The future of government: Long-termism, egalitarianism and collectivism

Municipal socialism, 1945 dirigisme, Croslandite social democracy and New Labour: each generation of Fabians has had their own statecraft. Now, as the dust slowly settles on Labour’s last spell in office, the contours of yet another theory of government are emerging.

This new Fabian statecraft sees national government as a force that marshals evidence-based responses to major long-term challenges, but does not necessarily deliver all the solutions; it brings a commitment to tackling inequality on more fronts, with greater vigour; and it embodies a new account of collectivism that is capable of challenging the neoliberalism which has dominated for 30 years.

This is a governing philosophy which is unashamedly positive about government, but also one that is bound by fiscal reality and which places more emphasis on extending power, trust and responsibility beyond the state.

The role of government

The starting point for any new statecraft is to define the role of the state. In 2013, the Fabian Commission on Future Spending Choices did just that, identifying three critical social democratic objectives of government: to bring about economic prosperity and stability; to equalise resources, power and capabilities; and to act like an insurer, by helping smooth costs over the lifecycle and protect against financial risks.

In principle, these roles sit alongside each other comfortably. But in the context of financial constraints there are inescapable trade-offs, for example when it comes to selecting between insurance-style protection (like healthcare, pensions, disability benefits), investment-style spending on the country’s future (like education, infrastructure, science) or on compensating for market inequalities.

These trade-offs become a little easier to resolve when government is conceived not as a paymaster but a facilitator. The goal then becomes achieving positive change in people’s lives with the least possible public expenditure. This is not just an argument about efficiency and productivity in public services, but different forms of government activism, ensuring that employers give low paid workers better wages; private finance funds infrastructure and housing; workers save for their own pensions; and people lead healthier lives. In all these cases there is a vital role for government, in challenging received wisdoms, carefully designing regulation and sometimes providing partial financing. But the solution is achieved in partnership with citizens, business and civil society.

This is not a ‘small state’ agenda: the aim is to minimise public spending on each individual activity so that the money can be recycled elsewhere. This is the only way governments of the left can expect to adequately fulfil their ambitions with respect to investment, insurance and redistribution. It is a contemporary means of advancing the three most enduring strands of Fabian thought: longtermism, egalitarianism and collectivism.

Long-termism

Long-termism always has to rub up against the reality of the electoral cycle and the need for politicians to show voters visible change. Nevertheless, the left should work back from its ambitions for the world in 2020 or 2030. The Labour party needs to be clear about how it plans to change Britain by the end of the next parliament and beyond. This means signing up to long-term, evidence-led strategies on critical issues – such as climate change, housing, infrastructure, skills, pensions and inequality – and promising to publish a long-term plan for expenditure in each parliament. The party should also set measurable goals to track progress so it can test whether its ideas are collectively of the right order of magnitude to achieve the changes it desires.

A long-termist perspective is essential to ensure that strategic choices are made, in place of accidental drift. For example the Fabian spending commission found that, if current policies are continued, then an ever higher share of public spending will be allocated to the government’s insurance function (ie healthcare and pensions) without any public debate. By thinking long term, ministers would see the need for a more balanced trade-off between investment, insurance and redistribution over the next two decades.

In turn this would force a much needed reckoning on the overall burden of taxation. It is undesirable to raise public borrowing further or significantly suppress expected growth in pension and NHS spending. Therefore the only viable way of finding money for investment or for tackling inequality is to gradually increase total spending and taxation as a share of GDP. When politicians think long term they will see they have to choose between raising taxes or significantly reducing the scope of government.

Inequality

It has become fashionable within the left to criticise the last Labour government’s Fabian-inspired anti-poverty crusade as an arid, statistical form of egalitarianism. Oddly this comes just when social scientists have conclusive evidence that family incomes are decisive for children’s life chances, over and above all other social factors.

Of course, the left should also care about equalising health, capability, resilience and power; and it needs a dynamic view of inequality focused on life chances, opportunity and mobility. But anyone who implies that money does not matter risks ceding ground to those who are indifferent to social inequality in all its forms.

Indeed there could not be a worse time to lose interest in the big picture of economic inequality. We already have Thomas Piketty’s evidence on the rise of the ‘one per cent’; however new Fabian research, which will be published later in the autumn, shows that economic inequality is also set to increase right across society. Our evidence reveals that both poverty and income inequality will soar over the next 15 years unless action is taken now, both because of rising labour market inequalities and meagre social security entitlements.

This can only be avoided through a careful combination of state intervention in the marketplace and reforms to social security. It is not an either/or decision. So those in the Labour party who criticise Gordon Brown’s in-work tax credits are wrong. The only way to prevent inequality from rising is both to make social security more generous and to take action on low pay, collective bargaining and skills.

Labour is currently committed to tackling one side of this equation, with a significant increase to the minimum wage now established policy. Next the party needs to embrace a living wage for all publicly funded jobs and new employer-worker partnerships.

But what about social security? A sudden increase in spending may seem impossible given the state of the public finances and public attitudes. But social security will otherwise wither away, with spending on pre-retirement age groups projected to fall sharply as a share of GDP over the next 15 years (from 5.5 per cent today to 3.9 per cent in the early 2030s, according to the Office for Budget Responsibility). The Fabian modelling indicates that this will lead to low and middle income working-age households falling far behind everyone else. A long-term plan for social security is therefore essential.

Labour should introduce reforms to widen popular support for social security, by seeking affordable ways to expand universal or contributory entitlements which reward effort and give everyone a stake. But its top priority must be a more generous system where benefits rise in line with earnings, starting with groups likely to attract public support such as low paid workers, disabled people and parents with pre-school children. Once the deficit is under control, the party should turn the welfare ‘cap’ into a welfare ‘floor’ by planning to spend a fixed share of GDP on working-age social security, which would permit more generous entitlements. On top of that ‘predistribution’ should be used to fund redistribution: the savings accruing to the exchequer from tackling low pay and helping people into work should be recycled to give a further boost to entitlements. This is the only plausible strategy for preventing inequality from growing worse.

Collectivism

The idea of the state as an investor and an insurer provides a modern rationale for collectivist, universal government. For when we think about public provision as an investment in all our futures or as a means of helping everyone to smooth costs over their lives, then it is obvious that universalism is superior to a safety net. This is a collectivist rather than egalitarian argument which is distinct but complementary to the traditional Fabian case for universalism – the services for the poor are poor services, so decent support for low income households can only be sustained when everyone has a stake. And universalism seems to be gaining ground. For while it is criticised when it comes to peripheral entitlements like the winter fuel payment, in practice it is becoming more entrenched, as education, health and pensions grow as a share of public spending.

However, a collectivist statecraft cannot end there, for in principle the government could discharge its responsibilities for investment or insurance through vouchers and cash transfers. So the left has to separately remake the case for collectively organised public services. New Fabian research does this by examining the special ‘public’ character of tax funded services. Our report argues that services with public character should stand apart from the market in several important ways: their aim is to serve the collective interests of society and to endow each individual with capabilities to help them thrive; they champion equality, dignity and shared democratic decision-making; they act through collaboration and uphold transparency and probity. All these qualities are incidental to for-profit market transactions but should be intrinsic to collective services in the public sphere.

This is the case for public services. But it is also an argument for a different way of running public services, compared to the practice of either New Labour or the coalition; and it is here that the new Fabian statecraft departs most markedly from the recent past. For when public services are organised as markets or there is extensive private sector involvement it is hard to achieve the qualities of strong public character. So a statecraft that takes public character seriously must scale back the involvement of the private sector, especially in running entire public service systems, like the Work Programme. The spirit of collectivism is far easier to bring to life when the providers are public or non-profit bodies and they are organised together through non-market relationships.

But any old collectivism will not do, for no one wants to swap the extremes of the marketplace for wasteful bureaucracy or heavy-handed concentrations of power. So the Fabian research proposes two more principles for public services, to sit alongside our focus on strengthening their public character. One is an unceasing focus on improving performance and value, to ensure that reduced competitive forces do not translate into worse value for the taxpayer. The other is trust and empowerment, to hand control to citizens, employees, public service institutions and local government.

These three principles for public service are compatible, but there should be a creative tension between them too. For example, a commitment to public character means user power should not translate into disconnected ‘do it yourself’ services. Equally the principle of performance and value means that private sector involvement in the public supply chain should continue, if the effectiveness of public services would suffer otherwise.

So the next Labour government will have to strike a balance between investment, insurance and the fight for equality; and between strong public character, empowerment and value. Labour needs a long-term programme that weaves all six of these strands together.

Before the election it won’t be possible to prepare all the detail, but between now and next May the party must put down some markers. It must promise a different path for public spending to safeguard investment, a strong social security system that shares prosperity, and the scaling back of private involvement in public services. Here are three new pillars for a radical, reforming manifesto.

The future of government: nine recommendations from Fabian research

Tax and spending

1. Scrap the coalition’s planned spending cuts for 2016 onwards and set broadly flat budgets for public services instead.

2. Prioritise future-oriented spending on education, science, economic development and capital investment, increasing these budgets by no less than health spending.

3. Once the public finances are under control, plan a gradual increase in spending and taxation as a share of GDP over the next 15 years.

Living standards and inequality

4. Introduce a living wage for all public service jobs, alongside Labour’s recent commitment to raise the minimum wage.

5. Introduce new universal and contributory entitlements, starting with a more generous contributory jobseeker’s allowance.

6. Increase social security in line with earnings, as soon as this is affordable, to share prosperity with low and middle income households.

Public services

7. Bar the outsourcing of whole public service systems in areas like health, education, probation and welfare to work.

8. Create more trust and control for service users, employees and public service leaders, including by spreading participative, stakeholder- based control of services.

9. Designate in law that elected authorities are the ringmasters for all local public services and give them power over adult skills and integrated health and care services

This article was originally published in the Autumn edition of the Fabian Review.