Are there any public sector efficiencies to find?

In order to prop up the markets, Kier Starmer wrote an article in the FT, once again extolling the need for public sector reform. His article covers more than that, it seeks to address innovation & growth, and public sector reform, yet misses the implications on industrial policy, university investment and local authority services.

In it he emphasises the need for private sector entrepreneurialism, claiming that it’s the driver for innovation and growth, however history shows that this is often not the case, as argued by Mariana Mazzucato, in much of her work and we have the historical evidence of the water and energy industries and internet infrastructure. It also fails to recognise the contribution of labour to the creation of wealth. I feel that Labour assumes they can see the next big thing, I am not sure, but the Labour Government is very committed to energy, and AI and I am unsure about the latter as a driver for growth.

The words used on getting people back to work aren’t as bad as we might expect from Reeves and Kendall but the refusal to move on the two-child benefit cap and the plans to spy on benefit claimants’ bank accounts shows an unwelcome direction of travel.’

Reform

At the centre of my interest is the comments on public sector reform, he writes,

.. nor can we simply spend our way to better public services. That is why reform is an essential pillar of this government’s agenda. Reform of our creaking central state. Reform of our public services.

Kier Starmer in the FT

There are two problems with this, firstly, increasing central government productivity costs money today, in both investment and redundancy payments. AI might be the answer if Government software had been written over the last 10 years, but it’s older than that, also there’s a significant argument that government AI needs to own its AI training and I am not sure that LLM’s are the answer to streamlining the benefit system or NHS hospital management. Conflicts with the data protection law prohibition on “automated profiling” have clearly not been thought through. I am reminded of the management fad of the 90’s epitomised by, “Don’t automate, obliterate!” which cynics summarise as “Halve the work force, double the fear and quadruple the profits”. This doesn’t work, fearful workers sabotage the enterprise, reminding me of the old joke about the Soviet Union, “they pretend to pay us, we pretend to work”. Furthermore, making workers compete against themselves and not the competition is another route to failure.

Governments of both colours have been claiming that expenditure cuts can be funded through organisational efficiencies for decades, if it were possible, it would have been done. These efficiencies are a chimera, although an aggressive review of long-term consultancy/out-sourcing agreement would be worthwhile.

Finally, we need to increase public sector wages in order to buy the stuff the new industries are going to make.

Industrial policy & the Cinderella services

The budget proposes an £87bn deficit and stabilises the current account spending plans but the focusing of investment towards effective innovation and growth is the job of industrial policy programmes. If energy is to be one of the foci, then there are big questions on what GB Energy is, and whether carbon capture should be a central plank of energy supply reform. Some economists such as Meadway, Graeber, Dillow and Edgerton question the effectiveness of industrial policy, especially that aimed at innovation and start-ups, not least because of the need to combat climate change. Meadway & Graeber argue that the climate crisis is changing the nature of the questions of economics. They all have various proposals, but I am most interested by the suggestions that the creation of social relations and the development of the care sector are important as drivers of growth. I’d add that an innovation based industrial policy should be looking at developing human capital and thus reforming university access and funding.

A final problem which is likely to act as a growth inhibitor is that most local authorities and many universities are on the cusp of financial insolvency. The Government seems to be wrongly arguing that they can build houses and deliver improved services while letting local authorities go-under. Local authorities build and manage houses, fund and guide education delivery and deliver multiple services and protections for the poor and vulnerable, as well as universal services such as culture and leisure. I have argued before, there needs to be a transfer union; business rates don’t work for service provision, those areas in the greatest need, have the lowest revenue and after fourteen years of Tory misrule, the government subsidies are skewed towards Tory areas and are now, too short-term to allow planning.

The Councils are in this position because cutting a grant at the stroke of a pen is easier than stopping services and the Tories passed the cuts they couldn’t make themselves onto Councils in the hope that much of the blame would then be carried by Labour councils.

The UK university system is argued to be the second best in the world; it would be a tragedy if it were to be damaged by systemic financial behaviour; the simplest and speediest reform would be to reverse the Tories prohibition on student families coming to this country; more longer term reforms involve reform of the student [& university] funding systems but Labour’s politicians need to let go of their Blairite student politics on Higher Education access. Human capital is a driver for growth, and I can’t see that the government is planning to invest in it.

In conclusion, public sector efficiencies are not simple or are non-existent. Human capital development is needed, and local services need to be properly funded.  

---

Image: The Arezzo Chimera, by Thomas Shahan on flickr CC 2011 BY