Economic governance in the 21st century

Economic governance in the 21st century

A global problem waiting to be solved.

While this is a worldwide concern, it is a good example to take the exposure of the financial mess, the socialist devolved government of Scotland, is in. (December 2023) This raises genuine concerns about socialist economics. The usual cry of tax the rich is just politics of envy. If anyone doubt the economic advantages of a mixed economy, they should ask themselves why all the economic migrants come to nations with mixed economies, they do not flood Russia in their millions, they leave Venezuela and try to get to USA. Socialist economic do not work in the real world. The SNP in Scotland claim they want total and complete independence from the rest of Britain, they suggest they will have a vibrant and wonderful economy full of advantages for the Scottish people. Recent revelations show that even with huge subsidies from British taxpayers, they still cannot manage their state-run services properly. They have resorted to the usual complaints that they are not given enough of British taxpayer’s money. If they have independence, they will have Zero money from English tax income. Do they expect the EU will welcome them and provide all the money they need? Do they honestly think French and German taxpayers are going to agree to this?

There are many problems with most mixed economies. Mixed economies are defined as having control of parts of a nation’s economy by the elected government, while allowing entrepreneurs to develop and manage other parts of that economy. A total capitalistic economy has no governmental involvement in the management of any part of the economy. A total socialistic economy has every aspect of all economic activity controlled by the state- the bureaucrats who run the state. Oddly enough both the total socialist economy and the totally capitalist economy end up meaning poverty and misery for the lowest social/economic “class.” Both systems are obviously open to corruption at every level. Mixed economies also have levels of corruption but the democratic control over the governance of the state, creates pathways to expose corruption, pathways that do not exist in either of the totalitarian states. They do not exist because the power to curb corruption lies with the same people who are corrupting the system. In a mixed economy there are, effectively, two rival powers and so corruption in either, can be exposed and sanctioned by the other.

The problems with a mixed economy tend to be ones of management. For example, in Britain rail transport was nationalised after world war 2. This meant the state managed every aspect of the rail transport system. Day to day and strategic management was by politicians setting political objectives for state bureaucrats to reach. An obvious problem is that this governance system total ignores the real-world fact that rail transport systems are complex engineering-based enterprises. As the physical infrastructure aged and became in need of modernisation, the political imperative was to reduce tax subsidies rather than invest in maintenance and new innovations . A spiral of decline was inevitable. Add in the mismanagement that resulted in the ordering of new steam engines while also replacing steam with diesel. The socialist government of the day ordered a review of the need and economic viability of the rail system. The result was not based on future needs, or the use of future engineering innovation, it was based on short term political advantage, the announcement of a saving of taxpayer’s money. Large sections of the rail system were abandoned, discarded. An example of how this was a mistake is a simple one. A small rural branch line was declared uneconomic and abandoned. At the same time as this decision was made, talks started about the long-term future expansion of, what was to become a huge airport. This branch line could have been expanded to serve this airport. Although the closing of the rail line was years before the airport became fully enlarged, a bit of constructive thinking, a bit of liaison between government ministries, could have been hugely beneficial. The mantra appeared to have been something must be seen to be done. With hindsight the simple abandonment was not the wisest of long-term solutions. In fact, this wholesale destruction of the system did not end up creating a vibrant well managed, economically viable, public transport network. As with so many state run enterprises in Britain in the 60’s through to the 90’s; the unions, wedded to extreme socialist ideology, considered that the needs and ambitions of labour was all that mattered and was far more important than the capital needs of the enterprise. Effectively they controlled investment and this led to stagnation of innovative development. With the engineers made to be subservient to the politics and administrative running of the system, it all got worse and worse. It was then “privatised” The big problem this political solution faced, was that no sane capitalist was going to pay billions and billions to buy an out-of-date infrastructure with a bad management structure. Also, the fact was that they would be expected to run a “public service” not a business. So, compromise was sought, again the politicians left the detail structure to the government administration. The same bureaucrats who had presided over the failure of the state-owned system, now organised the transition to private ownership. The result was and is, a mess. Fragmented ownership, divided responsibility, constant need for tax funded subsidies, low customer satisfaction and very high prices that are driving customers away from the system. Add in the ignoring of changing work patterns, (the advent of work from home philosophy) and the union objections to total automation. This is how not to run a mixed economy.

Some aspects of life in modern overpopulated nations, need a large degree of governmental control. Heath, security, and education the most obvious. That control should be exercised by industry experts not time served, career government bureaucrats. This simple statement is at the root of all the state-run enterprise problems. Political oversight and the need for taxpayers’ money to finance investment etc. are implicit in the notion of a state-owned enterprise, but how these are achieved is crucial. In so many cases much of the money allocated for the services, gets spent on the administration of the distribution of that money. Then there are the administration costs of ensuring the money is spent in accordance with “government” (needs of the bureaucracy) guidelines. Then there are the costs of devising and administering these guidelines. Then there is the cost of ensuring all the costs are accounted for. Since control of these expenditures is in the hands of the administrators, the same people who are spending the money, they are not subject to the commercial rules of cost against benefit, nor are they appraised for productivity. The end result is that the headline budget figure, is not the same as that which actually reaches the front-line application. It also results in multiple levels of “management” each with its own staff and each with its own management structure. All cost a lot of money.

Control of government spending is so much harder now than it was 500 years ago. Now we have people paid a great deal of money to persuade governments to spend taxpayers’ cash in a way that benefits those paying the people doing the persuading. Need is commercially created rather than naturally occurring. That wonderful invention, the political target, is used to create flows of money in a particular direction and also to justify the amount. They are also used to make it appear the government is in control, doing something. A vested interest group or semi monopolist commercial organisation, simply need to use the media to create a demand, a totally spurious and artificial demand, that the government must do something about. Take, (as a ridiculous example) the colour of the water in lakes in the nation. The group orchestrating the demand happen to be the only people with the necessary facilities and chemicals to change the colour. They create a media campaign demanding the government do something, The politicians bow to the pressure and instruct the bureaucracy to set up a fact-finding committee. The bureaucrats invite experts to advise them, These experts obviously come from the only people capable of effecting change. This committee sets a target for the government to change the colour of the water in all lakes within 5 years. The bureaucrats sit down in another committee to decide on a budget. The experts advising this committee also come from the people capable of doing the job. By this stage the target is set in stone, an edict from God. No one ever considers challenging this. A budget is set, and tax money is allocated, all are happy. The taxpayers are assured their money is being well spent and that targets will be reached and so they can rest easy. Once a target is set, the fact that it is an artificial concept and not based on measurable reality, is forgotten. No one goes back and asks why do we need to change the colour? Targets have another aspect that appeals to politicians, particularly those on the left of political thinking. Once a target is set, no matter how arbitrary, they can justify the imposition of new taxes, restrictions, rules, levels of coercion, all in the name of meeting the target. Again no one asks why do we need to change the colour? No one even suggests the targets should be changed to suit the funds available. All is sacrificed to the demand to meet the target.

So, what can be done? Is there an ideal way to manage national economies? One possibility that can be explored is the fixing in law, of the percentage of tax income that can be spent on education, health, security etc. An election that causes a change in the political nature of the government, would not change what these percentages are. Only a national referendum with say 70% voter participation and a clear majority say 60% of votes cast, is needed to change theses expenditure percentages. This will take the politics out of healthcare etc and also make long term financial planning much easier, no reversing economic direction after every election. Another consideration needs to be how the government administration, of state-owned enterprises, can be achieved with industry experts in control not time served bureaucrats. May be recruit retired industry experts into that administration? Then the question of global companies, some have bigger expenditure budgets than a small nation, many have such economic power that they can, if they choose, have controlling power over sectors of a nations economy. Even fully democratic developed nations can be influenced by the “lobbying” and legal manipulative powers these companies can have. Banning all forms of lobbying may be an option but it may simply drive all attempts to influence politicians, into more secretive pathways than now used. It may take agreement between all nations to change the tax rules for these global operations. Each nation taxing the economic activity, of the conglomerate, in its own nation and not allowing profits to be lodged in the most favourable, to the conglomerate, tax haven. In other words, an international agreement that the activity of the global concern is to be treated as if a separate company exists in each country and the transference of money from one of these national companies, to another country, is banned. Curbing international currency speculation is also needed. As things are now, a group of people or a group of global enterprises can, if they see a possible profit, or if they need to influence a governmental decision, manipulate the currency markets (the value of a particular currency) to the detriment of their target nation. The harm they do to the economy and people of that nation, is not a consideration to them. May be the world bank could be used with a declaration that as soon as attempts to manipulate a currency is noticed, the world bank will use its currency reserves to ensure the speculators lose money.

There are many problems but there are also some possible solutions. Will there be politicians willing to act? Will the bureaucracies allow their politicians to act? Will the legal profession stop always trying to get massive fees, for interfering in democratic processes? Can the Global companies and manipulators be overcome?