Thursday, May 24, 2012

How to get growth

National governments are rightly focused on reducing the deficits that are causing massive threats to their economies. But the resulting austerity leaves little scope for schemes to stimulate economic growth. And growth would increase tax revenues, thus helping to eliminate the deficits and reduce debts. So what's to be done?

Socialists believe that more can be spent on stimulating growth, while maintaining spending on public services, by taxing the rich more. Deficit hawks believe less should be spent on public services and on growth schemes, while increasing taxes across the board. Neo-classical liberals also believe in spending less, but that reducing taxes can stimulate growth.

I don't know that any of these views are right. I'm not an economist, and the arguments on all sides fail to convince. But who knows?

However, in the UK I think there's something that might help, whatever your economic view: empowering local engines for growth.

Different parts of the country should be able to take advantage of their own particular local strengths to encourage growth. This requires central government loosening its fevered grip just a little on taxation and expenditure, and letting strong councils take advantage of local conditions.

I want to draw attention to two important aspects of this form of localism: (i) local decision-making about big developments; and (ii) local decision-making about public services.

Local decision-making about big developments

Developments can get stalled at an early stage by emotionally charged battles between enthusiastic proponents of stimulus schemes (house-building, wind farms, engineering projects, and the like) and wary residents fighting damage to their neighbourhoods.

Both sides think the system is weighted against them. The reality is that if local people rather than ministers are the ultimate arbiter of proposals, proposals will have to be designed to unarguably benefit local communities rather than to align with well-meaning but amorphous national policies.

This is not simply a case of transferring decision-making from ministers to councillors. Councillors do need to play an important role in this: referring back proposals that clearly contribute insufficiently; ensuring stakeholders are involved in the discussions; commissioning research comparing alternative options; and proposing conditions such as a local tax, an inspection regime, modified plans or new community facilities. But local electronic plebiscites make the final decision.

Good developments are more likely to succeed quickly under this form of localism, because developers will need to design proposals that make it easy for locals to judge that the benefits outweigh the disadvantages. And bad developments will no longer be able to rely on multiple appeals, inattentive councillors, vague planning policies and ministers with nothing to lose in the locality.

At the same time, developers will not be faced with the knee-jerk local opposition that comes from justified scepticism and sense of powerlessness about the planning system. Constructive engagement is more likely.

Local decision-making about public services

A second way in which local engines for growth can be enabled is through liberalising public services.

Rather than the State controlling public services centrally, like some totalitarian regime, councils would be free to pursue their own preferred ways of delivering particular services, whether that's in-house, through contracts with companies, or in conjunction with other organisations or councils. At the same time, power to vary taxes enables those with different ideas about what works to put those ideas to the test.

Those councils that want to stop the cuts get to stop the cuts, but they will need to borrow the money or raise taxes. Those councils that want a balanced budget will be able to cut spending and increase taxes. Those councils that want to reduce taxes get to do that. But more importantly, councils are free to decide on the priorities for schools, hospitals, police, post offices and so on that make sense for local people, taking account of local needs and opportunities.

Through this encouragement of innovation, the country does not put all its eggs in one basket, but is able to pilot different ways of stimulating growth and dealing with debt, within broad but sensible constraints set by central government.

What works in one part of the country does not automatically work elsewhere, but by evaluating the factors affecting success in every part of the country, the Government will see good ideas being taken up across the country, and bad ideas being quietly dropped with no loss of face to central government.

More autonomy allows ideas to be put to the test. Of course it's true that councils might choose to go for the monorail rather than more frequent buses; they might choose to build the casino rather than the theatre; the nuclear power station rather than the wind farm. But councils must be allowed to make mistakes, so long as there is complete transparency and accountability to local voters.

Why won't this happen?

This "localism-plus" means that good developments are more likely to succeed quickly, and that public services can innovate under democratic local control rather than stagnate under monolithic central control. These are strong engines for growth.

I've outlined the key objections to this proposal. But the main reason this kind of thing is unlikely to happen is not because of potential costs, uncertainties or fragmentation; nor even (at a philosophical level) fears of privatisation or of localism. It is that battle-lines are already being drawn for the next election, and that for all but a few liberal-minded politicians, the dream of enforcing one's own prescription for success across the whole country overrides all other considerations.


No comments:

Post a Comment