Lib Dems must reject ‘small state liberalism’
I regularly disagree with David Laws’ views on the size of the state (though not on a number of other issues). But I am actually very pleased that he has set out in stark light his in principle objection to the state spending 40% of GDP.
For some time, since a Liberal Democrat conference debate on tax in 2008, many of us in the party have been trying to persuade colleagues that there is a group of people among our ranks (at an elite level) who want to turn the Liberal Democrats into a centre-right party of small state liberalism. This has been greeted with objection from leadership circles, which suggest that any recent shifts in party policy have been pragmatic and are about ‘what works’. Most notably, Nick Clegg argued in a speech in July 2010 that:
Someone with a fixed view about the size of the state is not a liberal. It is not the size of the state – it is what the state does that matters. Does it hoard and exercise its own power, or disperse power and build capability in our citizens?
There is little to argue with in that basic position. Simply creating a state of a particular size will not solve all the policy challenges we face. Nobody can credibly say that 42% of GDP spent by the state is acceptable, while 38% is not (nor indeed should they be able to make a comment about 40% as David Laws has done). That is especially apparent when such a figure is so dependent on the state of the wider economy, which will inevitably fluctuate. Moreover, sometimes, half a billion pounds spent wisely can achieve better results than one billion spent badly.
However, there is a problem with the way the party leadership seems to apply this otherwise logical sentiment, simply ignoring the types of arguments that have been put within the Liberal Democrats and liberal politics more widely.
Nick said just before the above section of the speech that ‘it makes no sense whatsoever to use a phrase like ‘small state liberal’.’ Yet there are certainly types of liberals (they used to be known as libertarians) who will almost always see less government as the answer to most problems. To that extent, they are ‘small state liberals’, pursuing an ideologically motivated agenda to slash the state on the basis that they see the state generally as an obstacle.
If any of them deny that then we are entitled to ask precisely how many of the state-slashing policies pursued by the current government have helped to ‘disperse power and build capability in our citizens’ in the way that most Liberal Democrats would wish to see. I am thinking here of policies like scrapping school building programmes, reducing housing benefits, and cutting schemes which help people get back to work, to name just those which were part of the Budget which preceded Nick Clegg’s speech. Many more have followed.
In all of these, because the state is doing less, it has less ability to ‘disperse power and build capability in our citizens’. Of course, there has been a fingers-crossed hope that the private sector or the Big Society will step in. But as Archbishop Rowan Williams has said so perceptively, the Big Society simply masks ‘a deeply damaging withdrawal of the state from its responsibilities to the most vulnerable’.
What we have heard from David Laws in the past few days is the clearest statement yet of the small state liberal agenda within the party, much clearer than the Orange Book ever was. In the first place is a pretty breathtaking argument that ‘The implication of the state spending 40% of national income is that there is likely to be too much resource misallocation and too much waste and inefficiency.’
This idea is developed further in David’s Economic Affairs article which says: ‘The liberal ambition should be for long-term total public spending growth to be restrained at below the trend rate of growth of the economy – this probably means decent real growth of health, education and pensions spending, offset by most other areas of public spending shrinking over time as a share of GDP.’
This flies directly in the face of the argument set out by Nick Clegg that ‘It is not the size of the state – it is what the state does that matters’. It does so partly by assuming that state spending is inherently wasteful and inefficient when compared to the private sector. Meanwhile, in citing the figure of 40% as too high, and stating an ambition to reduce it, David is being very clear that in his view, it is possible to see a particular ‘size’ of state as being too big.
There is an alternative approach, and it is one which Liberal Democrats were very good at in opposition, quite often led and inspired by David Laws’ own work as a backroom number-cruncher for the party. (Indeed, David pioneered it.)
This is to look at government spending in the round, and to find areas of spending which do not match Liberal Democrat priorities. Where savings can be made, there can then be a decision about whether to use that money in other spending areas, or to give tax cuts. That, I would argue, is a more liberal approach than saying 40% is too high and it needs to come down.
Rather than being shocked by the figure of 40%, I suspect that Lloyd George and Keynes would be shocked by any liberal believing that it is possible to attribute right or wrong to a mere number. Alarm bells should be ringing in the party.
Professor Richard Grayson is vice-chair (policy) of Liberal Left.