Why governments' attempts to pick winners produce more losers than winners.
I've just been reading David Cameron's article in last week's Spectator, which presents the idea that they will "usher in a post-bureaucratic age" as the Tories' big idea for the next election.
A post-bureaucratic age will presumably need fewer bureaucrats. So he can start telling us now how many bureaucrats he intends to cut, and how much money this will save us. He seems surprisingly reluctant to do that, though. In fact, he seems to be warning us that the state's share of national income will be larger for the next several years. A bigger bureaucracy for a post-bureaucratic age? Sounds typically Cameronian.
In any case, this is an illusion or political fiction. We may have many bureaucrats that we don't need, but we are not and never will be in a post-bureaucratic age.
Cameron ought to read Ludwig von Mises's small book Bureaucracy to understand why. The market is the best solution in those areas in which it is possible to foster genuine competition. But there are plenty of sectors where that is not the case. And this is from one of the strongest advocates of the free-market system in history.
Mises's illustration (II.3) of how a market approach cannot work for the police or the FBI is masterly. What we need is not a blanket term like the post-bureaucratic age, but a recognition of where bureaucracy is unavoidable and how best to organize it in those cases, and where it is unnecessary (and usually counter-productive) and how best in those cases to structure the institutional framework within which markets will deliver the best outcome for society.
It is failure to understand this that has led to the inappropriate and unsuccesful attempts to introduce commercial management techniques into those activities that are inherently bureaucratic, and to apply bureaucratic controls to market activities.
Perhaps Cameron knows this, which is why his promises don't match his rhetoric. But a man who starts by lying to us before he is in office is unlikely to improve once he has power.
Or maybe he has so little experience, both of the commercial and industrial sector and of the public sector, that he doesn't understand the different purposes that they serve and constraints within which they operate. But that doesn't bode well for government either.
Most likely, he doesn't mean a post-bureaucratic age, but thinks this is an attractive term to serve as a dog-whistle for his followers. He seems to mean a decentralized age. But that really is triumphantly optimistic to think that moving power from the centre to local communities will reduce the amount of bureaucracy. It would also be optimistic of me to imagine that an incoming government would actually reduce their own powers, but let's imagine for a moment that he means it.
His secret weapon is IT.
"Every citizen in their home can have access to exactly the same information as the most powerful bureaucrat in a ministry." Why would we want that? And who is going to collect and provide this information?
"In pilot studies around the world where people have been provided with accurate information about their energy use...their energy consumption fell by at least 10 per cent..." I think he'll find that depends on their incentives. If energy is cheap, seeing exactly how little you are paying is likely to encourage you to increase your comfort level by consuming more. Only if energy is expensive enough does this hold true, and then only to the extent that people are able to control their energy-use. It is good for behaviour modification, but it may not be sufficient to provide the incentive to investment that is needed if we are to go beyond the easy gains from persuading people to be more careful about switching off lights and shutting windows. Incentives matter more than perfect information, though the combination of both is best. But Cameron seems to be treating information as sufficient on its own. It is as though he thinks that people are too ignorant to work out that turning off lights will save them money. And who, by the way, does he think is going to compile and provide the information collected by these smart meters? Private or public, will their jobs not be essentially bureaucratic?
Those appear to be his only examples of what his philosophy would mean in practice. Otherwise, he seems to rely on contrasting himself with the accurately-depicted failures of the Labour government. But it does not follow from correctly identifying someone else's failings that your alternatives must be right. (We may all have been guilty of falling for this illusion in the case of Vince Cable, who is a fantastic critic of the Government, but some of whose suggestions, such as proposals to reflate the housing market, may be as bad as the government programmes he criticizes.)
Let's take that last environmental case. Cameron says that "there was an assumption in the past that you could only achieve improvements to environmental protection through central government regulation and rules laid down by experts in the bureaucratic machine... But we've seen the results of that: over the past decade of Labour government, despite its endless green pronouncements and initiatives and plans, and its new armies of highly paid environmental analysts and inspectors and officials - our carbon emissions actually went up."
Well, yes indeed. But smart meters are hardly the antidote. It does not follow from the inappropriate use of regulation that regulation is necessarily the wrong solution. Nor that the replacement of regulation with public information is sufficient.
Take a couple of examples:
(a) Air pollution. Where chemical compounds released into the air have a real impact on health or property, what post-bureaucratic or market solution should we adopt? Should we provide some means of allowing people to find out how much their health or property is being damaged? What should they then do with this information, if there are no bureaucratic rules about how much is allowed? Or should we put a price on emissions of those harmful compounds, so a company is free to emit them if they are willing to pay the price? No. In this case, there is no alternative but to put limits on concentrations in the air, and emissions from any particular process, monitor those compounds and enforce the limits. That is an appropriate role for government and it is inherently bureaucratic.
(b) Carbon emissions. In this case, we don't know how much is harmful, and how much is an appropriate amount for each person or business to emit. No sensible bureaucratic rules can be applied, and the costs of trying to do so will be immense. But information won't help much either. It's no good letting someone know that they have emitted 6 tonnes of CO2 this year. Is that good or bad? Why should they care? In this case, we need incentives to make a judgment about the costs of activities whose consequence may be an increase in the risk of harm from damage caused by anthropogenic emissions of greenhouse gases. And it's not just any old incentive, because any old incentive can provide distortionary and damaging signals that can do more harm than good (see the various articles on this site about the EU-ETS). The incentive must be proportionate, impartial and rational, and should incentivise ends (e.g. carbon reductions), not means (e.g. renewables or nuclear). The key is the institutional framework that creates the incentive. We will need bureaucrats to design and enforce the framework, but not to choose how people should respond to it. The bureaucrat's job in this case is to provide the framework and then leave the rest to the market.
The real reason, one suspects, that Cameron is focusing on information is that information is cheap and popular. He knows he will have no cash, so he is setting up his excuse for only doing things that don't cost much. If they don't have much effect either...well...he'll deal with that later. It could be worse. It could be more micro-management like the current lot. But it could be a lot better.
"And they that rule in England,
In stately conclaves met,
Alas, alas, for England
They have no graves as yet."