19 June 2009

Why the state cannot save the economy

Concluding his article titled Why the state cannot save the economy, Frank Furedi says:
[The UK public sector's] inefficiency will not be overcome any time soon. This is not to counterpose the state to the market, but rather to say that there are states which are weak or strong, smart or stupid. We are good at recognising failed states in Africa, but not so good at noticing the failed states closer to home. Similarly, markets are by no means always robust and there are some in major need of overhaul. What we need, and this is something we can all help to bring about, is a state with new policies that are more worthy of the twenty-first century and which is better able to meet our needs. We do need a state that can contain the most destructive effects of the global crisis, but we mustn’t think for one second that the state can save the economy. That is because we shouldn’t be trying to save the economy – we should be restructuring it. 'Spiked', 18 June
I'm not sure what Mr Furedi means by 'we' here. I'm more sure that any conscious effort at restructuring is unlikely to be fruitful and quite likely to be disastrous. Society is a complex as an ecology and if the economic history of the past 100 years teaches us anything it's that central planning and picking winners fail even in their own terms. And that strenuous, government-backed efforts in economics usually concentrate on one or two specific variables - with Mao Tse-Tung it was steel production or sparrow destruction; with most governments now it is economic growth - at the expense of everything else, including human wellbeing.

So I for one am wary of vague efforts calling for the sort of reform that can be carried out only by government and its agents. I'd rephrase Mr Furedi's last sentence to say: 'we shouldn't be trying to save the economy - it should be refocused so that it supplies broad social and environmental goals'. Government does have an indispensable role to play and those are in doing what only it can: articulating society's concerns, and raising the revenue to finance their achievement. Where government fails is when it detaches itself from society, and tries to achieve goals itself. Part of the reason for its failure is that it's not subject to the efficiencies of a competitive market. In particular, it doesn't terminate failed experiments. Any monopoly, whether private or public sector, stifles diversity and the variant approaches to which it gives rise. We need diverse, adaptive projects and programmes, focused toward achieving our broad social and environmental outcomes.

Social Policy Bonds are a means whereby this sort of restructuring could come about. Under a bond regime, government would do what it's good at doing: setting social and environmental target, while investors in the bonds would do what the private sector is good at doing: exploring, investigating and implementing an array of approaches, responsive to events and specific to regional variations, all in the service of the overall goal. Their rewards would be inextricably linked to their success in bringing about society's wishes, as articulated by government. Only then would efficiency in the fulfilment of social goals, almost a forgotten concept in government circles these days, be maximised.

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