way in which, since 1979, their own party has sought, and failed, to redefine the state's task.

My guess is that, during the next 25 years, the share of GDP taken by the state will shrink by about 10 percentage points in all developed countries: we will hit the low 30s, as it was between 1955 and 1960. The US and Japan will fall to the low 20s, and countries such as Sweden will slip to about 40 per cent. What worries me is that revenues will be so reduced that it will be difficult for any state to provide an adequate service for the most disadvantaged. This is not only a British problem. The best news is that British politicians on both sides are prepared to admit that there is one. It is a start.