Peter Franklin is an Associate Editor of UnHerd.
There’s no mystery as to why the tax burden is so high right now. It’s because of the exceptional costs of the pandemic, followed by the energy price cap. But what about the underlying trend in public expenditure? This was already heading in the wrong direction, so how can we fix it?
We could just abandon some of our costlier spending commitments — for instance, the triple lock, or having a navy. But I’m assuming that when Conservatives talk about shrinking the state they have weight-loss in mind not amputation.
We could do a lot more to reduce the demand for government by tackling the root causes of social need. However, I’m not going to go into that because Paul Goodman does so here. Rather than questioning what the Government delivers, I want to look at how it does it. Greater efficiency would allow us to do “more for less”, as David Cameron was so fond of saying.
Indeed, successive governments have deployed various top-management techniques in pursuit of improving public sector productivity. Examples include internal markets , outsourcing, public-private partnerships, centralisation, and localisation. Then there’s the restructuring of entire Whitehall departments, which are periodically merged, de-merged, and re-merged. These things tend to go in cycles — as illustrated by Jeremy Hunt’s decision to call upon the services of Sir Michael Barber, who was Tony Blair’s “deliverology” guru.
But there’s one productivity problem that stubbornly persists as the management theories fall in and out of fashion. It’s called Baumol’s Cost Disease. Named after the economist William Baumol, it explains why some economic activities get less productive over time despite productivity improvements in the wider economy.
Consider the contrast between factory work and hairdressing. Thanks to mechanisation, electrification, and other technological breakthroughs, a modern factory worker is hugely more productive than his or her equivalent was a hundred years ago. Not so the modern hairdresser. Measured in haircuts per hour, productivity in 2022 is much the same as it was in 1922. That’s no slight on our barbers and crimpers, it’s just the nature of the work and the absence of game-changing innovations.
But here’s the rub: while productivity remains at 1922 levels, what hairdressers are paid has gone up in line with wages generally. That’s fair enough — no one would do the job today if it still paid pennies per hour. Nevertheless, it means that year-after-year we end up paying more for the same output.
The relevance of this to government policy is that most public sector workers are more like hairdressers than factory workers. I’m not claiming that technological progress has left the public sector entirely untouched; but a great deal of what public sector workers do today takes roughly as long as it in 1922 — whether it’s teaching a child to read, changing a bandage, or replying to a letter. Again, that’s no slight on our teachers, nurses, and civil servants.
It’s possible that future advances in artificial intelligence and robotics will revolutionise public sector productivity. But for now Baumol’s Cost Disease means we’ll continue to pay more and more for the same outputs — thus putting upward pressure on taxation.
Governments have tried to counteract this effect by holding down public sector pay. This approach has limits — especially during a cost of living crisis. The current government is already facing a wave of public sector strikes. If pay rises continue to fall behind the private sector, we’ll have a recruitment crisis too.
Public sector pay can’t be frozen forever, which means that shrinking the state — or even slowing down its rate of growth — depends on reducing head count. But in the absence of technologically-driven productivity improvements, how can we do that without harming public services?
The answer is by ceasing to do the work that doesn’t need to be done. I hesitate to call this ‘waste’. What I’m talking about is more subtle. For instance, the idea that Whitehall contains multitudes just twiddling their thumbs all day long or engaging in blatant make-work is a myth. New ministers who enter their departments expecting to make entire floors redundant are usually disappointed.
Rather, the unnecessary things that officials spend their time doing are intricately bound up with what they ought to be doing. Disentangling the useless from the useful is painstakingly difficult. I saw that for myself when, a few years ago, I worked as a speechwriter in a Whitehall department.
I was one of a team of three; could two people have handled the workload instead? The crude answer is that Whitehall wouldn’t need speechwriters at all if ministers wrote their own. However, this would mostly be a false economy. Speechwriting is time-consuming and would distract ministers from their primary duty, which is not letting senior civil servants run rings around them.
Furthermore, my colleagues weren’t slackers — like almost all the civil servants in the private offices that support ministers, their time was fully and diligently occupied. Reducing our numbers from three to two would have required a lighter workload. But that was achievable. For instance, some ministers gave a lot more speeches than others — and for no especially good reason. In an age of tweets and soundbites, a speech allows a minister to communicate a deeper message, but at what point does their frequency produce diminishing returns?
Something else avoidable was the re-writing of copy produced elsewhere in the department. Everyone I know who has joined the Whitehall machine from outside is struck by the variable quality of civil service English: sometimes excellent, sometimes poor. While speechwriting is a specialism, but why can’t every civil servant who produces written work for ministers be able to write clearly and concisely?
So with a few changes, we could have shrunk the speechwriting team from three to two. But while applying a one-third reduction in headcount across the civil service would produce major savings, can I really extrapolate from one small team in a single department to the whole of Whitehall?
My example is a highly specific one — but this is precisely the point. There are very few waste-reducing measures that can be devised in Downing Street and simplistically spammed across the public sector. The real savings to be made are sui generis to the thousands of individual offices, teams, and operations that ‘the state’ consists of.
In his great defence of the market place — The Use of Knowledge in Society — Friederich Hayek emphasised the importance of local knowledge and its non-availability to central planners. This is as relevant to the public sector as it is to the private. The public sector workers who have the best understanding of the work that the state doesn’t need to do are the ones who have to do it.
However, volunteering this information is something that is neither expected nor rewarded. Civil servants are subject to all sorts of management processes — from performance reviews to health-and-safety training; but they are not routinely asked for ideas on eliminating unnecessary activity. And far from being incentivised to find savings, they have reason to fear this would be bad for their careers — especially if they point out inefficiencies originating from higher up the chain of command.
What is required is systematic culture change. At every level, public sector workers must be given the agency and incentives to root out what the state does in vain. Politicians must realise that there is a limit to what they can achieve from the top-down. It is only by empowering a self-shrinking state that we can fight against Baumol’s Cost Disease and relieve the burden on taxpayers.