Steve Hilton, blues skies thinking and the resurgent deregulatory impulse

Steve Hilton has attracted flak across the old and new media following the FT’s revelations about his suggestions for stimulating economic growth. The proposals that hit the headlines included the abolition of maternity leave, labour market policies that contravened European law and the suspension of all consumer rights. Many have criticised the proposals for a range of offences including apparently overlooking the rule of law. Others have defended the utility of blue skies thinking when seeking ways to deal with the challenges that face us.

Personally I’m not averse to blue skies thinking. But the idea that off the wall thinking is central to the role of a strategy director is curious. One would have thought strategy should entail something rather more concrete and grounded, at some point in the process at least. And as someone more disposed to bottom up decision making and a Parliamentary party that is charged with representing the collective will of its members, I’m not so keen on the idea that one unelected, unaccountable and largely anonymous individual should have such influence over policy in the first place.

But the main thing that strikes me about these revelations is that they are not very “Blue Skies” at all.

The ideas are certainly more far reaching than suggestions being made elsewhere. But otherwise they come straight out of the economic liberal playbook. For a period, following a global economic crash brought about in large part by inadequate regulation, the deregulators were cowed. But it appears that they are back again and making some noise.

A recent post at ConservativeHome pursued a similar theme in reviewing growth proposals from right wing think tanks. It argued for a range of deregulatory measures, including exempting small businesses from all employment law or the Institute of Economic Affairs’ proposal for regionalising – for which we can read ‘reduction’ in most cases – of the minimum wage. This week Vince Cable launched the first phase of his red tape challenge. The initial media response from the business lobby was to argue that he was tinkering around the edges rather than dealing with the big bureaucratic burdens like the minimum wage or employment protections.

The message is simple. Sluggish growth? The answer is deregulation. Suggestions that previous doses of deregulation have not notably delivered prosperity are met with what I have elsewhere termed the ‘deregulatory dismissal’. Deregulation may not yet have been as effective as promised – indeed it may appear positively harmful – but that is not because it is the wrong prescription. Rather it is because policy hasn’t gone far enough fast enough to deliver its putative benefits. This is an article of faith rather than an evidence-based proposition.

The only thing about the Hilton prescription is that, given a free hand, it would appear that he’d propel us back to a nineteenth century system of social protections and social rights rather faster than the current Government feels is politically feasible.

There are at least three specific responses to the Hilton proposals.

First, to suggest that the wholesale suspension of consumer rights, for example, would boost economic activity shows a breathtaking failure to understand how markets in developed economies actually work. Many markets only work because of such protections. Where information is asymmetric it is only through systems such as kitemarking or guarantees that consumers can have any confidence in what they are buying and they will be compensated if the product turns out to be inadequate. The market may well fail without such regulatory intervention. Of course there are some regulations that are not necessary or that have outlived their usefulness. That would appear to be the focus of Cable’s initiative. But the idea that all such regulation is unnecessary is crass. In some markets – such as pharmaceuticals – regulation can be constitutive. Without it the market just would not exist.

I am constantly surprised by the way some of the most vociferous advocates of markets have such a weak understanding of how markets actually work. But then zealotry for any cause rarely requires close critical engagement. That is its strength and its weakness.

Second, we need to challenge the idea that the UK economy is oppressed by an excess burden of regulation. As Rick at Flipchart Fairytales pointed out in a post last month, drawing on OECD product market regulation index (reported here), the UK already ranks as one of the least regulated countries in which to do business. The idea that bureaucracy is imposing an excessive burden upon business and holding back the economic recovery is just not credible. Developed economies facing a much more complex and intrusive burden of regulation are emerging much more strongly from recession.

Employers will claim that regulation is the problem. Of course they will. It is in their interests to have as little constraints in the arbitrary exercise of their discretion as possible. And if a Government is willing to buy their arguments then they will hardly object. But that has little or nothing to do with fostering economic recovery. In fact, I would go further and argue that reducing employment protections is completely the wrong strategy. Seeking to compete by degrading the labour market means that there is less incentive to seek to enhance competitiveness through technological innovation or genuine enhancements to technical efficiency. It’s lazy and it will increase inequality and impact negatively upon the welfare of the many to the benefit of the few.

Third, the whole premise of this approach is that the problem lies on the supply side. Yet, the current sluggish growth is surely a problem with demand. Increases in taxation, continued employment uncertainty generated by Osborne’s deficit strategy, significant deleveraging by households, weakness in the Eurozone are all contributing to weak demand. If we rewind to the good old days – all the way back to pre-2008 – the economy was performing well within the current regulatory structure. Labour and product market regulation were not a barrier then. Deregulation is near the bottom of the list of things that are likely to help in the current context.

There is certainly a need for supply side action to rebalance the economy away from property and financial services, but that is a whole different issue.

The Hilton prescription is just the same old same old from the Right. Only more so. It should be treated as such. Surely what we need is some genuinely novel thinking to move the economy onto a healthier and more sustainable trajectory.

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