John Redwood has a well-established reputation as Mr Spock’s distant cousin. After all, Vulcans have purged themselves of emotion, make judgments after a sober inspection of the evidence and are proud of their inability to empathise.
A careful reading of Freeing Britain to Compete tells us a great deal about John Redwood and many useful things about today’s Conservative party. Far from being the product of some slightly eccentric aliens with a passion for logic, this is a report that is long on ideology, short on facts and obsessed with the perfection of unfettered markets. Anybody with a passing acquaintance with the nature of contemporary capitalism would find the whole argument founded on a misguided diagnosis and a damaging prescription. When given a choice between antibiotics or leeches, John Redwood unashamedly chooses leeches.
Let’s start with the assertion that the British economy is drowning under a torrent of ‘red tape’ that is holding back enterprise, imposing burdens on business and making it more difficult for the UK to meet the challenge of ‘globalisation’. We can subject this argument to two empirical tests. First, is there any evidence that the UK is more regulated than other comparable economies? Second, is there any evidence to show that regulation has a damaging impact on economic performance?
It doesn’t take too much effort to discover that the Organisation for Economic Co-operation and Development (OECD), the Paris based thinktank funded by the governments of developed countries, publishes an annual assessment of the growth prospects for each OECD economy (Going for Growth, 2007). Much of the analysis is based on ‘structural policy indicators’, measuring various aspects of economic regulation, all of which shape the business environment.
Far from confirming the Redwood story of a socialist government strangling the capitalist goose, the OECD make clear that the UK is a low tax, liberal market economy with a light touch regulatory regime. Our minimum wage is set at around the average for the developed world; marginal income tax rates are well below the OECD average and broadly in line with other English-speaking countries. Employment protection legislation is the second least restrictive in the developed world – everywhere except the US is less ‘liberal’ on this measure. Only Australia has more liberal product markets and the UK’s administrative burden of regulation, on any of the OECD’s six benchmarks, is well below the average for comparable countries.
This brings me to our second empirical test. Economies that are significantly more regulated than the UK have enjoyed economic performance that is just as good, with low inflation, strong growth and high employment rates. If the Conservative party were right then the Nordic countries, the Netherlands and Austria would all be basket cases; that they are not confirms that nation states have a wide range of social and political choices available to them. In the UK, we could choose more equality, more workplace justice and higher benefits for the unemployed without sacrificing the labour market flexibility deemed necessary for good employment performance. The experience of the last decade proves that there is an alternative to Thatcherism.
Two final points to conclude. John Redwood suggests that the Republic of Ireland enjoys good economic performance because it has low corporate taxes. What he neglects to mention is that marginal tax rates for individuals are higher than in the UK. All this proves is that there is no such thing as a free lunch. Public services have to be paid for somehow and the Irish have chosen to place the burden on personal rather than corporate incomes.
Furthermore, there is no evidence that the Redwood programme would generate more growth and no evidence that tax cuts would lead to rising tax receipts. This is the supply-side fallacy, the ‘voodoo economics’ of Ronald Reagan that left the US saddled with a huge federal budget deficit. So much for the Conservative party’s commitment to fiscal responsibility.
Much of the regulation that Redwood wants to remove has its origins in European Union legislation such as the Working Time Directive. It is simply impossible for the UK to tear this up and remain a member of the EU. Moreover, the UK already has an opt out from the 48-hour a week limit and the only ‘burden’ that the directive imposes is an entitlement for all workers to receive four weeks’ paid annual leave.
What possible conclusion can we reach? Vote Conservative for shorter holidays, longer working hours, higher (or lower) taxes, bigger deficits, economic instability? This may be many things, but it isn’t logical – and it certainly isn’t Vulcan; not so much ‘Star Trek’, more ‘I Love 1983’.