Replacing the state with charity and community action

This is a mantra of the right. Martin Vander Weyer voiced a fairly standard version in today's Sunday Telegraph:

Those reductions of state provision will be met in part by a reinvigorated voluntary sector, to which the retired and unjobbed middle classes will happily turn their energies. In the new austerity era, local community activity of all kinds could become "the new shopping" or "the new going on holiday". It is even possible to imagine a return to a lost age - an idealised version of the late Fifties, when Harold Macmillan told us we'd never had it so good - in which neighbourliness and mutual respect will count for more than greed and envy

This is pretty standard fair for the Conservative Party now, who are very keen on the "Third Sector" delivering more of what the state currently delivers. Even my friends at the IEA and other classical-liberal think-tanks support the replacement of the state by voluntary and not-for-profit groups in many sectors, including health and education.

Just one problem. The Third Sector cannot fund itself. It has to be paid for, from that small proportion of proceeds that can be spared in a competitive market by businesses and their employees. By definition, the Third Sector is dependent on outside funding, whether as a charity or a not-for-profit organisation. The availability of that funding is closely linked to levels of prosperity and disposable income. The straitened circumstances (such as at present) in which we are likely most to rely on these organisations, should they take over from the state, will be circumstances in which these organisations cannot raise enough money to maintain the services that they were able to provide in better times.

Many on the right like to rely on the deus ex machina of the voluntary sector to pretend that we can reduce the size of government and still have as generous social provision as before. This is a lie.

Even when times were good, if we relied on the voluntary sector to provide services, market information would be as obscured as it is in the public sector. And little money would be freed (we might expect it to be a little more efficient than the state, but those who have seen how charities are run would not expect a huge improvement); it would simply be diverted from the tax bill to the charitable-contributions item of domestic spending. In reality, of course, we would all find, if we weren't feeling flush, that this was the first item of expenditure that could be cut back.

That is exactly what is happening at the moment. How could anyone have imagined otherwise? If we don't have enough money to pay the bills, charitable contributions will be straight out the window. And even if we have some residual income after necessary expenditure, if we are insecure about our jobs or the economic future generally, then we will be inclined to save that residual income rather than give it away.

The reality is this: the state will have to become less generous, and the Third Sector will not fill the gap. We have been living beyond our means, and taking for granted the cheap availability of goods for which we will have to pay more in future. These taxpayer-subsidised goods will have to be moved into the market and we will find that, priced rationally, we can afford less of them.

Social insurance will have to be less generous.* Healthcare, social care, education, waste disposal, public transport, etc. will have to be charged at a rate that makes it viable for private providers to make a sufficient return to raise the necessary funding. This will reveal the real balance between supply and demand if the market is not distorted by cheap publicly-funded provision, significantly reducing both supply and demand (which the public will perceive as cuts). Sport, the arts and research (scientific, social, etc) will have to make do with what they can get in the market or raise in donations, and contrary to the views of Michael Lynch, donors will be quite right if they look at the range of charitable ventures needing funding and judge that these activities ought mostly to be funded by those who stand to benefit. Giving money to incompetent and corrupt third-world governments as "international aid" will have to be largely abandoned.

This may sound a crueller world, but in my view it will be a healthier and more attractive world, once we have gone through the pain of adjustment, accepted that we can't have everything that we thought we were entitled to, learnt to value what we currently take for granted, and to value less those indulgences that we can manage without. So long as we allow this to happen, we will probably end up after a while with most people again being able to afford most of those things that they took for granted, but understanding that we have to work hard and put more away than we take out, if we are to have them.

I reckon we will take another ten years (or more) fighting this inevitable correction, and trying out the illusory alternatives, such as increased reliance on the Third Sector. Those years will be thoroughly miserable - far worse than the current hors d'oeuvre.

But I am cautiously optimistic for the long-term. The unsustainability of the twentieth-century, big-government, social and economic model is becoming apparent. The impending collapse of the model and exposure of the illusion once and for all will result in its replacement with one or other of: (a) another attempt to implement a true socialist/communist system, or (b) a return to small government and greater emphasis on individual freedom and responsibility.

If we go for (a), we could go through many more decades of increasing poverty and social collapse before finally realising that (b) was the only viable option (at which point we would have to rebuild from sub-Soviet economic footings). But my impression is that people in many developed countries, including Britain, America and Switzerland (though not necessarily in west continental Europe) neither want nor believe in (b), and though they'd rather not have (a) if they could have a soft, Third-Way alternative, they would choose (a) over (b) once it is obvious that those are the only choices. But it is by no means certain, and will be very dependent on the quality of leadership on the different sides of the philosophical ravine.

Successfully waging the war of ideas is key. Too many mainstream politicians, journalists, and academics of the right adopt a conciliatory attitude to these twentieth-century illusions, and try to fool us (and probably themselves) that everything will be fine if we can just adopt their variation on the Third-Way, statist compromise. Despite its popular appeal, the classical-liberal philosophy is at as much of a disadvantage as ever in Hayek's uphill battle for the minds of the intellectuals. We have to start by being honest.


* I make an exception for moving this into the market, as there is no practical way of creating a rational market that does away with public provision for this, and much positive benefit to the economy that would stem from the introduction of a Basic Income/Flat Tax system, particularly in enabling the removal of other items from the control of the state.