Rebooting America: Applicable to the UK?

Thomas Friedman, author of the excellent book "The World is Flat", argues in an article in the New York Times titled "Time to Reboot America" that Americans need to subscribe more to the "tax and spend" philosophy, and less to the "borrow and spend" ideal. Good plan.

His writing concerning the USA resonates with my thoughts on the UK's economy. True, we don't have a history of such enormous government debt (currently the USA has $10 trillion), but as a population we do have this mad mentality of "we want more public services, and lower taxes". Governments therefore attempt to cut spending in areas that the public won't really notice, particularly long-term projects that have no short-term political pay-offs, and in addition try to show that public services are getting better by creating targets. (One example of an ill-conceived success measure is the number of people who have stopped smoking with NHS help: it's measured by number of people who have not smoked for 4 weeks after the treatment program. In practice it's not clear what "not smoked" really means... See Assessing smoking cessation performance in NHS Stop Smoking Services.)

What does this result in? Hospitals, schools, and local authorities all spending disproportionate amounts of time on taget-related paperwork and skewing their activities to fulfilling those targets (e.g. by moving patients out of Accident & Emergency departments quickly, then leaving them in over-crowded wards, or "teaching the test" for SATS exams). More worryingly, progress on energy policy, long-term sustainable transport, and actually making the UK a knowledge-based economy is glacial.

Ultimately, if the UK wants to remain one of the world's most powerful economies, it cannot rely on manufacturing (we've seen that go East long ago, for the most part). It can remain so if it continues to climb educationally higher, i.e. if its population continues to have greater intellectual capital than others (see Friedman's book for more on this). At present this clearly isn't happening, despite what government targets would have us believe. Students at the top universities in the UK are becoming more international, particularly at postgraduate level: in 2006-2007 2,926 students at the University of Cambridge were from the UK and EU, whilst 1,856 were from the rest of the world (see University of Cambridge Facts & Figures), implying that home grown education is by no means the best in the world. Meanwhile top universities have expressed concern over the standards of the pupils applying to them (and difficulty using A-Levels to differentiate between them), and institutions such as the Royal Society of Chemistry have shown that O-level/GCSE exam question difficulty has dropped.

So, what's to be done? The UK sits between the USA (low taxes, little state welfare) and the countries in Scandinavia (high taxes, huge amounts of state welfare). I don't believe this helps anyone, as the UK population expects Scandinavian welfare, and USA taxes. If we are seriously committed to a welfare state, we must increase our levels of education.

Why do I think this? Because until people have higher levels of education, it will not be easy for a government to convince them that certain "painful" decisions are necessary. If people understood that 20% of the UK's power is produced by nuclear stations, how most of those stations will close down in 20 years, how new stations take about a decade to design and build, and how renewables alone are not going to satisfy our energy demands (see David MacKay's book Sustainable Energy -- Without the Hot Air) they might be more pro-nuclear. I don't think it's a coincidence that Finland has one of the highest public library borrowing rates (loans/head of population) in the world (in 2002 this was 20.7 compared to the UK's 6.8 [see LibEcon Public Library Statistics, and the Finnish Ministry of Education's Public Library Statistics]), and them being the first country in Western Europe since 1991 to build a new nuclear reactor (note that Finland is a lot closer to Chernobyl than the UK). Of course there are lots of other factors. But I don't think it would have been approved by the population had they not understood the good reasons for it. Lorry charging on a per km basis is another issue that the government has wasted huge amounts of time and money on, whilst not actually achieving anything. Meanwhile, the German and Swiss governments have used the time to implement systems that work well, and moreover are now being upgraded to the next version (see my paper titled "A Survey of Technologies for the Implementation of National-Scale Road User Charging" (Transport Reviews, 27:4, Jul 2007).

In addition, paying people who actually generate long-term value is hugely important. (I'm somewhat biased having read for a PhD, but anyway.) If people with PhDs have no job security in going into research, and moreover can earn 2-3 times as much going into jobs in the financial sector, they will do the latter. That means that 20 years down the road a lot of research that could have generated new products, jobs, and hence economic value hasn't been done. Similarly, if teachers aren't paid enough to attract the very best people to the profession, we will miss out on educating the next generation of knowledge workers. Oh, and by the way, we're trying to become a knowledge economy... If those teaching children science or mathematics do not really understand what they teach, or have enthusiasm for it, why are we surprised when applicant numbers for science/maths degree courses fall (2005)? (Though that decline may now be being reversed, 2008.) Note, however, that there are many good teachers. My point is simply that, in a very general sense, you get what you pay for. Can we afford not to invest wisely now, to obtain long-term gains?

Conclusion: the economic outlook is bleak. We can try to borrow in order to prop up existing ways of doing things, or we can try to re-invent ourselves as a truly knowledge-based economy. That will take time, but is more sustainable than sticking our heads in the sand and asserting that the government should bail us all out of our economic misery so that we can keep doing what we've always done. Oh, and whilst also protesting against the increased taxes that would be necessary to fund such an endeavour.

Any thoughts?

Update: Jon Davies suggests that one reason people expect government to provide more services for the same, or less, tax revenue is that they think the government wastes this money. I suspect Jon is right, and moreover that there is wastage. However, I suspect society thinks the wastage is far more than it is. Or perhaps not...!