Bill Clinton at a rally in 1996, the year he declared that “The era of big government is over”. Photo: Getty
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Honey, I shrunk the government: a paean to the virtues of the small state

The authors argue that the west has no choice but to unfurl the banner of revolution again. The fiscal crisis and demographic changes have left treasuries creaking under the weight of debt. 

The Fourth Revolution: the Global Race to Reinvent the State 
John Micklethwait and Adrian Wooldridge
Allen Lane, 320pp, £20

Big government is the enemy. It saps enterprise, stifles liberty and undermines democracy. That is the battle cry of The Fourth Revolution, a paean to the virtues of the small state and the free market. Its authors, John Micklethwait and Adrian Wooldridge, write with a mixture of horror and fascination about the growth of what they refer to throughout as “Leviathan” (after the sea monster that provided the title of Thomas Hobbes’s masterwork).

When Bill Clinton declared in his 1996 State of the Union address, “The era of big government is over,” few dissented from his judgement. But the state turned out to have “merely paused for breath”. In the US, government spending rose from 34 per cent of GDP in 2000 to 41 per cent in 2011. In Britain, it increased from 34.5 per cent to 48 per cent. Across 13 of the richest countries, it has reached an average of 47 per cent. Without a “fourth revolution”, Micklethwait and Wooldridge warn, the west is destined for inexorable decline.

The three preceding revolutions, charted in the opening 100 pages of the book, were the birth of the nation state, following the publication of Hobbes’s Leviathan in 1651; the emergence of a constitutionally limited liberal state in the 19th century; and the growth of a more expansive welfare state in the 20th. The latter was followed by a “half” revolution in the 1980s when Margaret Thatcher and Ronald Reagan declared war on the Keynesian consensus with their chosen arsenal of privatisation, deregulation and tax cuts. But this Hayekian crusade “failed in the end to do anything to reverse the size of the state”.

Because of a constellation of forces, the authors argue, the west has no choice but to unfurl the banner of revolution again. The fiscal crisis and demographic changes have left treasuries creaking under the weight of debt. The rise of Asia threatens the west’s intellectual and economic hegemony, while the wellspring of technology has created the opportunity to “do government” better.

The authors hymn the example of Sin­gapore, whose founding father Lee Kuan Yew compares the western welfare model to an all-you-can-eat buffet, urging Europe and the US to emulate its sink-or-swim philosophy. It is an echo of the message beloved of the Conservative Party (whose “global race” slogan is borrowed for the subtitle) and the Orange Book wing of the Liberal Democrats.

Micklethwait and Wooldridge are, respectively, the editor-in-chief and the management editor of the Economist. The Fourth Revolution boasts the crystal-clear prose, intellectual curiosity and forensic data that are the hallmarks of that publication. We learn that half of the richest 1 per cent in the US are medical specialists; that the Australian equivalent of the cabinet secretary earns £500,000 a year (twice as much as his British equivalent); and that Italy’s GDP per head fell by 4 per cent between 2001 and 2011 (the worst growth record in the world apart from those of Haiti and Zimbabwe).

Yet if the book reflects the virtues of the Economist, it also exemplifies its vices – notably, an unbending and ideological commitment to the small state beyond any reasonable justification. The crude focus on the overall level of public spending as the defining metric of a country’s well-being is one telling example. Far more important is the composition of that spending: are a state’s resources being invested in education and infrastructure, or are they being squandered on out-of-work benefits and inefficient agricultural subsidies? To argue otherwise is to imply that there is nothing to choose between France and Sweden.

The authors do cite Sweden as an example of a state that has curbed its ruinous ways by reducing public spending from 67 per cent in 1993 to 49 per cent today. But this belies how the country maintains a level of expenditure and of taxation that, according to their logic, should be incompatible with its social and economic achievements. Nor is Sweden the exception that proves the rule. As data from the International Monetary Fund and the Organisation for Economic Co-operation and Development has repeatedly shown, there is no evidence that countries with high levels of public spending perform any worse than those with lower levels.

The recent surge in spending as a share of GDP in the US and Britain (from 39 per cent to 48 per cent in four years) was the result not of a government binge but of the financial crisis and the associated collapse of the private sector (along with higher benefit payments to reduce the economic harm from unemployment). To pretend otherwise is disingenuous.

This small omission serves as evidence of a bigger one: the failure to acknowledge, let alone confront, the failings of the market. Were a coma patient who had slept through the past decade to wake up and read The Fourth Revolution, he or she could be forgiven for believing that the 2008 crisis was caused by bloated governments, rather than bloated banks. The public alienation charted throughout the book has less to do with the growth of the state than with the collapse in living standards. It is reversing this trend, not shrinking government, that is the defining challenge of this era.

To do so will require not a smaller state, but a smarter one. A smarter state would invest more in pro-growth areas that support lasting prosperity, such as infrastructure, skills, job creation and childcare. It would focus on prevention rather than cure, by switching spending from housing benefit to housebuilding and by incentivising the use of the living wage, rather than subsidising poverty wages. It would tax the rich more and the poor less on the grounds that this is both good economics and good ethics.

Such a state should then be judged on several key measures: how dynamic and sustainable is its economy? How healthy and educated are its citizens? How open and fair is its political system? What it should not be judged on is its size. 

George Eaton is the political editor of the New Statesman

George Eaton is political editor of the New Statesman.

This article first appeared in the 06 August 2014 issue of the New Statesman, Inside Gaza

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After Richmond Park, Labour MPs are haunted by a familiar ghost

Labour MPs in big cities fear the Liberal Democrats, while in the north, they fear Ukip. 

The Liberal Democrats’ victory in Richmond Park has Conservatives nervous, and rightly so. Not only did Sarah Olney take the votes of soft Conservatives who backed a Remain vote on 23 June, she also benefited from tactical voting from Labour voters.

Although Richmond Park is the fifth most pro-Remain constituency won by a Conservative at the 2015 election, the more significant number – for the Liberal Democrats at least – is 15: that’s the number of Tory-held seats they could win if they reduced the Labour vote by the same amount they managed in Richmond Park.

The Tories have two Brexit headaches, electorally speaking. The first is the direct loss of voters who backed David Cameron in 2015 and a Remain vote in 2016 to the Liberal Democrats. The second is that Brexit appears to have made Liberal Democrat candidates palatable to Labour voters who backed the party as the anti-Conservative option in seats where Labour is generally weak from 1992 to 2010, but stayed at home or voted Labour in 2015.

Although local council by-elections are not as dramatic as parliamentary ones, they offer clues as to how national elections may play out, and it’s worth noting that Richmond Park wasn’t the only place where the Liberal Democrats saw a dramatic surge in the party’s fortunes. They also made a dramatic gain in Chichester, which voted to leave.

(That’s the other factor to remember in the “Leave/Remain” divide. In Liberal-Conservative battlegrounds where the majority of voters opted to leave, the third-placed Labour and Green vote tends to be heavily pro-Remain.)

But it’s not just Conservatives with the Liberal Democrats in second who have cause to be nervous.  Labour MPs outside of England's big cities have long been nervous that Ukip will do to them what the SNP did to their Scottish colleagues in 2015. That Ukip is now in second place in many seats that Labour once considered safe only adds to the sense of unease.

In a lot of seats, the closeness of Ukip is overstated. As one MP, who has the Conservatives in second place observed, “All that’s happened is you used to have five or six no-hopers, and all of that vote has gone to Ukip, so colleagues are nervous”. That’s true, to an extent. But it’s worth noting that the same thing could be said for the Liberal Democrats in Conservative seats in 1992. All they had done was to coagulate most of the “anyone but the Conservative” vote under their banner. In 1997, they took Conservative votes – and with it, picked up 28 formerly Tory seats.

Also nervous are the party’s London MPs, albeit for different reasons. They fear that Remain voters will desert them for the Liberal Democrats. (It’s worth noting that Catherine West, who sits for the most pro-Remain seat in the country, has already told constituents that she will vote against Article 50, as has David Lammy, another North London MP.)

A particular cause for alarm is that most of the party’s high command – Jeremy Corbyn, Emily Thornberry, Diane Abbott, and Keir Starmer – all sit for seats that were heavily pro-Remain. Thornberry, in particular, has the particularly dangerous combination of a seat that voted Remain in June but has flirted with the Liberal Democrats in the past, with the shadow foreign secretary finishing just 484 votes ahead of Bridget Fox, the Liberal Democrat candidate, in 2005.

Are they right to be worried? That the referendum allowed the Liberal Democrats to reconfigure the politics of Richmond Park adds credence to a YouGov poll that showed a pro-Brexit Labour party finishing third behind a pro-second referendum Liberal Democrat party, should Labour go into the next election backing Brexit and the Liberal Democrats opt to oppose it.

The difficulty for Labour is the calculation for the Liberal Democrats is easy. They are an unabashedly pro-European party, from their activists to their MPs, and the 22 per cent of voters who back a referendum re-run are a significantly larger group than the eight per cent of the vote that Nick Clegg’s Liberal Democrats got in 2015.

The calculus is more fraught for Labour. In terms of the straight Conservative battle, their best hope is to put the referendum question to bed and focus on issues which don’t divide their coalition in two, as immigration does. But for separate reasons, neither Ukip nor the Liberal Democrats will be keen to let them.

At every point, the referendum question poses difficulties for Labour. Even when neither Ukip nor the Liberal Democrats take seats from them directly, they can hurt them badly, allowing the Conservatives to come through the middle.

The big problem is that the stance that makes sense in terms of maintaining party unity is to try to run on a ticket of moving past the referendum and focussing on the party’s core issues of social justice, better public services and redistribution.

But the trouble with that approach is that it’s alarmingly similar to the one favoured by Kezia Dugdale and Scottish Labour in 2016, who tried to make the election about public services, not the constitution. They came third, behind a Conservative party that ran on an explicitly pro-Union platform. The possibility of an English sequel should not be ruled out.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.