in which I consider the greatest “economic benefit” principle

The question and answer about the mining industry in this brief exchange (at about 54 mins) between Nick Robinson and Jonathan Portes prompted me to tweet to the latter that he had just demonstrated why economists should be allowed to inform, but never to make, policy. Jonathan gracefully replied in general agreement – then went on to explain his comments in that interview in more detail on his NIESR blog. It’s worth reading, particularly this, the heart of the argument (the latter part of which , unkindly, was not clarified in the BBC interview) :

“This is what I was trying to get across: the standard utilitarian Adam Smith case for a liberal, market-oriented approach: that (accompanied by appropriate redistribution) it will maximise welfare. It does not imply, as one or two people suggested, that I don’t care about the human consequences of economic decisions, nor that I think people are a commodity like coal.”

Before I continue I should declare a possible source of bias. My father was a coal miner for the first part of his working life. His father was a coal miner for all of his working life, and his father was an iron-ore miner and then labourer in the collieries.  None of them were around to see the mining industry closed down in the 1980s (with the other heavy industries). I would not possibly presume to represent what their views would have been.

I agree that the utilitarian Adam Smith case is the standard premise of current political orthodoxy in the UK.  It was first translated from theory into practice by the Thatcher Conservative government; adopted by  Labour  as its “Third Way” as its leadership become New Labour; and then by an “Orange Book” leadership coup in the Liberal Democrats.

Since the 1950s, the Adam Smith case has been developed, supported and propagated by an ever-expanding and closely linked network of well-funded thinktanks.  These organisations provide what is now a flood of aligned policies, together with a constant media presence. It is a mode of thought virtually unchallenged by mainstream media, with the BBC notably in thrall to it. Many of the current government – most notably, many of our most senior Ministers – have done nothing (or hardly anything) except work for thinktanks or their party. With the UK’s unwritten constitution, it is not at all clear where the boundary is between government and thinktank, or indeed if there is one.

Following this model, to maximise welfare the role of government must first and foremost be to protect and further the liberal, market-oriented approach. This prevents the state from providing public services. Energy supplies, water, sanitation, communications, roads, railways, waterways, the environment, the National Health Service, ambulances and fire engines, education at all levels, prisons, probation, perhaps the legal system itself, even policing and the armed forces: everything must be divorced from public management and converted to private supply through markets. The state is transformed into a commissioner of private provisions. This is indeed what the UK government (run by all major political parties) has been doing since 1979. Instead of governing a state, government is not even managing an economy: it is setting aside whatever controls it can. Politicians might claim the titles of government office, but economists are in charge.

Politicians are thus  limited to specifying what amount of redistribution is appropriate, and the means of that redistribution. However, given that the government has rejected the principle of shared risk and abandoned public ownership to be replaced by markets, what means remain with government to redistribute any wealth? And why would government do that anyway?

A serious problem for Portes’ case is that the two necessary conditions – a liberal, market-oriented approach and appropriate redistribution – are in conflict: strong adherents of the former assert that they are incompatible. Markets are believed by the adherents of Smith to be the most efficient means of distributing goods and wealth: redistribution thus disrupts markets and undoes what markets do so well. Governments are consequently pressurised (or already convinced) to trust entirely to the liberal, market-oriented approach and to ignore the redistribution. Even if welfare may be maximised,  it is certainly not shared. The signal feature of the US, then the UK, since the 1970s has been the accumulation of wealth by a tiny elite and the accumulation of personal debt by the rest of us. In the UK we now have a government so fundamentalist in its adherence  that it is not just divesting itself of the responsibility for protecting the population at all from the market-oriented approach, but lauding the unfair consequences as not just inevitable, but moral. The standard case has long since been moved from liberal to neoliberal (probably prior to Thatcher), and government is removing the vestiges of the postwar state as provider of social security.

This all makes immigration a problematical. Immigrants may indeed – as Portes demonstrates from the data – add to the general welfare, but the general welfare is not most people’s perception, it’s personal well-being and income. Were there a stronger personal sense of financial and job security, it would be much harder to press the immigration button as all major parties – plus, of course, UKIP – are doing.

The usual definition of the utilitarian case is Bentham’s axiom of  “the greatest happiness of the greatest number”.  You might pause to see whether your ethical views are consistently supportive of this by attempting this thought experiment.  My own ethical outlook came out as consistently opposed to it. What you get out of the axiom depends in part on the definition of  happiness which you plug in.  Portes uses the term “welfare” implying, perhaps, general well-being. But as in the case of the miners, does inflicting hardship on a few ever justify an increase in welfare for the many (assuming the redistribution which hasn’t happened)?

As Portes recognises, there was a failure of government to recognise and to mitigate the consequences of what he thought was an economic decision, based on the availability of cheap coal. Similarly, he put it to government that funding and action should be taken to contain the impact of immigration. To his credit, he sees that economic decisions have human consequences. But was this decision to close the mines, based on the market approach, justifiable as a political decision?

Market decisions are decisions based on price only. What about energy security? Surely the oil price shocks of the 1970s would have been enough to persuade us that dependency on foreign supplies and low prices was a risk.  And what about planning for energy production and use? Government has sloughed off its responsibility to the markets and to private providers, leaving us with an energy infrastructure 60 years old and creaking badly, and most importantly wholly unable to contain the impacts of climate change.

It turns out the popular perceptions of politicians – that all major parties are the same, that they look after wealthy corporations and the wealthiest individuals and not the electorate – are logical consequences of letting politicians believe in the standard utilitarian Adam Smith case. In the core of his blog, Portes offers thanks that no government is acting to protect its own people or business from the liberal, market-oriented approach. But as Ha-Joon Chang argues, was there ever a state which successfully nurtured its business and (social) infrastructure without protecting them from global markets? If we are to rebuild an industrial base and secure medium and large enterprises, and provide a future where we do more than sell houses to each other or seek rent, don’t we need a fundamental shift away from the current orthodoxy?

It’s not Brussels that we need to recapture our government (and country) from, it’s economists and corporate lobbyists.

To finish, a sidebar on the subject of migration. Had my grandmother not held an unassailable terror of the Atlantic crossing, my grandfather –  to be awarded a DSM in The Great War and recipient of a subsequent award from the colliery owners – would have moved his family to join his brother’s in Pennsylvania. Britain’s loss. But then, there were no immigration controls a century ago. Someone would have taken our places.

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