Low accountability institutionalism: my darkest fear

GILES WILKES

The Labour government has not been short of advice from the think tank community about how to fix Britain’s low productivity.  Roundtables hosted by the likes of The Productivity Institute and NIESR are a good place to hear the very best of it.

But having recently attended one such event (as discussant of a paper about government malfunction), the words I found myself scrawling on the pad were “Darkest Fear”.

Where’s the plan to make it happen?

What if the problem isn’t a shortage of well-evidenced advice for how to shape good policy, but a big hole where there should be a sense for how to make it happen?

There hasn’t, for fifteen years, been a change of government as hotly anticipated as last year’s, and the buzz of expectation in Whitehall was almost palpable. Here at last was a government that respected evidence, that believed in the positive power of the state, that wanted industrial strategy at the centre of its agenda. But with each new set of goals, missions, promises and First Steps, my anxiety has been rising – that behind the promise of a new, energetic government, no one knew how to turn rhetoric into reality.

Stability isn’t a strategy

My darkest fear is even worse – that actually Labour think they do have such a plan and all it is amounts to a hope that stability, grown-up government, renewed respect for institutions and relentless repetition of their desire for growth will be enough.  In this telling, “rewiring the state” just means a reversion to the sort of institutionalist, rule-bound, goal-oriented, evidence-worshiping policy plod that disappeared somewhere between the departure of Gordon Brown from Downing Street and the arrival there of a suitcase of booze. Call it the “we’re not Liz Truss” theory of growth, and to be fair, described that way it is one that most of the British public would heartily endorse.

A familiar diagnosis

I do not wish to overclaim for my fears. There is solid work out there to justify a sense of Labour inheriting a machine that is broken in some very clear ways. The complaints are familiar: excessive centralisation, short-termism, Treasury control, rule by ministerial whim through a pliant civil service and a lack of ‘join-up’ between different departments that undermines coordinated policy-making.  This is habitually blamed on Treasury dominance, which prioritises finance over economic growth, short-term fiscal control over long-term plans, and its own pre-eminence over the agency of other parts of the state.

My concern is not that these contentions lack merit, but how familiar they are. We knew this stuff, and so do most politicians, officials and special advisers – without the need for reference to academic research.  My first impression of government, arriving in May 2010 with no preconceptions at all, was that there really isn’t one. There is just a set of departments, operating against one another using the tools of non-communication and the passive-aggressive word-play that goes into agreeing Cabinet write-rounds. All are ultimately ruled by a Treasury trying to find billions in savings out of the bunch of them.  You become quickly aware that the vital calls are all being made somewhere in the square mile around the Red Lion, and yet in a fragmented way, with incomplete perspectives and the arbitrariness inevitable to decisions made in small rooms by a few, ill-informed people.

Governance fixes or growth illusions?

The answers that tend to emanate from think tanks are also familiar. To diminish the risk of ministerial arbitrariness, you should introduce institutions to make decisions in an arms-length, evidence-based manner.  Have checks and balances, such as the need to consult, the laboriously-constructed Impact Assessment alongside every new regulation, the threat of judicial review, the Treasury Cost-Benefit Analysis, transparency – data, so much data! – and academic evaluation.

But is that really why the UK has fallen hundreds of billions of pounds short of its productive potential? If governance problems with the British state have become near-perennials, how can they be a decent explanation for why UK productivity growth has taken a disastrous turn? These governance maladies were in place when Brown was Chancellor and 2.5% the usual rate of growth. Perhaps the answer is that when the crisis began (sometime between the bankruptcy of Northern Rock in 2007 and the London Olympics in 2012), the British State was incapable of responding in the way it needed. But in that case the question is, what exactly are the policies that should be deemed responsible for embedding this stagnation?

In my own writing on growth, I find myself most occupied on this middle stage – the combination of low investment, weak dynamism, damaged animal spirits, a broken international trading system, and sheer bad luck, that has taken us from expecting 2.5% in an ordinary year, to being pleased with 1.5%. I am not aware of the Treasury being explicitly in favour of any of these.

It’s politics, not just process

Reflecting on these causal links brings me to my next quibble: the role of politics and politicians.  I have plenty of candidate explanations for what policies failed the UK in the years 2007-2022, and they were all within the power of politicians to address. For example, it is reasonable to argue that the economy was run too “cold” after the financial crisis, with nominal growth too low, too much concern with inflation when the opposite was the problem, and that this made debts harder to deal with, investment harder to encourage, and weak dynamism. But it was neither the structure of Whitehall nor the dominance of the Treasury that caused this, but a political consensus that UK government debt was the overriding threat to prosperity and business confidence in those years.  Nor was it the fault of Treasury dominance that a referendum on EU membership was called, nor that what devolution was pursued happened in a hesitating way.

When commentators suggest – repeatedly – that the Treasury’s tight-fistedness is why Rachel Reeves is not pushing harder for growth, they need to examine the implication of their argument: that the Chancellor is somehow the tool of her department. Anyone promoting such views needs a theory for how officials dominate politicians – a theory that would go against complaints elsewhere that the problem is overly dominant ministers and a pliant bureaucracy.

In my co-authored report for the Institute for Government on the Treasury Orthodoxy, many of our interviewees agreed that the Treasury was the most politically responsive of all government departments, constantly eager to do what its political masters demand. Often it had shown a surprising flexibility in the face of a strong political steer.  Perhaps what Reeves is doing on fiscal policy is her own choice?

A system struggling to deliver

All of this brings me to my big worry. Self-servingly, perhaps, few politicians complain in their exit interview that they felt too unconstrained in office. More typically, they would say they kept reaching for levers and then finding them unattached to anything real. Maybe it does not apply to the really big decisions – the EU referendum, the timescale of austerity, the protection of the NHS or the pace of minimum wage rises.  But when it comes to smaller matters – the approval of a grant for a new factory, say, the acceleration of some science spending, a bolder and swifter act of devolution, and much of what I experienced in industrial strategy – the felt experience is of politics as an arena where the beefiest gladiators are fighting with one hand tied to the ground.

It is hard to get things done. Sometimes is seems obvious what the ‘right’ thing is to do, and yet making it happen trips up over invisible barriers. With luck, the politician can find the arbitrary rule or deliberately cautious operating method, give it a good shake and free up the action.  Every now and again, some event occurs like the search for life-saving COVID vaccines, a response like the Vaccines Task Force is put together, and the whole political system is afforded a glimpse of what a decisive, operational system looks like. But then the experience evaporates like a mirage. Ironically, the only department with regular experience of knowing what direct, decisive action is like is the Treasury, which at times like the Great Financial Crisis and the COVID pandemic is able to act with brutal speed.

Rebuilding capability, not just restraint

My big worry is that we, the policy wonks who try to advise the politicians from the outside, are fixed on a set of solutions that might reanimate a stolid, rule-respecting institutionalism that indeed went missing between the arrival of Johnson and the departure of Truss, and that this might indeed do something for business certainty – but it will be far from enough. We do need to fix the Treasury’s dominance of Whitehall; there are plenty even within the Treasury who agree. It would be bold and difficult to do that. But what we would be doing is going after one of the few parts of the government machine that can act as its politicians will it to do. What if the real question is how to get the rest of the government machine acting in the nimble, autonomous, politically responsive way that the Treasury does?

I am not an a priori fan of unconstrained government. The political tradition from which “Take Back Control” sprang is the opposite of mine. But we need to ask seriously what the Dysfunctionality in UK Central Government consists of: is it all to be found in short-termism, finance-dominance and centralisation, or is at least some of it better characterised as “it is darned difficult to do anything anymore”? As the UK’s productivity crisis has deepened, I have found myself moving closer and closer to the latter side.