Market Discipline: Margaret Thatchers True 30 Year Legacy
Politics / Government Intervention May 06, 2009 - 04:47 PMBy: Adrian_Ash
Revealing the hideous off-spring of Margaret Thatcher's "market disciplines" and the ever-swelling tax-funded state...
LIFE AFTER THE BALLOT BOX is rumored to pay pretty well, no matter how hateful you become in office.
George W.Bush has apparently nailed a $7 million book-deal. Tony Blair earned $275,000 for a half-hour speech (made and paid twice) in the Philippines. Richard Nixon bagged $600,000 upfront (in 1977 dollars) plus 20% of the royalties earned from not admitting anything whatsoever to David Frost.
Good luck to them all, even if those numbers are only half-way accurate. Because it was there for the taking. Whatever rules (or modesty) barred them from cashing in during their time in office, those rules no longer applied. And even those rules allow plenty of wriggle for a political hack on the make.
Like the UK cabinet minister whose fiancée apparently paid half of their monthly rent, while he claimed 80% of the cost as expenses. Or like his cabinet colleague who claimed £60,000 ($90,000) for the house where his parents lived but he didn't. Or those "double jobbers" elected both to Westminster parliament and also one of the UK's devolved chambers in Wales, Scotland or Northern Ireland. Just recently, the Senior Salaries Review Body (SSRB) noted how Ulster's finest can collect £73,000 per year from Stormont for the costs of running their offices there...plus another £100,000 or more for their London job too ($260,000 all told). Indeed, "sixteen of Northern Ireland's 18 MPs are also senior Assembly members," according to the Belfast Telegraph's count. But it's all fine, as it entirely within the rules. Even when, as with former IRA commander (then education minister...then deputy first-minister of Northern Ireland) Martin McGuinness, they don't actually take their seat in Westminster but still claim Westminster expenses.
Thus, as the Tyrone Times reports, McGuinness and his Sinn Fein colleague Michelle Gildernew received £274,508 between them ($411,000) in parliamentary allowances last year "despite not sitting a single day in [London's] House of Commons."
But c'mon...it's there for the taking! So why not just take it?
"I'm really sorry for any embarrassment I have caused Jacqui. I can fully understand why people might be angry and offended by this..."
Thus spake the husband of British Home Secretary Jacqui Smith in late-March, showing utter remorse after a press-leak revealed how he'd claimed – on her parliamentary expenses – for two pay-per-view porn films. He already makes £40,000 a year ($60,000) for running her constituency office. But "Quite obviously a claim should never have been made for these films," as he muttered to the gaggle of hacks outside their home one Sunday morning.
"As you know that money is being paid back," he added – unlike the rest of the £150,304 the Smith family claimed ($225,000) for keeping that "second home" in her Redditch constituency some 100 miles from Westminster, London, and which was paid on top of her £141,866 salary.
Consulting the back of our envelope, and...Ker-ching! We make that a tidy £331,000 between them (the best part of $500,000) for a year's work variously running the nation and making the tea.
Oh, minus the mucky films, of course.
"We were convinced of the need to bring some of the attitudes of business into government," said Margaret Thatcher – the Iron Lady herself – on the shock and awe she brought to the British state. It's 30 years ago this week since she won her first land-slide election. Upon taking office as prime minister, she established an Efficiency Unit pretty much straight away, vowing to tackle "waste and ineffectiveness" in the machinery of the government.
"I have to say to the public sector, this is the amount of money available. That's what any business would do...and any housewife," Thatcher went on in an interview with the Sunday Times 15 months later. Making a show to the journalist in No.10 Downing Street of switching off the lights as they left a room, "I'm on public sector money and therefore I'm bound to be careful," she said.
"We really must pay more attention to sound management as an objective on its own. It's not enough to support ministers, provide supreme service on parliamentary questions and debates regardless of cost...You have to get supreme management and efficiency, and we haven't given enough attention to that."
How to raise this attention? Thatcherism, as it soon came to be known, followed two routes to instilling "market discipline" to the public sector. The first, simplest and most popular route was to remove the state entirely, privatizing state-owned monopolies at knock-down prices and selling them on (or back) to the public, who then made 10 times their money from the initial share offer price.
The utilities themselves, meantime, were either broken up (as with the railways) or invited other free-market competitors – whether domestic (telecoms), regional (water) or entirely foreign (and even foreign-state owned, as with French gas monopoly EDF's march across southern England). And for the purposes of this essay today, it doesn't matter whether this "Route #1" worked or not. On-going state subsidies – plus unremitting inflation in consumer prices – mask whatever long-term efficiencies were achieved. (Virgin Trains, for example, earned a tax-funded subsidy of £162 million ($240m) in 2007-8. It's since raised ticket prices 6% across its network, continuing to under-shoot its punctuality targets.) Perhaps, like the French Revolution according to Mao, it's still too early to tell. Whereas route two? The real legacy of Mrs. (now Lady) Thatcher was the new ethos she thrust upon the workings of government itself.
"Economics are the method. The object is to change the soul," as she put it in 1988. Because, by applying the harsh discipline of the market – slashing costs and boosting revenues – "A bigger cake [would mean] a bigger slice for everyone." Thus the profit motive was forced into Whitehall and down onto the National Health Service, education, social security offices...anywhere that out-sourcing or an "internal market" could be seen to reduce costs. Otherwise, there would be "wrong use of capital investment, because there is no sanction of the market" as her cabinet colleague (and nemesis) Michael Heseltine had laid it out way back in 1969.
More specifically, and on the ground for the NHS – still Europe's biggest employer three decades later – Thatcherism "hoped that by separating the providers from the purchasers there would be a mechanism," as a text-book history's since put it, "whereby inefficient providers would lose customers and so change their practices to become more efficient and hence more competitive. Money would follow patients so that the efficient, flexible producers would be rewarded with extra revenue. This should encourage the providers both to minimize costs and to switch to new efficient methods of treatment as they become available."
Trouble was, in the state sector, there can be no "sanction of the market"...no efficiency built on free competition...precisely because there is no profit or loss leading to expansion or death. So instead, merely the trappings of private-sector success accrued to the state – the growing budget proposals, swollen head-count, corner office and over-priced jollies. In the absence of the profit/loss sanction, the business of government remains government, and so its own little "captains of industry" should hardly be blamed if they mark their achievements with an ever-greater cash bonus each year.
If you think you (and your husband) are running the country, then that's some undertaking – an enterprise which would pay much more if it was outside the state sector. Which it can't be, of course. But pretending that "market discipline" somehow informs it only offers a pay rise every time you do your expenses.
By Adrian Ash
BullionVault.com
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City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.
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