The Big Society aka BS

Happy new year to everyone! It is starting out pretty poorly despite the nice weather and personal fun. On the last day of last year, the British Government released its Giving Green Paper, which apparently provides some detail about how it sees its Big Society concept working. As one commentator said it reads like it was written by a bunch of amateurs. But what it tells me is that the conservatives haven’t really evolved much since Maggie Thatcher declared there was no such thing as society. The Big Society is just a reprise of that concept with some mention of mobile phone apps and ATMs to match the historical period of technology that the latest attack on the welfare of the citizens is occurring. The Big Society is a blatant relinquishment of essential government roles and in that sense is a politically cynical attempt to cover up the impossibility of individual action relaxing systemic spending gaps. My training as a macroeconomists tells me that individuals cannot ease such macroeconomic constraints. Only the national government via appropriately sized budget deficits can do that. Which is exactly the responsibility the British government is recoiling from. The Big Society aka BS. More the fool anyone who believes in it.

Many people seem to go through the charade on December 31 or January 1 of making a New Years Resolution, often related to diet or exercise, and then after a period of adherence to the new routine – maybe a week – the patterns of old return and nothing much happens until the next year when the process is repeated. I don’t bother – if I am unhappy with something I change it.

The US President seems to be in the former category and told US citizens during is Weekly Address (January 1, 2011) that his resolution was:

… to do everything I can to make sure our economy is growing, creating jobs, and strengthening our middle class. That’s my resolution for the coming year.

I think he abandoned his commitment to his resolution immediately because in the rest of the speech there is no recognition that the US government could be creating jobs immediately. Instead, there were generalised statements of the American dream and his willingness to work “to work with anyone of either party who’s got a good idea and the commitment to see it through”.

The problem is that the political sway in the US now (after the mid-term elections if not before) is all anti-jobs and it is likely the demand for fiscal austerity will actually undermine the growth that is now emerging.

Then you read a recent blog from the Director, Congressional Budget Office (December 10, 2010) which summarised this publication – Economic Impacts of Waiting to Resolve the Long-Term Budget Imbalance and you realise what the daily advice Obama is receiving which makes it virtually impossible for him to live up to his resolution. The main conclusion of that blog was:

Waiting to put fiscal policy on a sustainable course would lead to higher levels of government debt, which would be costly in several ways:

* Higher debt would reduce the amount of saving devoted to productive capital and thus would result in lower incomes than would otherwise occur.

* Higher debt would lead to higher interest payments, meaning that larger tax increases or cuts to spending programs would be needed to make fiscal policy sustainable.

* Higher debt would make it harder for policymakers to respond to unexpected problems, such as financial crises, recessions, and wars.

* Higher debt would increase the likelihood of a fiscal crisis.

My responses to each of the dot points are:

– No, as long as the deficits are supporting growth they are creating savings not reducing the pool. But at any rate, loans create deposits in the banking system and private spending brings forth its own saving. Please read my blog – Why budget deficits drive private profit – for more discussion on this point.

– Higher deficits imply nothing at all about interest payments nor the future direction of tax rates. Further interest payments are private income which is typically something we desire (equity considerations notwithstanding). Please read my blogs – Will we really pay higher taxes? and Will we really pay higher interest rates? – for more discussion on this point.

– The financial capacity of the US government to increase (or decrease) its discretionary net spending is not dependent on decisions made in the past. It is true that spending programs can be captured by political lobbies which make them hard to undo. But the reality is that the government can respond to a crisis by expanding fiscal policy whenever it so chooses. The other point is that running surpluses is likely to undermine the economy (in usual conditions) and necessitate deficits to counter the spending decline exacerbated by the fiscal drag. Please read the suite of blogs – Deficit spending 101 – Part 1 – Deficit spending 101 – Part 2 – Deficit spending 101 – Part 3 – for more discussion.

– Final point is nonsensical. What is a fiscal crisis when we are dealing with a sovereign government that is never revenue constrained because it is the monopoly issuer of the currency? There is no meaning to statement that the US government will encounter a “fiscal crisis”.

So Obama’s resolution is just a piece of political cynicism – welcome to 2011.

Which brings me to the idea of the Big Society!

On October 31, 1987, the then British Prime Minister Margaret Thatcher told the UK Women’s Own Magazine:

I think we’ve been through a period where too many people have been given to understand that if they have a problem, it’s the government’s job to cope with it. ‘I have a problem, I’ll get a grant.’ ‘I’m homeless, the government must house me.’ They’re casting their problem on society. And, you know, there is no such thing as society. There are individual men and women, and there are families. And no government can do anything except through people, and people must look to themselves first. It’s our duty to look after ourselves and then, also to look after our neighbour. People have got the entitlements too much in mind, without the obligations. There’s no such thing as entitlement, unless someone has first met an obligation.

Two years earlier she had been victorious in destroying the National Union of Miners (NUM). In her famous speech to the 1922 Committee on July 19, 1984 she called the workers the “enemy within” who were “dangerous to liberty” and a “scar across the face of our country” because they were “ill motivated, ill intentioned … [and] … politically inspired”.

I was living in the UK at that time (doing my PhD at the University of Manchester) and I have first-hand experience of the travails that the poor went through dealing with the attack by their own government on their entitlements.

A major campaign against the miners triggered the 12 month’s long coal miner’s strike (1984-85) which ended in disaster for the workers. Thatcher also systematically undermined the “triple alliance” (coal, steel and rail unions) – the steel unions capitulated early and the rail unions were bypassed by government-organised road transport.

The Trade Union Congress leadership effectively sold the NUM out and the government won the battle. This was also, arguably, the point at which the Labour Party and the trade union leadership turned to the right and abandoned their commitment to a just society. We started to hear about the “New Realism” which led to “New Labour” and the “Third Way” – all sell outs.

But the “there is no such thing as society” was a dominant theme of that era and there were many harsh policies introduced to force people to “take care of themselves”.

For example, Thatcher’s government decided that “thousands of unemployed young people living in bed and breakfast rooms” on government benefits would have their payments “stopped unless they move elsewhere after a certain length of time”. This was part of a plan to force the unemployed workers who were under 26 years of age to “return to their families” and thus privatise the lack of jobs.

This article – Benefit curb turns young into ‘nomads’ – appeared in the The Sunday Times on June 23, 1985 and was written by journalist Brian Deer, who had a long record of reporting on social issues in the UK. It describes what was going on at the time.

The conservatives have learned a bit along the way. The current conservative government aided and abetted by the turncoat liberals (who I predict will get wiped out at the next election) are reprising Thatcher’s harshness but dressing it up as the Big Society.

The Big Society is another example of political cynicism. The swing to the right over the last 30 years in many nations has served to undermine the quality of education being offered. No wonder they think we are so stupid as to actually believe this sort of stuff.

The Big Society which I think of as BS – claims its aim is:

… to put more power and opportunity into people’s hands.

We want to give citizens, communities and local government the power and information they need to come together, solve the problems they face and build the Britain they want.

Compare that to Maggie’s “there is no such thing as society” quote – the Tories haven’t changed at all – they are just pitching the same denial of government responsibility in a slightly softer way now.

The BS is about “volunteering”, “charitable giving and philanthropy”, indoctrination of children via the “National Citizen Service” program (an army of 16 year olds being brainwashed into believing this stuff).

I read the latest piece of obscenity in this piece of politically cynically campaign today in the guise of the Giving Green Paper – which the British Government released on December 31, 2010. I wish this nonsense had have stayed in 2010.

The Green Paper emphasises the message:

The main lesson is to acknowledge the limits of government. Social action is not something that government can, or should, compel people to do; it has to be built from the bottom up, on the back of free decisions by individuals to give to causes around them. This is not easy, particularly given the pressures of life in 21st century Britain. For many of us it can feel like a struggle just to keep up with commitments spanning work, family, and friends.

If it wasn’t so serious the document would be a total humiliation. Its proposals are almost child-like in their naivety and their “bright eyed and bushy-tailed” enthusiasm. The ignorance that underpins those who embrace this stuff is staggering.

Clearly, I don’t consider the government has a role in dictating social actions. I am a social libertarian and consider there is very little role for government in making policies to control the way we interact. About the only controls I approve are those that restrict adults taking advantage of children (sexually or otherwise).

But I also understand that we should not conflate these “limits” on governments in directing our social interactions with the national government’s fiscal policy capacities where there are no financial limits. We should always understand why we bother with government in the first place.

We want government to advance the well-being of the populace which I often refer to as advancing the public purpose role of government. The dimensions of this are clear in my mind and most of the commonly considered constraints on the national government pursuing this role are illusory.

The state should maximise the potential of its population – a zero waste of people – which at least requires the state to maximise employment. Once the private sector has made its spending based on its expectations of the future, the government has to render those private decisions consistent with the objective of full employment.

The non-government sector typically does not spend all of its income over the business cycle. What does this imply? It means that non-government spending gaps over the course of the cycle can only be filled by government.

The national government always has a choice:

• Maintain full employment by ensuring there is no spending gap – that is run budget deficits commensurate with non-government surpluses; OR
• Maintain some slack in the economy (persistent unemployment and underemployment) which means that the government deficit will be somewhat smaller and perhaps even, for a time, a budget surplus will be possible.

The BS approach reflects that fact that the British government has chosen the second option.

But the Green Paper doesn’t acknowledge any of that. It is bereft of any understanding of the way the monetary system operates and ranks along with the documents that came out of Nazi propaganda machine in the 1930s and 1940s.

In releasing the Green Paper, Francis Maude the Minister for the Cabinet Office said that BS is about “(p)eople giving time, money, assets, skills and knowledge all drive social action and help make life better for all … [creating] … new social attitudes that celebrate giving”.

So you might think Maude is leading the generosity. You might be wrong. He was one of those who were caught out rorting the public purse for his own gain.

We also should not forget that he was a supporter in the Major Conservative government of the Section 28 legislation that pressured local authorities to eschew any positive recognition of homosexuality. The British PM was also a vehement critic of the last government’s plan to abolish the Section 28 clauses.

So some social action is fine but for Maude and Cameron (and the conservatives in general) but apparently government should still be heavy-handed as long as they don’t have to spend anything!

The UK Guardian article (December 31, 2010) – Private charity is never a substitute for public welfare – sums up the hypocrisy of Maude in this way:

The personal wealth of Francis Maude, the Cabinet Office minister who has just issued a green paper on “giving” in the hope of “building culture change” in our attitudes to charity, is estimated at £3m. No doubt it was to maintain his own levels of “giving” that, having rented out a central London house he already owned, he bought a flat nearby and put £35,000 in mortgage interest on expenses. No doubt, too, he stopped to ladle out soup to the homeless on his way to board meetings of Prestbury Holdings, a financial services company that benefited handsomely from sub-prime mortgages and paid Maude more than £3,000 each time he put in an appearance. But, it should be admitted, we are short on detail. Asked on Radio 4 this summer for particulars of his voluntary charitable work, he replied “that’s a very unfair question”. Perhaps he and the 22 millionaires among fellow ministers who attend cabinet meetings regard constructing the “big society” as a sufficiently charitable contribution in itself.

You get the picture.

I especially liked the article in the UK Guardian by William Keegan yesterday (January 2, 2011) – Big society or no, don’t let yourself be distracted at the cash machine.

He concludes that the BS is “cynically political. But at another level, it is a genuinely bizarre notion dreamed up by a bunch of amateurs”. When you read the Green Paper that is the impression you get. A rather awful political ploy relying on a bunch of T-shirted BS volunteers in the party office who have little understanding of what they are pushing.

Keegan says that the “big society” got off to a bad start” when a once prosperous local council (now facing severe financial cuts) begged local business to “pay half the cost” of its festive street lights. Not much was raised. The example generalises across Britain.

The government’s plan is clear – cut the hell out of the deficit and then offer tax cuts at the next election to persuade voters that they inherited a Labour nightmare but want to help families in the long-term.

Of-course, as the data emerges you will see that the automatic stabilisers (reacting to the policy-induced slide back to recession or stagnant growth) will provide headaches for the government. They will struggle to reduce the budget deficit in this current climate.

Keegan notes that political considerations aside:

… the big society is a half-baked idea dreamed up by a bunch of amateurs who – I am not making this up – are now reported to want us to make charitable donations when we use cash machines to help fill the gap left by austerity.

Anyway, the Green Paper’s genius idea is that ATMs (cash machines) will be programmed to automatically allow customers to donate to charity. Everytime you withdraw some cash you can automatically have some sent to charity.

Standby for some mobile phone apps and E-mail campaigns to promote donations.

The UK Guardian article – Private charity is never a substitute for public welfare – correctly notes that a reliance on personal charity is very patchy. That is, some areas of need might gain while other areas of need will be starved of funding.

We read:

Unfortunately, private charity doesn’t always have the same priorities as public policy. In the UK, the most popular causes are children, animals, cancer and lifeboats. Overseas causes, for relief of famine, disease or effects of natural disasters, tend to do well, helped by celebrity endorsements and fundraising concerts. Mental illness and disability, ex-offenders and unqualified school leavers are less likely to arouse our compassion. Again, volunteering tends to be most common in areas that need it least.

The notion of the “deserving poor” was the hallmark of pre-Welfare State thinking. It led to all sorts of inhumane outcomes as the rich felt they were entitled to determine how the poor lived etc.

That is why the concept of the Welfare State evolved to match the increased sophistication among policy makers as to how the business cycle worked and the fallacies of composition that pervaded conservative economic (and social thinking). The recognition that government could maintain high standards of living in tandem with private enterprise was also combined with an advanced understanding of what entitlements citizenship engendered.

The Post World War 2 economic and social settlement in most Western countries was based on three main pillars. First, the Economic Pillar was defined by an unambiguous commitment to full employment, although this commitment became blurred in the debate about the trade-off between inflation and unemployment in the 1960s.

Second, the Redistributive Pillar was designed to ameliorate market outcomes and defined much of the equity intervention by government. It recognised that the free market was amoral and intervention in the form of income support and wage setting norms was a necessary part of a sophisticated society.

Third, the Collective Pillar provided the philosophical underpinning for the Full Employment framework and was based on the intrinsic rights of citizenship. We accept that our depiction is a stylisation and that there were many individual nuances in particular countries over the period considered.

The UK Guardian article – Private charity is never a substitute for public welfare – says:

The point of post-1945 European welfare states was to free the needy from dependence on private generosity, which tends to miss out the socially marginal, and to be least available when times are hardest. Welfare gave a sense of security and dignity that the less fortunate had never previously enjoyed. It was particularly important to continental societies that had seen how insecurity bred fascism. Those who volunteer time to hospitals and homeless centres or who take out direct debits for guide dogs and cancer research are admirable, but no more or less admirable than those who pay taxes without vociferous complaint. Nor is a society with a “culture of giving” more admirable than one where workers receive living wages, decent pensions and reasonable employment protection; executives exercise restraint in remunerating themselves; and everyone has sufficient support to look after their ailing grannies.

The Great Depression taught us that, without government intervention, capitalist economies are prone to lengthy periods of unemployment. The emphasis of macroeconomic policy in the period immediately following the Second World War was to promote full employment. Inflation control was not considered a major issue even though it was one of the stated policy targets of most governments. In this period, the memories of the Great Depression still exerted an influence on the constituencies that elected the politicians.

The experience of the Second World War showed governments that full employment could be maintained with appropriate use of budget deficits. The employment growth following the Great Depression was in direct response to the spending needs that accompanied the onset of the War rather than the failed Neoclassical remedies that had been tried during the 1930s. The problem that had to be addressed by governments at War’s end was to find a way to translate the fully employed War economy with extensive civil controls and loss of liberty into a fully employed peacetime model.

From 1945 until 1975, governments manipulated fiscal and monetary policy to maintain levels of overall spending sufficient to generate employment growth in line with labour force growth. This was consistent with the view that mass unemployment reflected deficient aggregate demand which could be resolved through positive net government spending (budget deficits). Governments used a range of fiscal and monetary measures to stabilise the economy in the face of fluctuations in private sector spending and were typically in deficit.

As a consequence, in the period between 1945 through to the mid 1970s, most advanced Western nations maintained very low levels of unemployment, typically below 2 per cent.

While both private and public employment growth was relatively strong during the Post War period up until the mid 1970s, the major reason that the economy was able to sustain full employment was that it maintained a buffer of jobs that were always available, and which provided easy employment access to the least skilled workers in the labour force.

Some of these jobs, such as process work in factories, were available in the private sector. However, the public sector also offered many buffer jobs that sustained workers with a range of skills through hard times. In some cases, these jobs provided permanent work for the low skilled and otherwise disadvantaged workers.

The full employment commitment (the Economic Pillar) was buttressed by the development of the Welfare State, which defined the state’s obligation to provide security to all citizens. Citizenship embraced the notion that society adopted a collective responsibility for welfare and abandoned the failed dichotomy that had been constructed between the deserving and undeserving poor. The Redistributive Pillar recognised that the mixed economy (with a large market-component) would deliver poor outcomes to some citizen, principally via unemployment. Extensive transfer payments programs were designed to provide income support to disadvantaged individuals and groups.

Underpinning the Welfare State and the economic commitment to full employment was a sophisticated concept of citizenship (the Collective Pillar). The rights of citizenship meant that individuals had access to the distribution system (via transfer payments) independent of market outcomes. Furthermore, a professional public sector provided standardised services at an equivalent level to all citizens as a right of citizenship. These included the public sector employment services, public health and education systems, legal aid and a range of other services.

It was clear that the stability of this Post-War framework with the Government maintaining continuous full employment via policy interventions was always a source of dissatisfaction for the capitalist class and its conservative “intellectuals”.

Following the first OPEC oil price hike in 1974, which led to accelerating inflation in most countries, there was a resurgence of pre-Keynesian thinking. The Keynesian notion of full employment was abandoned as policy makers progressively adopted the natural rate of unemployment approach or the more recent terminology of the Non-Accelerating Inflation Rate of Unemployment (NAIRU) approach. This approach redefines full employment in terms of a unique unemployment rate (the NAIRU) where inflation is stable, and which is determined by supply forces and is invariant to Keynesian demand-side policies. It reintroduces the discredited Say’s Law by alleging that free markets guarantee full employment and Keynesian attempts to drive unemployment below the NAIRU will ultimately be self-defeating and inflationary.

The Keynesian notion that unemployment represents a macroeconomic failure that can be addressed by expansionary fiscal and/or monetary policy is rejected. Instead, unemployment reflects failures on the supply side failures such as individual disincentive effects arising from welfare provision, skill mismatches, and excessive government regulations. Extreme versions of the natural rate hypothesis consider unemployment to be voluntary and the outcome of optimising choices by individuals between work (bad) and leisure (good).

As, what is now referred to as, neo-liberalism took hold in the policy making domains of government, advocacy for the use of discretionary fiscal and monetary policy to stabilise the economy diminished, and then vanished. In the mid-1970s the opposition to the use of budget deficits to maintain full employment became visible for the first time and the inflation-first rhetoric emerged as the dominant discourse in macroeconomic policy debates. The rhetoric was not new and had previously driven the failed policy initiatives during the Great Depression.

However, history is conveniently forgotten and Friedman’s natural rate hypothesis seemed to provide economists with an explanation for high inflation and alleged three main and highly visible culprits – the use of government deficits to stimulate the economy; the widespread income support mechanisms operating under the guise of the Welfare State; and the excessive power of the trade unions which had supposedly been nurtured by the years of full employment.

All were considered to be linked and anathema to the conditions that would deliver optimal outcomes as prescribed in the Neoclassical economic (textbook) model. With support from business and an uncritical media, the paradigm shift in the academy permeated the policy circles and as a consequence governments relinquished the first major pillar of the Post-War framework – the commitment to full employment. It was during this era that unemployment accelerated and has never returned to the low levels that were the hallmark of the Keynesian period.

The NAIRU approach extolled, as a matter of religious faith, that government could only achieve better outcomes (higher productivity, lower unemployment) through microeconomic reforms. In accordance with the so-called supply-side economics, governments began to redefine the Economic Pillar in terms of creating a greater reliance on market-based economic outcomes with a diminished public sector involvement. In many countries successive governments began cutting expenditures on public sector employment and social programs; culled the public capacity to offer apprenticeships and training programs, and set about dismantling what they claimed to be supply impediments (such as labour regulations, minimum wages, social security payments and the like).

Within this logic, governments adopted the goal of full employability, significantly diminishing their responsibility for the optimum use of the nation’s labour resources. Accordingly, the aim of labour market policy was limited to ensuring that individuals are employable. This new ambition became exemplified in the 1994 OECD Jobs Study.

As a result, successive governments in many countries began the relentless imposition of active labour market programs. These were designed to churn the unemployed through training programs and/or force participation in workfare compliance programs. The absurdity of requiring people to relentlessly search for work, and to engage in on-going training divorced of a paid-work context, seemed lost on government and their policy advisors. That the NAIRU approach seduced them at all is more difficult to understand given stark evidence that since 1975 there have never been enough jobs available to match the willing labour supply.

And it is in that context that we should understand the Big Society. We can be as generous to each other as we like but if there is not enough spending overall in the economy then there will be unemployment. Mass unemployment arises from a lack of overall spending – What causes mass unemployment?.

Plans for one group to be socially aware will only re-distribute existing spending or run down savings within the non-government sector. It will not create new net financial assets which support aggregate demand growth.

But the British Labour Party shouldn’t complain too much. The BS is just a harder-edged version of their promotion of social entrepreneurship which was one of the central tenets of the Third Way.

Please read my blog – Social entrepreneurship … another neo-liberal denial – for more discussion on this point. In this blog, I provide a very detailed macroeconomic critique of the concept of charity and volunteering.

Please note that I am not against people helping each other and being charitable. Far from it. My objection (outlined in the previously cited blog) is that it will not work unless there is adequate fiscal support. You might also find my blog – The revolving door – how social policy is co-opted – interesting in this regard.

Conclusion

So while “there is no such thing as society” it is “big”. Neither concept has any credibility.

The alleged motivation of the Green Paper and the BS is the work of British sociologist Richard Titmuss who outlined a model of personal altruism in his last work the 1971 Gift Relationship. This is a book about blood transfusion service systems if you didn’t already know and Titmuss provided an “in-depth analysis of the systems for supplying blood in the United States and England and Wales (American Journal of Public Health, 1972 August; 62(8): 1153-1154).

But it is about the benefits of public service. I agree that public service is the basis of society. But I am also a macroeconomist and I understand spending gaps and aggregate demand constraints on employment. I understand that mass unemployment arises from a lack of overall spending.

I understand that without government spending to fill the private spending gap then you cannot have full employment. I understand that without full employment a society cannot aspire to generosity and inclusion.

That is the fundamental role of government – to ensure the budget deficit is large enough to support full employment (which might in some situations like a strong external surplus mean a budget surplus). By inventing concepts such as the BS when all you are really using it for is as a smokescreen for cutting what are essential net public spending positions and thereby increasing social alienation and starving communities of resources required to engage in fullsome social action is an act of political cynicism of the worst kind.

My first real post for 2011 – a depressing start. Lucky I have nice social interactions – but also the personal resources to facilitate them!

That is enough for today!