Economics is simple - yet Adrian Sanders is completely wrong
Adrian Sanders tells us economics is simple and then proceeds to express a complete economic fallacy. I’m replying here because he uses the interminable MySpace which requires me to do far too much work to post a comment.
I don’t know where to begin, perhaps with the one part he gets right - The more money you have the more choice you can exercise. that is true. Unfortunately it goes downhill from then on.
There’s two main points of criticism, I think I’ll start with the one which was done away with by Adam Smith all those years ago - he assumes a mercantalist model. Apparently saving money on services is bad because it means money flows out of the region. This is like saying imports are bad because you send money abroad. Or to reduce it to the most basic level, me paying someone for something is bad because I then have less money. Put like that it is obviously nonsense, at what stage does it become necessary to do things at greater expense to keep the money? It never does. This is fundamentally an argument against free trade so Adrian Sanders is trying to undo the very foundations of the Liberal Party and its successors.
The second thing is he’s neglecting the individual. Drop the ‘we’ as the masonites tell us. It is individuals who need the money, not a local economy. He rightly says that more money means more choice, but that goes for the individual not for local government. The local government spending money does not help individuals make choices per se, it means they have less money to spend themselves, so less choices available.
Local government saving money does benefit local people too, it means a drop in council tax. It may not be much, but every little helps. The fact that most money comes from central government does not mean that councils should not save money, it means that we need to reform local authority funding.
I’m going to look at why outsourcing is not bad. Not only does it leave more money in taxpayer’s hands, it also raises productivity (which is the very reason for doing it - otherwise it would not be done). This frees up jobs in the local economy, meaning that that most precious commodity of all, human ability, is spread even further. Those people not doing the council’s work in house can now spend their time doing other things, generating more wealth, which makes everyone better off.
If you follow Adrian’s argument then local government should stop people buying produce from outside the local economy because that means money leaves the local economy. Everything should be locally produced and grown. You want a new computer? Tough, its not local, it will mean loss of money from the local economy. You want a banana? Tough, they come from elsewhere, we can’t have money leaving the local economy. Services are just the same as physical goods. You pay money, you get something in return, it doesn’t matter where you get the product from, it matters that you get what is needed.
The arguments Adrian Sanders makes here are the arguments of the protectionist, the arguments that the Liberals have always fought against. They prevent prosperity, especially for the poorest, whilst giving vested interests more power. I am dismayed to see a Liberal Democrat MP advocating such things, but it shows how far the campaign for free trade has fallen.
Local government’s most important job is not trying to micromanage the local economy, it is to provide the services it provides for the least cost at the required standard. That is it.
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November 7th, 2007 at 2:38 pm
Whoever you are, you are of course quite right. The Member for Torbay should back the Tory mayor’s plans to privatise local services and export decently paid all year round jobs out of a seasonal employment area that now records the lowest household incomes and highest household debt in England. Reducing the salaries, or in this case taking most of them away, is the liberal response to the local economic crisis. With political brains like yours why are we not in Government?
November 7th, 2007 at 3:03 pm
It depends whether you want in politics, principled liberalism or shallow populism. I’m in politics to make people’s lives better through liberal policies, not to gain power through populism.
Government provision of jobs is not the way to solve an economic crisis.
Free up those workers and you have a workforce who can work in the private sector and actually create more wealth.
The simple fact is that you are arguing for protectionist policies which make as little sense on the local level as they do on the national level or the personal level.
November 7th, 2007 at 3:48 pm
I believe you can stay pure to liberal beliefs and exercise power. There is nothing liberal or principled about reducing the number of decent paid jobs and the amount of money circulating in a local economy, particularly where the private sector can only offer low value, seasonal or part time employment. You don’t make the lives of my constituents better by taking their livlihood away.
This link will take you to those whom the Liberal Democrats are opposing locally. http://www.conservatives.com/ They love defectors, indeed our elected Mayor who is behind these plans to cut local wages and further destroy our local economy was once a Liberal, but now exercises power as a Conservative. He and his mates would be delighted to have you on board. But then you already are really, aren’t you.
November 7th, 2007 at 4:07 pm
I’m inclined to agree with Adrian, outsourcing is popular despite it’s results rather than because of them - local government is answerable and accountable to it’s people and attempts to “save costs” through outsourcing tend to have two results, a reduction of local skilled jobs and a worse service for the constituents.
Outsourcing very rarely delivers good value, you are adding profits to the cost of providing, marketing and managing a service, while keeping all the risk of failure.
It’s all very well councils and hospital trusts going for the “best tender”, but in my experience, that is usually the cheapest, and the reason it’s cheapest is because they lied about the level of service provided in order to get the contract.
In theory, the contract should protect against that, but in practice that is never the case - a bad contractor is hard to replace - the good contractors who cost more will be committed to other projects by the time you can work through the legal paperwork, probation, 2nd chances, golden parachutes, etc, leaving you with the choice of bad service and extra costs making up the shortfall of the service or trying to get a new contractor.
I don’t see how choosing to use local skills rather than remote ones is contrary to the spirit of free enterprise, the market is there for councils, businesses or individuals to choose based on their requirements - those requirements can often be related to quality, locality and other non-price elements.
November 7th, 2007 at 4:08 pm
The economics you suggest are the economics of protectionism.
They are the economics of mercantalism. They have been discredited over many many years.
The Liberal Party was founded in opposition to such economics. That is what united the Radicals, Whiggs and Peelites into the great force that was then the Liberal Party, the closest successor of which is the Liberal Democrats.
Gladstone became a Liberal over the issue, Winston Churchill defected to the Liberal Party over it. Chamberlain left to join the Tories and started opposing it.
Just because the Tories suggest or do something it doesn’t mean its wrong, and just because something might sound nice or popular it doesn’t mean its liberal.
Thankfully, my skin seems thicker than yours, I will continue to support liberalism and the Liberal Democrats as the main vehicle for that in this country unless the party as a whole rejects its heritage.
There is one simple reason I am not in the Tory party - I am not a conservative.
I sought to point out how wrong your solution was economically.
There are many solutions to economic problems - might I suggest some liberal ones? Freeing up people to pursue their own happiness giving support to those who through no fault of their own cannot afford essential services.
Liberalising regulations would help new businesses start up, it is from these small businesses which most employment comes.
What is the areas best place of comparative advantage? Free people up to exploit that.
Simply trying to keep money in an area makes zero economic sense, unless you’re trying to create an impoverished economy or one which is entirely dependent upon the rest of the world for support. Hardly empowering people is it?
November 7th, 2007 at 4:30 pm
Aaron:
I don’t disagree that outsourcing is not always the best idea - it often doesn’t work (I’ve seen some awful results of outsourcing programming for example).
I am happy to fight against outsourcing if it does not result in value for money. It is the council’s job to provide services at the best value for money - that may be in house or outsourced. If outsourcing in one case provides the same or better service for less then great, I’m all for it. If it produces a worse service and the savings aren’t big enough (which they rarely seem to be) then I’m against it. Simple.
What I object to is Adrian’s economics. Its just plain wrong and I think that needs pointing out - especially with the title to his post.
Unfortunately, he seems to have decided that anyone who dares disagree with him must be an evil Tory who is hell bent on the destruction of Torbay.
November 7th, 2007 at 4:44 pm
You are either an evil Tory or completly ignorant of the economic challenges facing the local economy of Torbay. Most Tories are both.
November 7th, 2007 at 5:06 pm
On defence of outsourcing.
It is not that outsourcing is intrinsically bad; it is just that outsourcing well, requires a specific set of skills that not all organisations have.
If you want to do it well, like many things, you have to know what you’re doing!! In my experience many organisations, often public sector, do not realise this and frankly make every mistake in the book…if they’d ever bother reading the book on how to outsource in the first place, which many of them have not.
In fact, even when they employ someone like me, who has done it a few times before, they ignore the advice given and then a year later offer to pay another £25k so that I can tell them what I told them a year ago, again, as they still haven’t implemented it…what a wonderful use of tax payers money! (I said no, by the way, I’m busy).
The reason why outsourcing should work in principle is because the outsourcing company is able to garner economies of scale; its staff and managers are more experienced (as a result of being experts in their field); it can level resources more efficiently (depending of course, on what is being outsourced); it can reduce staff turnover (there’s more places for good people to work their way up to)and overheads can also be reduced.
Some of those savings can also be made by exploiting the employment market by paying lower wages and providing fewer benefits - although not from staff TUPE’d over from the old employer - by law their benefits and pensions will be protected. Where the service is not geographically constrained they can use a labour market that is of a better quality and/or cheaper…that is that has a comaprative advantage in providing the service.
The contract has to be good and this is quite a skill; if this is your first time designing and developing an outsourcing contract the chances are you’ll forget all sorts of things and do it poorly…and you will end up paying through the nose and the service will be worse.
In addition rarely is much thought given to the different set of skills required to manange and control an outsourcing contract versus actually delivering the service yourself. It is a complately different job but often the person who used to run the service is left to manange the contract….inevitably they start faffing about with the detail of what they’re no longer responsible for and don’t look at the bigger picture.
Lastly, if like the Tories required you make the only criterion costs then the organisations in competition with each other will strip out value in order to keep the costs down. Decisions on how to source a service should be based on value; if the outsourcing company cannot provide value then the service should be kept in house. This a decision that should be made on a case by case basis.
Outsourcing is not easy, it is often done poorly, but that is the fault of the people outsourcing not of the concept itself.
November 7th, 2007 at 5:21 pm
Adrian,
I don’t think just insulting people is really giving weight to your argument.
November 7th, 2007 at 6:10 pm
Jo, with respect, you admit to taking taxpayers money from this process, which often means leaving others to pick up the pieces from the wreckage and human misery that most outsourcing leaves behind. One is hardly going to give much weight to your defence of this policy.
This is a quote in response to my blog from one of the victims of this Tory policy:
“Adrian you missed out a key factor - the demoralisation of public sector staff when pay cuts are afoot. The consequences are enormous and have shocked me endlessly in recent months. Economics isn’t just about figures! It’s about real public sector workers getting pay cuts by the tens of thousands and the chaos it creates.
There will be no talented or committed people left in local authorities in a couple of years!!”
Those who defend this policy are the ones insulting people, real people whose jobs could go or whose pay could be cut. Vulnerable people whose services could be withdrawn or made less affordable or unaffordable. Local people, who like you and your neighbours, will lose what little right they presently have to affect decisions through the ballot box.
It is a centralising, privatising, authoritarian policy designed to destroy what little local democracy we have left. It’s origins are Tory, it’s implementation is new Labour, and it’s opposition, in my area at least, is being led by Liberals.
November 7th, 2007 at 9:18 pm
Adrian:
I am not a Tory, plenty of people will attest to that. What I am is someone who knows a bit about economics, enough to know that protectionism does not work, it only makes things worse, apart from the few vested interests who lobby for it.
I do not know in detail about the specifics of Torbay, but general economic principles are universal.
Perhaps I laid it on a bit thick with respect to the Liberal Party heritage, but that is very important to me. Free trade is a non-negotiable principle, up there with opposition to ID Cards.
November 8th, 2007 at 9:12 am
Adrian,
You’re passion is commendable but you are clearly not responding to what I actually wrote, so there no point continuing any discussion.
You don’t seem to be interested in discussion, only insulting people who have a different view point from you. I wouldn’t dare presume to what your experience of life is, so I’m not quite sure how you feel able to infer so many things about me and what I do.
November 8th, 2007 at 9:16 am
This isn’t about free trade. There aren’t different councils competing for people’s council taxes in order to deliver services to them. You’re promoting a closed market where contracts are exchanged with no direct involvement of the end user of the service while taking away what little democracy and input they presently have over their services. The consequence is less money circulating in the local economy, less control over the services being delivered and less power being exercised at a local level. Now whether that’s Tory, Labour or Monster Raving loonyism, doesn’t much matter. It sure as hell ain’t Liberalism.