Andy Sloan: No break from bureaucracy

Well, that’s summer over, more or less (I’m starting this month’s column on the veranda in Italy, just before we begin our two-day drive home). How was it for you? I hope you had the break you wanted. Mine was a touch dissatisfying. I didn’t quite check out fully like I normally do.

Being elected meant I felt duty-bound to keep half an eye on things back home, and those occasional check-ins dulled the catharsis of a proper holiday. I guess though I’m unlikely to garner much sympathy griping about it.

I also didn’t quite do all the pondering I’d planned – I shall have to squeeze it in soon – but rest assured I did read Ruchir Sharma’s What Went Wrong With Capitalism, as I suggested I would last month. It didn’t disappoint, a true validation of my personal beliefs, a thorough reaffirmation of my preference for a smaller state.

One of Sharma’s central premises is that there has never really been a period when the state rolled back. The so-called Thatcher-Reagan revolution merely slowed its growth. In fact, he argues the state’s encroachment grew even during those years.

To give just one illustration, Sharma explains that mass privatisation had little effect. Ownership may have shifted to the private sector, but regulation immediately filled the gap as the means of state control. The state’s role was undiminished by privatisation – in some respects it even expanded. Whole new regulatory bodies sprang up, their numbers unimaginable 40 years ago. It is now difficult to find any area of economic life untouched by some form of government interference. And privatisation is just one of many ways in which government has expanded its sphere of influence over the economy.

Another of his central premises is that the distortion of the capital allocation process by easy money is the single biggest reason why western economies have lost productivity growth. I’ve wittered on before about the perils of the free-money, quantitative easing era, but Sharma extends the narrative much further. He argues it is not just a QE story, but a whole easy-money story, stretching back to the late 80s.

He traces the beginnings of bail-out culture to that time and shows how it has run through every crisis since, right up to the most recent government interventions to help people pay their heating bills. He laments society’s recently developed intolerance of economic pain, suggesting that running monetary policy this way for decades has zombified much of the economy. Productivity growth has inevitably stagnated. There’s much else besides, and it’s a very easy read, honest – no charts – and I highly recommend it. There’s even a sharp section explaining how monetary policy has widened wealth inequality over the past few decades, as I’ve argued myself before.

Let’s set aside the monetary stuff for now. The main takeaway is really this growth-of-government point, and importantly that it is as much cultural as fiscal. It isn’t just about how much is spent. It’s about the cultural changes that have taken hold, where bureaucratic practices and risk-averse thinking have risen unchallenged. You know the stultifying health-and-safety culture we’ve unconsciously acquired, the default risk aversion that looms over everything, our modern ‘computer says no’ approach to getting things done.

And if these things weigh heavily on large economies, imagine the drag on smaller ones like ours, where flexibility and nimbleness are supposed to be our competitive advantage. That, I think, is the lessons-learned angle for us here in Guernsey.

We don’t have to look far for examples of the creep of bureaucratic power. The diving board saga at the bathing pools earlier this year was comedic to the point of painful, but a textbook case of bureaucratic objectives being completely out of kilter with the public. The recent case splashed across these pages about Watches of Switzerland is just as instructive.

I’ve no intention of commenting on the specifics of the dispute between the company and the individual concerned, but the demands made on the firm serve as a telling illustration of how far we’ve drifted from the original spirit of data protection. What was once meant to safeguard people’s private medical or financial details has metastasised into an exercise in box-ticking, requiring costly, unnecessary and frankly unwieldy processes that add little value. Businesses, charities and even sports clubs now find themselves pouring time and money into compliance paperwork, while the regulator busies itself attending international conferences and establishing international talking shops.

The bureaucratic and compliance culture extends into so many areas of our commercial life with scant recognition or understanding of how our entrepreneurial culture is being smothered. And this is precisely Sharma’s point.

Italy provides a fascinating contrast. Three years ago I wrote about how its economy stagnated through the 80s, 90s and beyond as a result of its institutions and political culture. But being a regular visitor, it’s also clear how entrepreneurial the underlying culture remains.

Small businesses abound, there is constant activity, and construction is everywhere. Yet the dead weight of bureaucracy has a paralysing effect. If you read The Economist you’ll know that 17 years after the earthquake in L’Aquila, many residents are still unable to return to their homes because of the stupefying bureaucratic approach of the local authorities. But in parallel, Italian commerce is thriving. This summer it was reported that the Italian economy had once again overtaken the UK in size.

The first time that happened, at the beginning of the 80s, it was a cause of national angst and was followed by a decade of structural reform and reinvigoration of the UK economy. This summer it has been accompanied by very different news — that more than 3.7m. benefit claimants in the UK are not required to search for work as a condition of their benefit.

That’s around two million more than those claiming unemployment benefit. To put the scale into perspective, combined that’s about 15% of the workforce — half as many again as when UB40 made the top 10 in 1981 with their seminal hit One In Ten, lamenting the impact of mass unemployment. The omens are not good.

Excuse the UK focus, but our public spending patterns have a tendency to mimic those of the UK, whether intentionally or otherwise, and it remains the parent economy to our finance sector.

I was elected just two months ago and promptly downed tools for the summer recess. But not before attending the induction briefings for new deputies on how the States ‘works’. I don’t feel I’m betraying any confidences by saying that at the Government Work Plan briefing – delivered, without a trace of irony – I counted 17 senior officers at the back of the room. We were told they were there to gauge our political reactions to the presentation, which was met mainly with stupefied silence. The benefit of such a turnout seemed questionable, and to me it signified a rather narcissistic use of civil service time.

Before the recess, new deputies voted on committees and presidents. The mood was one of harmony (Home Affairs aside), almost a deliberate antidote to the purported ‘toxicity’ of the last term. But the public want more than harmony, more than cosmetic change. They want an end to the cultural encroachment of bureaucracy that has gathered pace in recent decades.

I didn’t need a summer of pondering to determine how I feel about that. But reading Sharma’s book left me with a renewed conviction that pushing back against bureaucracy is not a side issue, it is essential to our economic health.