By Steve Webb and Jo Holland This article was originally published in Reinventing the State: Social Liberalism for the 21st Century. We are grateful to Steve and Jo for allowing us to reproduce this article. Liberal Democrats are good at coming up with policies. Probably the best policy decision of New Labour – independence for the Bank of England – was actually a policy from the 1992 and 1997 Liberal Democrat manifestos. In many other areas, notably on environmental issues and international affairs, Liberal Democrat policies have set the agenda, only to be picked up in whole or in part by other parties. But where Liberal Democrats have sometimes failed has been in converting those strong policy ideas into a coherent story about the sort of party that we are and the kind of society that we want to create. In short, we have often got across Liberal Democrat policies, but failed to communicate Liberal Democracy. We have made electoral progress by ruthless targeting of key seats and vigorous grassroots campaigning, but we have failed to promote Liberal Democracy in a way that has won the hearts and minds of large sections of the British public. How, then, do we communicate our philosophy and our principles in a way that will connect with the reality of people’s lives, hopes and fears? At first sight, a collection of essays such as the present one risks falling into the same trap. Eminent Liberal Democrat thinkers have tackled key policy areas such as the environment, health and education, but at the end of the journey do we have a story to tell and a story to sell? Our contention is that there is a distinctive ‘social liberal’ narrative, illustrated by the contributions in this book, which is both intellectually coherent and politically saleable. We would identify three key steps in the social liberal argument: Step 1 – Relying exclusively on unfettered market mechanisms to deliver a liberal and democratic society is doomed to failure. In some cases markets fail to deliver because there is insufficient competition, leaving individual consumers or service-users at the mercy of monopolistic providers. In other cases markets fail to deliver a socially optimal outcome because the market price fails to include the social cost or benefit of an activity – environmental externalities are one example, but the existence of public goods such as rural post offices would be another. Equally importantly, the outcome of a market process reflects the relative power of the participants, and extreme inequalities of income and wealth mean that unfettered markets will tend to produce highly unequal outcomes. There are many areas in society – such as educational or health outcomes – where such inequalities would be totally unacceptable. Step 2 – Positive state intervention to tackle market failures is not only perfectly compatible with Liberalism, it may be actively necessary for a full understanding of individual freedom. There is nothing illiberal in tempering the power of a monopolist. There is nothing illiberal in ensuring that market prices are adjusted to reflect the social costs of an activity. And it is surely essential to the concept of an individual’s freedom to achieve their full potential that their prospects are not stunted from the start by material disadvantage. To that end, there is nothing illiberal about the state taking an active role in promoting equal life-chances through, for example, high-quality health and education services. In short, in a well-defined set of circumstances, liberals have a duty to intervene where markets fail to deliver. Step 3 – Liberal interventions in markets are different in kind from socialist interventions. We are constantly wary of the dangers of an overmighty state. Effective state intervention should be as local as possible and as accountable as possible – it should be the ‘state with a human face’. The state, as big bureaucracy, does not know best about the diverse needs of individuals, even if it can be effective at providing the means to meet those diverse needs. The justification for intervention is always in the name of the greater good of enhancing liberty. In this chapter we set out the basis for these arguments more fully, before considering how best to communicate such a ‘social liberal narrative’. In particular, we emphasise the importance of linking this coherent political philosophy to the day-to-day, real-world concerns of the voting public.
Step 1: The failures of unfettered marketsWe have identified three main areas where market solutions are likely to lead to outcomes that would be unacceptable to liberals – where effective competition does not exist; where market prices do not reflect society’s values; and where inequalities in the initial distribution of income and wealth would give some individuals too much power in the market. In this section we consider examples of each.
a) Lack of competitionIn many commercial spheres, market-based competition is undoubtedly good news for consumers. In the market for telecommunications, individuals can now choose between a wide range of providers for domestic telephone and data services. There is innovation, competition and the potential for new entry to the market. Few people would now want us to go back to the world where the GPO was the principal provider of domestic phone lines and customers had to wait months to get a phone put in. Liberals of all stripes are comfortable with a competitive market of this sort, and the role of the state in such a market is now minimal. It is, however, instructive to note that, even in this example, the state still has a role in promoting competition and preventing monopolistic behaviour. For historic reasons, the dominant incumbent provider, BT, has control over the vast majority of telephone exchanges. It has little incentive to allow rival providers to access its exchanges to set up alternative ‘local loop’ networks. The state therefore has had to intervene to ensure that competing providers are given rights of access to BT exchanges, thereby undermining BT’s monopoly on line rentals and giving consumers enhanced choice. Among contributors to this collection, Tim Farron (Chapter 14) makes a strong case for intervention in the market for wholesale milk supplies, where a small number of supermarket chains are able to exploit their monopoly position to the detriment of small dairy farmers. Dairy farmers are a ‘captive market’ – they cannot store their day’s output until they get a better price, and the scope for setting up rival supply chains is very limited when most of the eventual consumers buy their fresh milk through one of the large supermarkets. Consumer pressure for a fair deal for producers can have some effect (witness Tesco’s new ‘local’ milk scheme, where a premium price is paid to regional suppliers ((See http://www.tesco.com/regionalsourcing/localchoicemilk.asp.))), but progress is often painfully slow, and the welfare of smaller players in the market cannot be preserved if the power of the big players is not limited in some way. While there can be some debate about what it means to talk about a ‘fair’ outcome of a market process, liberals of all kinds must surely be united in the view that a fair outcome requires a fair process. Where a small number of players can dominate a market, whether as buyers or sellers, the outcome is unlikely to be conducive to the common good. We should be strong in our condemnation of the abuse of market power, resistant to the lobbying of special interests and forthright in our defence of the individual consumer or supplier.
b) Failures of the price mechanismPrices convey information about the economic costs of production and reflect the relative level of supply and demand. But where the true costs of an economic activity are not reflected in the price, the market outcome will not be optimal from a social point of view. In some cases, therefore, the appropriate role of the state in a liberal democracy is to adjust market prices to reflect wider social costs and benefits. Perhaps the clearest example of where unfettered market outcomes do not lead to the best social outcomes is where an activity has a wider environmental impact. If climate change really is the biggest threat that our world faces today, it is clear that government, the business world and individuals all need to change their behaviour. We are living, to use AlGore’s phrase, in an ‘age of consequences’, in which we can no longer simply take our natural environment and its continual production of resources for granted. As Ed Randall has noted in Chapter 3, a proactive and strong environmental message is an essential component of modernday Liberalism. In some cases the most efficient way of achieving the desired change in behaviour is to intervene directly in the market by changing market ‘prices’ through taxes or subsidies. One example of how this has been highly successful in the UK context has been the switch from leaded to unleaded petrol. Back in the 1980s, a price differential was introduced by the Chancellor of the day to encourage consumers to switch over to unleaded petrol. This triggered demand for conversion of cars to run on unleaded petrol, to increased supply on station forecourts and ultimately to manufacturers designing and building cars that ran on unleaded petrol from day one. Within a period of just a few years a near total switch-over had been achieved. However, in an increasingly globalised world there are obviously limits to how far an individual nation-state can take action on environmental externalities without putting itself at a comparative disadvantage. Liberal Democrats, who are internationalists by nature, were the first to recognise that it is only by coordinated international action and market interventions that real progress can be made in this area. For market mechanisms themselves will penalise countries who unilaterally raise the ‘price’ of pollution. If the UK unilaterally imposes a tax on high-polluting businesses, this will be good for the environment, but not so good for the businesses concerned as they try to compete in the international market. Only by concerted international action can the common good be achieved. Not only do markets often fail to capture the social costs of an activity, but they also often fail to reflect the wider social benefits of a transaction. The provision of rural post office services is a case in point. The people who run small village post offices often do so on a shoestring, often out of commitment to their community rather than because it is the most profitable thing that they could be doing. Pure market economics – as is increasingly being practised by the present government in the case of post offices – might dictate thousands of post-office closures. But the social impact of such a closure programme could be devastating. Small post offices are often the hub of a local community. They can sometimes provide an invaluable point of social contact, particularly for elderly or disabled people. Yet the value of this ‘social service’ does not appear on the profit-and-loss account. The market therefore would not deliver the socially optimal number of post office outlets. Only state intervention, perhaps in the form of explicit subsidy for such offices, will produce the desired outcome. Whether we are dealing with social costs or social benefits, both need to be fully reflected in market prices if the market is to deliver socially optimal outcomes, and only the state can ensure that this happens.
c) Inequalities in income and wealthA market process can be likened to a horse race. In theory, any number of riders can enter the race and each has an equal chance of winning. The reality, however, is that many markets are like handicap races, where some horses are weighed down and others can run free. Time and again, the same horses win. In some cases, we would not wish to intervene in this outcome. If someone works hard, makes the most of their skills and attains a higher post-tax income, they are going to be able to buy a larger house, a better car, etc. Even in the presence of redistributive taxation (of which more below), we would not seek to reduce everyone to absolute equality at the start of the race. Liberals can cope with the fact that all races have winners and losers.However, social liberals believe that there are some races where, at the very least, everyone should be able to finish the race; and others where it matters that the gap between the finishing time of the winner and the loser is reduced. Examples include basic rights to education and health care. Not everyone will receive identical standards of service, but every citizen should have a right to a decent minimum. The ultimate handicap in a market is having no or a relatively low income. Someone without the money for food, clothing and shelter is not free in any meaningful sense. Therefore, Liberals (and others) accept the case for redistributive taxation to take from those who will suffer least by being taxed in order to provide for those who will benefit most from being supported. But simply providing a subsistence income is not sufficient in itself to overcome the handicaps in the race of life. Access to key services such as health, housing and education is another key determinant of quality of life. One option would be to go further with redistributive taxation to provide all individuals not only with enough money for subsistence but also with the something akin to vouchers with which they could buy other services from the market. However, there are many reasons why the state goes further than simply providing the income to buy services, and is actually involved in their direct provision, or at least collective purchase. One reason why the state provides or purchases services on behalf of the population is that of efficiency. Whilst in principle millions of individuals could strike individual bargains with competing providers of health care or education, it is often far more efficient for the state to act, either as provider or as bulk purchaser of the service. In the case of secondary health care, for example, it is unlikely to be efficient for a community to have competing acute hospitals. It is better for the state to provide or purchase the service and then allow equal access to all. The second reason for access being regulated by the state rather than being the outcome of a market process is that in a society where all individuals are equally valued we do not want to see undue inequalities in the quality of health care that people receive. For example, even with a highly redistributive tax system providing generous support for those on low incomes, the costs of health care can still be prohibitive to those at the bottom of the pile. We would not want to see someone who, for example, had a chronic condition requiring sustained medication finding themselves unable to obtain treatment because they had run out of money. Access to decent health care is regarded in most liberal societies as something akin to a human right, and this right cannot be guaranteed by a market alone. A third concern about the market model for the allocation of public services is that too much emphasis on ‘choice’ over ‘entitlement’ can again lead to socially undesirable outcomes. The ‘choice agenda’ so enthusiastically pursued by New Labour has in reality favoured the articulate, well-informed middle classes. Labour has created a market in the NHS, to enable patients to exercise choice over where to go to receive hospital treatment. However, the King’s Fund recently found that the middle classes were likely to choose the best hospitals, while those who were less well-educated tended simply to go to the local hospital. ((‘NHS choice “worsens inequalities”’, BBC News, 31 May 2006; available at http://news..bbc.co.uk/go/pr/fr/-/1/hi/health/5033140.stm.)) King’s Fund chief economist John Appleby compared this trend with the education system, where middle-class parents gravitate towards the ‘best’ schools. He warned: ‘If this happens in health care we could see potentially a widening of health and health inequalities between those with formal education qualifications and those without.’ ((Ibid.)) While Liberals are instinctively in favour of ‘choice’ as part of the exercise of freedom, these examples clearly demonstrate that unfettered markets can simply lead to a beggar-my-neighbour form of choice, akin to the biggest and strongest barging past other people in the queue. If competition and choice genuinely drove up standards for the many and not just the few, we could live with some inequality of outcome. But this is not proving to be the case. Markets make good servants but poor masters.
Step 2: The social-liberal case for state intervention where markets failMuch of the analysis in the previous section will be familiar to those who have studied the rudiments of micro-economics. Markets can fail where there is insufficient competition or where prices do not reflect the full costs and benefits of an activity. And the outcome in a market is strongly shaped by the starting positions of the participants. Unlike elections, markets do not operate on a one-member-one-vote principle. Those with the most money have the most say and the most influence in the outcome of a market process. The next question, however, is a political one – does the fact of market failure necessarily imply state intervention, especially for liberals who are instinctively wary of the power of the state? It is our contention that when market outcomes impinge on the freedom of individuals to maximise their potential, and where effective state interventions are available, then not merely may we intervene, but we must intervene. Looking at the types of intervention that we have outlined here should also offer some reassurance to the concerned liberal that what we are talking about is strengthening the position of individuals and their communities against vested interests; about adjusting incentives rather than controlling or banning. Consider, for example, the issue of tackling monopoly power in markets. If a single supermarket chain buys up all the retail outlets in a town – for example in Inverness, where Tesco operates three stores and has sought planning permission for a fourth, giving the town the dubious honour of being the UK’s Tesco Capital ((‘Tesco accused of running Highland monopoly’, The Scotsman, 10 January 2006; available at http://thescotsman.scotsman.com/business.cfm?id=40052006.)) – it is unlikely to be for the wider social good. Planning restrictions may mean that competitors cannot simply set up shop and compete, and individuals may not readily be able to travel to the next large town, so the monopoly operator has a stranglehold on local consumers. It is hard to believe that acting to prevent such practices offends against liberal sensitivities! Consider next the issue of interfering in markets to ensure that prices more fully reflect costs and benefits. As Chris Huhne has argued in Chapter 12, on climate change, Liberal Democrats do not argue that people should be prevented from flying or driving their cars, but rather that the true environmental costs of their actions should be reflected in the price that they pay when they fly or drive. Using market mechanisms as a servant in this way will ensure that those who have alternatives are more likely to use them, while the remaining flights are used by those who most value them. Interventions of this sort actually help markets to be more efficient in delivering socially desirable outcomes. More contentious is the idea of a Liberal case for income redistribution. Most Liberals would accept that redistribution is required to ensure that the poorest do not go destitute. But we would argue that more comprehensive state involvement in the provision or purchasing of public services such as health, education and housing is necessary for all people to be able to achieve their full potential. One of the authors of this chapter has written elsewhere: The sort of freedom that motivates liberals is the freedom to achieve all that you are capable of. Liberals recognise that to do nothing in the battle between the strong and the weak is to side with the strong. Intervention, where it can be shown to be effective, is justified by an enabling state that seeks to empower its citizens and not simply to stand by as a passive spectator and occasional policeman. ((Steve Webb, ‘Free to be fair or fair to be free?’ in J. Margo (ed.), Beyond Liberty: Is the Future of Liberalism Progressive? (IPPR, London, 2007), p. 135.)) Indeed, building on the work of Richard Wilkinson and others, Duncan Brack argues persuasively in this collection (Chapter 2) that inequality of outcome in and of itself can undermine society to the detriment of all. This would seem to imply a greater amount of redistribution than we have sometimes advocated. Whilst there are obviously pragmatic limits to redistributive taxation (including disincentive effects and the ability of individuals to move to lower tax jurisdictions), and indeed liberal limits to redistribution (the freedom to choose how much to work and to be appropriately rewarded is also one that we value), social liberals would argue that we have been too wary of redistribution as a force for delivering a more liberal society in which all can achieve their full potential.
Step 3: The character of Liberal interventionSteps 1 and 2 could also be espoused, to a greater or lesser extent, by a socialist. However, unlike socialists, liberals tend to have an inherent distrust of establishments and concentrations of power. Liberals will therefore go further and emphasise that the state must only do what needs to be done, and no more; and that it must perform its tasks in a way that is local and accountable. We consider each characteristic in turn.
a) State intervention must be as local as possibleThe arguments that we have advanced in favour of state intervention imply that the form and nature of the intervention will vary from place to place. For example, the extent of competition in a market may be very different in different parts of the country. In some high streets the big supermarkets are all represented and battle it out for customers. In others, one supermarket has a monopoly. The implications for state intervention in each case are quite different. Similarly, the existence of social costs and benefits that are not included in market prices will vary from place to place. There may well be a case for state subsidy of rural post offices that are the only retail outlet and source of free cash in a community, but much less of a case in a suburban town with many shops and well-served by bank branches. The intervention needs to be tailored to the local situation.
b) State intervention must be as accountable as possibleAn inevitable consequence of local variation will be what are pejoratively known as ‘postcode lotteries’. But it is quite wrong to think that all variations in services between different areas are necessarily bad. To the extent that such variations reflect genuine differences in needs and preferences, they are not only acceptable but desirable. The problem is that under the present system too many of these variations are apparently arbitrary and are certainly not the result of any expression of preference by local people. This is why intervention needs to be not only local but accountable. Often state intervention is given a bad name because of the way in which it is carried out. The public does not like the idea that ‘Whitehall knows best’ – that important decisions affecting local people are taken by quangos and bureaucrats who are un-elected and un-accountable for their actions. This has been clearly seen in the recent NHS reconfigurations where decisions have been taken from afar to reorganise local health services, and to close down wards and even entire hospitals, without meaningful consultation of local people. ((For an example, see the case of Hemel Hempstead General Hospital, cited in Chapter 17, by Richard Grayson.)) 'Active citizenship’ involves re-engaging people in their communities and in the decisions that affect them. This not only addresses the need for local decisions to reflect local desires, but brings people together where they might not previously have been involved in their local communities; a point that is argued powerfully by Mark Pack in Chapter 8. But people are not interested simply in elections or consultations for their own sake. Turning again to health, there is always a great deal of local support for the local NHS, but turnout in elections to foundation hospitals is minuscule. Liberal Democrat research found that less than 1 per cent of the population served by a Foundation Trust elect the governors who hold the Trust to account, and in most Trusts, membership is made up of only around 3 per cent of the population it serves. ((Liberal Democrat research, reported in ‘Blair’s pledge over flagship hospitals is branded a sham’, Daily Telegraph, 15 November 2006; available at http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2006/11/13/nhospital13.xml.)) Sham consultations and token elections do not fool people. They want to know what their vote means. One way in which political decision-making can be made more accountable is by harnessing the power of new technology. Many of those who are currently disenfranchised or turned off the political process are the young. But these are the very people who are most likely to use the internet, especially for ‘social networking’ on sites such as MySpace and Facebook. Literally millions of young people spend time on these sites keeping in touch with the latest news on their friends as well as registering support for causes. The political potential of these sites is massive and is only just beginning to be harnessed. Joe Trippi, one of the key architects of Howard Dean’s path-breaking campaign for the Democratic presidential nomination in 2004 writes:
What we’re … in now is the empowerment age. If information is power, then this new technology – which is the first to evenly distribute information – is really distributing power. This power is shifting from institutions that have always been run top down, hoarding information at the top, telling us how to run our lives, to a new paradigm of power that is democratically distributed and shared by all of us. ((J. Trippi, The Revolution will not be Televised (William Morrow, New York, 2004), p. 4.))While we always need to be wary of opening up new forms of exclusion, the potential of social networking to remould our politics is enormous. Instead of the professional politician being in charge, the citizen can initiate, debate and mobilise. In this model, accountability is not about the politician taking decisions and being answerable for them, but it is about the public being involved from the very beginning in shaping the debate and developing and refining solutions. Technology is not an end in itself but can facilitate the building of community networks so that local decisions are far more representative than ever before. For example, politicians are increasingly tuning in to the potential of the Facebook networking site. At the time of writing, Steve Webb’s online presence has almost 1,500 ‘friends’, of which more than 1,000 are young constituents in their late teens and early twenties – precisely the age group that has disengaged from the political process. ((Steve Webb’s Facebook page can be accessed at: http://www.facebook.com/profile.php?id=509185764. 1,483 friends were listed at the time of writing, 10 July 2007.)) However, through Facebook, they are able to enter into a dialogue with their local MP, raising issues of poor local transport or requesting assistance with claiming benefit entitlements. Most of these young people would not consider writing a letter or picking up the telephone – or even emailing –to get in touch with their local MP. But if politicians can go to the places where their constituents already spend their time, they can connect to them in a new and genuinely interactive manner. In sum, where state intervention is driven by local needs and preferences, where the process of decision-making has been transparent, consultative and accountable, the outcome is likely to command much greater public acceptance. Indeed this is the only way in which a liberal and democratic administration should conduct itself.
Communicating social liberalismMany of the strands of social liberalism that have been identified in this chapter and throughout this book are ones which strike a chord with the British public today. For example:
- There is widespread resentment at gross inequalities in income and wealth which appear to bear little relation to effort or talent. Network Rail bosses were recently forced by public disapproval to defer taking the large bonuses to which they were contractually entitled, because they were simultaneously withholding payment from members of staff, amidst widespread public perception that the company had performed poorly. ((‘Network Rail bosses back down on bonuses’, Guardian, 25 May 2007; available at http://www.guardian.co.uk/executivepay/story/0,,2087908,00.html.))
- There is growing public demand for coordinated international action on climate change, recognising that market forces alone are not enough to deal with environmental degradation.
- Whilst many people support the basic principle of a market economy, there is growing awareness of the problems that can be caused when one player becomes too powerful. The growth of local protests against various expansion plans by the supermarket giant Tesco is indicative of this.
- The public increasingly wants control over decisions affecting local public services such as hospital reconfigurations. There is a wave of protest against decisions taken behind closed doors by unelected national or regional bureaucracies,
- Concern about the ‘nanny state’ is increasingly widespread, particularly in reaction to rafts of centralised targets which seek to micromanage the public sphere. The public wants to see common sense and flexibility in the delivery of public services, not a Whitehall-led tick-box mentality.