Why I have to sleep with the enemy

September 27, 2010

OUKTP-UK-BRITAIN-PAY

-Laurence Copeland is professor of finance at Cardiff University Business School. The opinions expressed are his own. -

A week or two ago, I posted a blog bemoaning the size of Britain’s public sector and expressing the fervent hope that the ill wind of the financial crisis would blow much of it away, leaving room for private industry to expand in its place.

In response, I received a number of mildly wounding (but fair) comments pointing to the fact that, as I myself work in the public sector, I was perhaps in a false position.

Now I could offer a defence along the lines that, when I started work, the City was a club which was closed to youngsters without money or contacts, that I have spent a few years in the private sector, albeit some years back, and that even now my main occupation involves teaching students, mostly from East or South Asia, who are almost without exception paying their own fees, which makes me a one-man export industry. I also keep the wolf from the door with the help of a little freelance consultancy and some book royalties.

However, instead of an apologia pro mea vita, I want to offer myself as an example of how corrupting government spending can be – or could be if I followed the advice to refrain from biting the hand that feeds me. After all, this view amounts to me being told to show my gratitude to my benefactor, HMG.

The lesson for politicians is clear. If the government of the day can buy my support (and presumably my vote) by the simple expedient of giving me a job, the way to retain power is obvious:  buy a majority.  Tax people so as to pay their wages. Every job “created” in this fashion is another household partly or totally indebted to you for its standard of living, and – more importantly – ready to vote against any party that dares to threaten it. No wonder the percentage of the labour force employed in the public sector keeps rising inexorably!

Of course, if the additional workers actually provide a useful service too, that is a welcome bonus – but if they don’t, or if, as more often is the case, they generate far less benefit than the cost of employing them, who cares? If they know they are less productive, they will feel less secure, and therefore even more dependent on their benefactor.

Gordon Brown was the most egregious exponent of this technique, modelling himself on the villainous duke in cartoon-strip medieval tales who steals the peasants’ money, then expects them to lick his boots out of sheer gratitude when he tosses a few coins their way.

When he was Chancellor his Budget speeches were invariably full of “I am today giving £100 million to ….” and “I intend to help this group of people to the tune of…”, not to mention the empty boast that “We have created a million jobs in this region/sector/period …..”

It bears repeating. Jobs are not created by taking money out of my bank account and giving it to the government, whatever they may subsequently do with it. The less I have to spend in the shops or save in my own bank account or invest in housing or equities, the fewer jobs are generated by my activity.

Giving money to the government simply allows them to replace the jobs my own activity might have created as a result of my own decisions reflecting my own preferences, with jobs that reflect the preferences of the party in power. Even if you believe their spending decisions are wiser or more altruistic than mine, it still does not follow that they can create any net new jobs.

But why stop at job creation? There are plenty of other ways to buy votes.

For example, look at how overwhelmingly grateful many old folk were when the government doubled the winter heating allowance. The idea that they might never have needed assistance with their heating bills if they hadn’t been taxed so heavily during their working life barely seems to have occurred to them. Likewise, child benefits, maternity benefits, cash-for-clunkers, and so on and on…..

In short, the way democracy turns fiscal policy into electoral bribery is a problem which threatens its very survival.

Again, the readers who pointed to my double standards – working in the public sector while criticising it – might make the same accusation again when I admit to cheerfully and guiltlessly trousering the heating allowance the government so wastefully sends me every winter, not to mention taking full advantage of the free prescriptions to which I am entitled and any other benefits which are on offer.

Hypocritical? Not at all. There is no contradiction in saying that, since the government has taken my money and used it to give me a heating allowance and free prescriptions, I will take what they offer – but I really would vastly prefer that they left the money in my bank and let me decide how I wanted to spend it.

In some countries, one can chose between private and state healthcare, for example. To opt for the state system, while at the same time advocating private provision would be hypocritical. But in the UK, where no choice is offered, those of us who opt for private healthcare have to pay twice over – the fact that we do it nonetheless is testimony to how poor the NHS is.

If you think this dilemma of having to work with a system you fundamentally disagree with is restricted to people with my sort of views, you are wrong. When I was a kid growing up in inner city Manchester, one of the most successful local shops belonged to a couple who were members of the Communist Party.

If you had asked them how they could reconcile their politics with the way they made a living, I am sure they would have replied that they had no choice but to work with the system as it is, not as they would like it to be (while, no doubt, campaigning for its downfall).

It’s the same for me. I have to sleep with enemy – after all, I’ve already paid for the bed!

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