Saturday, 26 January 2008

Telegraph Points the Finger in the Wrong Direction

An interesting article in The Telegraph asking who runs the country, putting blame on 'plutocrats' and the freedoms of the financial markets to distract from the real problem: The size of the Government.

Our present government is taxing, borrowing** and spending. We should have been butchering our National Debt during this last decade of "sustained growth" and "fiscal prudence" but instead it has grown and continues to grow - fiscal prune juice might be a better description considering the incontinence we have seen.

All this relies on increased consumer spending and this is fuelled in no small part by consumer debt.

If Rule of Law is maintained and the Government is not the arbiter on so much expenditure and regulation - which favours the large and/or incumbent - then the "rich and powerful" have less traction and must continue to operate in such a way as to meet the needs of their customers in the open market.

The best way to reduce what the State does is to reduce the funds with which it operates. The only sure fire way to stop the Government spending is to reduce its income. Lower taxes mean smaller budgets. Smaller budgets means lower spending, i.e. politicians and departments with less to spend. Politicians with less to spend means less money to be "lobbied" from them, to put it politely. Less money "lobbied" means less opportunity for corruption. Less corruption increases the chances of wise spending decisions, or at least only daft decisions, not corrupt decisions.

Big business unable to get special concessions or deals from the State have to appeal to private companies and individuals. New entrants have more of a chance. Arrogant incumbents will be always under threat from disruptive technologies that typically arrive via new players. It keeps things healthier. It keeps the monopoly and cartel at bay.

The very reasons, motivations and talents that make a company successful will, if unchecked by market forces, draw that company towards a position of dominance, cartel or monopoly. The State, by definition, creates a monopoly of provision in the areas it operates. This is either an explicit monopoly via legislation or a de facto monopoly by tax compulsion-provision or tax subsidy, preventing competition from being viable in all but tiny niches. The State and private enterprise are a dangerous mix and should be kept apart as much as possible - private companies too closely linked to the State will connive with it to create State commissioned tax subsidised or legislated monopolies run by the private organisations. Anyone say PFI at the back?

The State is a lousy buyer. It buys in a way that risks seriously rolling the taxpayer. It is in its DNA. It has to do as little as possible.

Lower taxes, eliminate income tax, shrink the State, pull out of direct commissioning and provision of health and education. Reduce bureaucracy and needless regulation whilst enforcing Rule of Law consistently.

Britain can be a home of plutocrats, but as long as they are kept on their toes by the markets and the customers within making free, independent decisions based upon their own personal and unique circumstances in an environment where Rule of Law is upheld, it will afford few opportunities for plutocrats to misbehave. I still think they will have a great time making lots of money and their customers also getting access to innovative, ever cheaper, more reliable and better made products.

Regulate heavily or being a form of merchantilism and you will strangle new entrants and lose the openness, transparency, innovation and vibrancy that they bring.

* I suspect many in the middle classes feel that way, frankly, because of the disgraceful way they are treated by the government.

** and not forgetting the pan-generational mortgaging of the future called PFI.

1 comment:

Mark Wadsworth said...

Agreed. But I'd get rid of VAT first, that's even worse than income tax.