2 thoughts on “The Saturday Economist : UK Economics news and updates 4th August 2012”

1. I wonder whether we are all becoming Keynesian’s now? Indeed, I detect a worrying consensus amongst what Charles Kindleberger called “system economists”: lets use large scale infrastructure projects in order to kick-start the economy into life.

   There is nothing particularly Keynesian about any of this. Large scale road, rail (including HS2: High Speed Rail ), airport (in both London & the Regions), Inner City Supertram and London underground infrastructure projects should have been taking place as a matter of course over the last two decades in order to address the gaps in Britain’s creaking transport system, nor least to increase the competitiveness of the British Economy.

   Be careful what you wish for however. And also be prepared to wait for a very long time indeed for some of them to happen. Such is the level of what I have dubbed “Institutional Interblocking”, particularly at a local level in the UK that economic growth in the UK is being retarded by institutional turf wars.

   More important, “systems economists” would be reminded that the situation which confronts us today would have been wholly unfamiliar to Keynes. It no longer makes sense to talk of Public Works. Indeed the cross pollination between the Public and Private Sector Economy as to render the distinction almost meaningless. LEPs are the ultimate embodiment of this confusion – a Public Sector led initiative designed to Empower Private Sector led Economic Development in a Back to the Future led vision of Municipal Corporatism with the Public Sector & Big Business working together in a good & true partnership to “park, pave, assize, market…and improve” has become increasingly reliant on the Public Sector to resource the bidding process for Growth funding to the extent that in some cases they have become little more than extensions of the Public Sector.They are not the powerfil Civic Associations that has been hoped for. http://slidesha.re/L1Lxfd The problem has been compounded as Local Government is not playing a sufficiently active role in the process of economic development. As long as the centre continues to set & restribute Business Rates there is insufficient incentive to become more actively involved in the process of economic development. More radical solutions are required to genuinely empower Local Authorities.

   The problem is that momentum is being lost because of the impact of inefficient institutional competition and overlap between competing providers at a local level.
   Richard Rose almost two decades ago talked of the problems of Big Government. What he meant was the increasing inability of Politicians to Pull the Levers of Power to Turn the Drive-Shaft of Change. Bigger Government has led to increasing organizational complexity. There has been a Subdivision and increased specialization of Agencies responsible for the delivery of Policy. This has resulted in inter-agency conflict & boundary disputes reducing the effectiveness of policy delivery. Government has increasingly resorted to changing the structure of organizations (setting up another QUANGO or Programme each with its own favoured or designated delivery partner) to deliver policy rather than understanding the reasons for policy failure. The tendency has been to Change the Structure rather than Amend the Programme. The Result has been an Exponential Increase in the No. of Policy Programmes and an Increase in the Overlap and Contradiction between them. This has lead to Internal Conflict within Government about Economic Development Priorities and Goals. The greater the number of Stakeholders and Organizations and the greater the overlap between them, then the greater the conflict. The End Result has been Political Inertia & potentially Stalemate at worst. At best the reult has been massively extended Project Delivery Time Horizons Effectively what we are saying here is that Government lacks the effective machinery to solve the crisis. The Bunker Mentality is as much an institutional reality as it is a state of Mind.

   So how do we address this issue?

   At a National Level we need to employ a Cabinet Fixer. We quickly need to Appoint a Cabinet Heavyweight with sufficient gravitas to play an unblocking role as Infrasture Secretary but on a much larger scale to that played by Michael Heseltine. I am open to suggestion on who this should be – there are a number of excellent candidates. My current favourite the most out and about Minister of State – Chris Grayling.

   Second, infrastucture re projects are not necessarily National in scale. There is much that could be achieved at a City Regional level provided the necessary powers, funding and effective institutional machinary is established. Why this is taking so long under the present circumstances is a source of concern. Regional Political Turf Wars and diversion of political effort to low priority agenda items like Lords Reform are part of the explanation.

   Lastly, there is much that can be achieved at a Local Level in terms of Local Economic Development by freeing up Capital spending. Local Authorities are best positioned to know where the shoe pinches or when new shoes are required, particularly when the Private Sector are unable to provide adequate levels of Social Housing to meet local need because they do not effectively understand either the level or the best location for the sighting of Social Housing.

   Localism has wrought a change in the competency powers of Local Authorities. Localism however should go further in the form of permissive virement such that the efficiency savings in current expendture which result in the unfortunate underspend which occurs in the Public Sector can be utilised for additional or new expenditure on capital projects.

   Systems Economists however should beware of what they wish for. The all pervasive impact of the Audit State and its intrusive accounting for the spending of Public Monies acts as a further regulator on the pace of delivery of infrastructure projects and not just in terms of ensuring that bidding regulations are adhered to. There is a cost overhead on large infastructure projects which is currently running at an unhelpfully high level.

   A more insidious effect which NIESR will clearly be aware of is the shadow of the European Union and the OJEU effect. As in the case of Bombardier and Rail Infrastructure Projects and the Building of Wembley Stadium there is no guarantee that contracts will be awarded to British firms or indeed that they will benefit as first level sub contractors or that British Workers will not be undercut by cheap foreign labour from the EU. How to resolve this particular dilemma is the subject for another post but economists have a responsibility to think hrd about what a Britain First Industrial Policy will look like.

   Ged Mirfin
   Contributing Chief Economist at the Peel Policy Forum

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