DABERIAM LXXI

October 2012

August has morphed into October and the anaesthetic of the Olympics has worn off, leaving the stark realisation that nothing in the economic world has changed.

The gyrations of the European crisis continue with no resolution. In America the political posturing also continues and there is no way of knowing what the outcome of the election will bring, although the likelihood is a deadlocked Government, regardless of President. In the Middle East the awful unravelling of the old regimes continues and the Asian economies grow slowly, but at least steadily.

With the exception of Europe, the aftermath of the excesses at the end of the Noughties is slowly subsiding. The US, in spite of its Government, is slowly returning to stability and economic growth is gaining some traction. The US is benefiting from rising costs of Chinese labour and the huge growth of their middle classes, who are starting to create a consumer society. Economic commentators are always in a hurry, so a slow recovery is often reported in a disappointing tone. The recovery is inevitably slow as enormous amounts of debt have to be either written off or absorbed. The private sector is doing a good job in this area but Western governments are completely failing to curb their expenditure. The US is also benefiting in particular from the continuing downward pressure on gas prices. This gives another boost to the re-industrialisation of the country. Europe by contrast is getting a double whammy from high energy prices and the rising cost of food. Add rising unemployment and you have a toxic political mix that is exceedingly dangerous.

It is difficult to see how the EU can recover, even slowly, under the massive burden and complexity of its bureaucratic system. Legislation coming from Brussels ties up the governments of the EU in ever more complex and often conflicting legislative demands and this makes it nearly impossible for industrial and commercial companies to take the long term decisions required to develop new products and services, making the outlook more and more depressing. Britain on the edge of this bureaucratic monster gives us an interesting and easy to see example of the bureaucratic quagmire that results from politicians cornering 50% of the GDP in taxation. In the UK the politicians, who almost universally have a lack of business experience, demonstrably cannot supervise huge Civil Service departments. The fiasco in the British Rail franchising system is the most recent in a series of scandals emanating from Whitehall. Less well publicised is the chaos in the department of energy which is unable to create a coherent energy policy, let alone implement it; the health service which has wasted billions trying and failing to implement a centralised computerised patient record system; and our so-called Social Services whose tentacles spread into homes across the land, consistently failing to protect children known to be at risk.

These examples are but a few, the list is endless and it is difficult to name a well-run department of state. The lesson here, well described in Hayek’s Road to Serfdom, is that bureaucracy, particularly in government, inevitably cripples enterprise. If a government only takes a small proportion of the country’s GDP, then it can only do a relatively small amount of damage. Clearly what is not happening is the roll back of government intervention in every walk of life.

The hope is that slowly the politicians of Britain and Europe, the Old World, will learn through the experience on both left and right that more regulation is not going to create a happy and prosperous population. I fear this learning process has, however, still got a long way to go.