Fixing the Economy
by Paul Hazelden


(This is a companion piece to the article on Revising the Welfare System. It aims to put the changes I describe in that article into a wider context, and to demonstrate that those changes will be beneficial when we consider them in the light of the other major problems we face.)

The welfare system is just one (significant) part of the wider economy, and the changes I describe need to be undertaken in the context of some significant changes to other parts of the system.

More thought needs to be given to the civil liberty issues we face, and also to the challenge of building a cohesive and multicultural society, but those issues are not addressed below.

The section on the NHS has been expanded into an artcle on Building a Healthy NHS.

The Problems

Before we start to look at the solutions, let's be clear about some of the problems we face.

  The Credit Crunch

In the current climate, obviously the place to start. There is an obvious need to build systems which are more efficient, and a greater willingness to consider changes, some of which may be difficult.

Doing nothing is not an option.

  Global Warming

The argument about whether global warming is man-made is almost completely irrelevant: the fact of global climate change is changing ecosystems across the world. Ecosystems are very robust, which is good news.

However, the human race depends almost entirely on a very few aspects of the current global ecosystem, which makes the survival of civilisation as we know it much more fragile.

If global warming is the result of human activity, we can choose to act dirrerently and maybe avoid the worst consequences. If it is not our fault, then we need to work much harder just to survive. Whatever causes global warming is irrelevent if we do nothing: if we destroy the ecosystem, we all die.

  Limited Resources

The world has finite resources, and only a finite amount of sunlight to increase our energy supply each year.

We cannot plan to keep on growing the economy as we have done in the past. We must start to plan for a sustainable future.

Of course, there is an alternative: we can keep on growing up to the day when we burn the last lump of coal and the last litre of oil, at which point the global economy will simply collapse and the human race will be reduced to a few hunter-gatherer tribes. Personally, I don't think that is fair to my children.

  A Failing Welfare System

As identified in the previous article, the current UK welfare system is failing. It has two basic problems: it rewards the wrong behaviour, and it is too complicated.

Our current approach does not work, either for the people it seeks to help, or for the country paying the bills. We reward laziness and discourage people from getting jobs. The complexity of the system requires the involvement of many people to manage it and sort out the problems, which means the the poor are at the mercy of many faceless paper-pushers.

The Solutions

  The Welfare System

My proposals for reforming the welfare system have been outlined in the previous paper. What is not made explicit in that paper is the impact of these reforms on the administration of the system.

it should be clear that if we drastically reduce the complexity of the system, reduce the number of questions the system asks of people, and reduces the degree of connection between different parts of the system, this will all serve to reduce the number of people needed to administer the system.

Since we will also be removing subjective questions from the system, verifying the information provided will be much easier, and we will not need to pay people to make judgements on questions such as whether two people are living together.

I assume that we will increasingly be using computers to implement the simplified rules. But fewer and simpler rules mean fewer and simpler computer systems to administer them - this will reduce the number of programmers needed to build and maintain the computer systems.

These reforms will mean that far fewer people will be employed to administer the system, and that those who are employed will be doing very different things from the present employees.

At present, we pay lots of people to move bits of paper around, to check that the rules are being followed, and to make judgements about whether this person is eligible for this benefit. None of that should take any significant amounts of time in the new system.

People will not be paid to implement the rules, they will be paid to check them and to question them.

However simple the rules, some people will have to be paid to explain them, and to help the users access the system - type in their answers if the user cannot use a keyboard, for example.

Some people will be paid to handle questions and complaints: why has the system done this? They will identify the inevitable errors in the system - the bugs in the computers. If a complaint is that the system is not working as intended, it can be resolved at this level. If the complaint is that the system is working as intended but is not fair, then it needs to be passed on to the next group of employees.

Because some people will be paid to question the system. Do the rules work to meet the stated aims, and are those aims just and fair? Have the people who built the system made some invalid assumptions when they built it? Are some of the assumptions no longer valid? How does the system need to change in order to create a better society for everyone? You don't need many people employed to ask these questions, but you do need them.

And, finally, the system needs to recognise that sometimes situations arise which the system was never intended to cater for, and instead of building some complex new rule, it is best simply to recognise that this is an exceptional situation, and to deal with it appropriately.

  The National Health Service

[This section has been expanded into an artcle on Building a Healthy NHS.]

I believe that the National Health Service can be reorganised along the lines I described in the article on reforming the Welfare System.

Just as people should receive benefits from the state and salaries from their employer, they should also receive healthcare from the state, and also whatever additional care they choose to pay for.

It is clear that the state cannot pay for all the healthcare people want to receive. The NHS was flawed in concept from the very beginning: the people involved had the very best motives, but they did not understand what they were doing.

At the beginning, there were many sick people, many of who were unable to pay for the treatment they needed, and hence remained sick. The NHS was expected to make them better, so that they could return to work and benefit the economy. So far, so good.

What they did not recognise is that there is no such thing as perfect health. So those who were healed of one thing came back with another problem, and another.

They also did not anticipate the incredible expansion of medical capability which has taken place since the NHS was created. Infertility used to be something to live with, now it can often be treated. People can be kept alive with all kinds of drugs and equipment. Most of these developments could not have been forseen at the outset, but the result is that the NHS cannot deliver everything as it was originally expected to.

They also did not see, and probably could not have seen, the way in which human rights legislation has changed the expectations of ordinary people. It is not enough that you fix my leg so that I can walk again - I should be able to walk as fast and as far as someone with a normal leg.

The NHS cannot offer all possible treatements to everyone. Provison has always been rationed - the only question is about the best way to do this. The basic principles are fairly straightforward.

Firstly, we must strictly limit what the NHS is intended to do. For example, a limited amount of cosmetic surgery after an accident seems reasonable, but providing breast enlargement to someone to boost their self-confidence does not. People do not have a right to look attractive - whatever they consider 'attractive' to mean, and they should not have the right to get the state to pay to make them look more attractive.

More difficult is the question of IVF. I know it generates very strong feelings, but I do not believe that people have any kind of right to produce children, and IVF treatment should not be available on the NHS. In any case, there are too many human beings on this planet: we need to be finding ways to reduce our numbers, not increase them.

I know that this means the rich will get treatment which the poor are denied. But this has always been the case, and probably will always be the case. I don't like it, but I can't come up with a better alternative.

Secondly, we must make people responsible for their own health, and their own choices. We have to restrict access to NHS treatment when people have chosen to ignore normal good practice. This probably needs to be phased in, to give people sufficient warning.

The obvious example is smoking and lung cancer. I would not want to prevent a sixty year-old man from getting cancer treatment because he smoked: in many places it was normal to smoke for many years. But young people today do not have the same excuse of ignorance. My suggestion is that you set an age, and then decide that in six years' time you will not treat anyone under that age for lung cancer if they have smoked in the past five years. And then keep reducing the age. Of course, if people can pay for their treatment, they have that choice.

This is not a nice thing to do, but it is necessary if we are to reward responsible behaviour and discourage irresponsible behaviour. Just as with the Welfare State, we must reward the behaviour we want to encourage. The state cannot give you good health - it must be a partnership. And for that partnership to work, we must have a clear agreement: if you look after your own health, then the state will pay for a reasonable level of treatment when your health fails.

The overriding principle is, as before: what is fair? What is just? What is it right for society to pay for, and what should the individual be expected to pay for? Resources are limited, and choices have to be made, in the area of health care, as in every area, whether we like it or not.

  The Stock Market

The stock market is a chaotic system by design.

Any market has the possibility of creating a bubble. In previous centuries, we have seen tulips and South Sea Shares as two famous examples. More recently, we have seen the stock market and housing do the same. But some markets are better designed to avoid them, and there are simple ways to reduce speculation.

After all, the point of the stock market is to raise money for business. Any money made by investing in a business is good. But when people make money by investing in the stock market, that is not so good. The stock market does not generate wealth: it is only a mechanism to enable businesses to generate wealth.

Firstly, if you had to keep any share you bought for at least three months, this would represent some sort of commitment to the company you were purchasing. Maybe three months is overkill - maybe one month would dampen speculation. Maybe one week. We need to experiment, and find out. I wonder if the same rule could be applied to trading large quantities of currencies?

Secondly, regulators must have the responsibility of spotting a bubble, and acting to stop it. Bubbles are easy to spot. What you do about it will depend on the details, but any action which makes the traded commodity less attractive will help make the bubble less dangerous.

  Financial Services

I have to be careful here, as I spent most of my working life in the financial services industry.

Some financial services are very useful. Insurance and banking are both essential parts of modern life. But would the world be a poorer place if nobody could buy or sell futures? Maybe. But I see no reason why we need to allow futures to be traded themselves: if the contract is between two parties, then they are the people who ought to retain the benefit, or the cost if it goes wrong.

Just because something exists, that does not mean it should be traded. We do not allow people to sell their parents or their children. We do not allow authors who have signed a contract to write a book to sell that contract to someone else. So why do we allow people to sell these contracts?

If there is a valid argument for trading in a certain thing, then fine. But we should not allow people to trade in something just because money can be 'made' by creating a market. It is not real money. Nobody has done anything to generate the wealth the money represents.

In short, I am arguing that the whole financial services industry should be massively reduced. Generating money is a by-product of a useful activity, not a useful activity in itself. We cannot run a sustainable economy if half the people are engaged in doing nothing more useful than 'making money'.

Of course, this will significantly reduce the size of the economy. But a big economy is not a good thing, not if it means that lots of human time and energy is being wasted on things which do not benefit anyone. And if the economy is big because people are buying and selling things that do not exist with money they do not have, then I suspect we would be better off if we took less notice of these possible events and more notice of what is really happening.

We choose to measure the ecomony in a certain way at present. We can choose to change this if we want. And we need to measure the things we want to encourage, so that we know if we are succeeding.

And the most important change is that we need to measure the added value, not the activity. The added value must take into account not only the value of the product on the credit side, but also the natural resources used up and the carbon and pollution produced on the deficit side of the equation. For an activity to be worth something, it should have real value - that is 'real value' in the real world, not real value for an accountant.

  Boosting the Economy

We need to get the unemployed 'back' to work. But the work should be something worth doing, not moving piles of rocks from one place to another and then back again - or the administrative equivalents.

In an sustainable economy, everyone who can needs to be doing something worthwhile. We can have a reasonably wide definition of what is worthwhile - entertainment and gambling are both legitimate activities.

In a low carbon economy, we cannot afford to have valueless activity. In a world with limited physical resources, we cannot continue to automate every possible activity, so we will need in some areas to return to people doing jobs instead of machines. The decisions do not have to be all economic - it may be possible and cheaper to build a machine to pick apples in an orchard, but perhaps we will have a better quality of life if we make time to do it ourselves.

It may seem strange in the current economic climate to talk about plans to cut jobs in the financial services industry and the civil service. But implementing these plans will, in the short term, require more people to be employed: we need new systems, structures and procedures, and life must go on as these are built and implemented.

We should spend money to boost the economy. But we need to do so wisely, in ways which produce long term benefits. We need to plan and spend with a clear understanding of the sort of economy and the sort of country we want to create in the next ten, twenty and fifty years.

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Copyright © 2008 Paul Hazelden was last updated 26 January 2010
Page content last modified: 11 December 2008
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