As I wrote in a recent report for the Centre for Policy Studies, the British state has changed quite fundamentally since the early days of the IEA. In academic jargon, the ‘positive, interventionist’ state has (largely) given way to a regulatory state.
Needless to say, Whitehall still taxes and spends, still provides services, and still clings to (some) public ownership. But more and more over recent decades, the British state has tried to achieve its objectives indirectly, by regulating the conduct of businesses and individuals.
Today, as much as we might bemoan the tax burden, or wish that the tax system had a more neutral, rational structure, it is the regulatory state – in its various manifestations – that imposes the greatest constraints on progress and prosperity.
If we could liberalise land use, fix energy and financial regulation, make sure that emerging technologies were not held up by red tape, and create scope for innovation in public services, many of our most intractable problems would fade away. But it is a lot easier said than done.
One problem is that we do not really understand the regulatory state. We have not got to grips with the way it runs almost on auto-pilot, with new rules and regulations churned out constantly by an amorphous, bureaucratic blob. As successive governments have found, ambitious ‘better regulation’ agendas frequently amount to so much running just to stand still.
Nor do we grasp exactly how regulation undermines growth and initiative, or the true extent of the problem. Often you find that each individual regulation seems reasonable and has at least some justification, but that the combined effect – of a complex web of rules, built layer by layer over years and then decades – is stultifying.
In this context, the government’s ‘Smarter Regulation’ announcements, which we discuss in more detail on this week’s podcast, are a positive step – even if I wish they had gone further in certain areas. Greater transparency, more focus on the initial decision to regulate, and a coherent set of principles to judge regulation against will all help at the margin.
But will the latest iteration of the Better Regulation Framework engender the fundamental change of mindset (and institutional incentives) that I think is needed? Will it live up to the government’s stated ambition of permitting regulation only when ‘absolutely necessary’? Alas, it will not.
The intellectual and political challenge of right-sizing the regulatory state, and subjecting it to rigorous economic analysis, has barely even begun.
