Just how neoliberal are the British?

European intellectuals often view the “Anglo-Saxon” neoliberal model as an extreme form of market fundamentalism.  But just how neoliberal are the British?  Unlike on the continent, where universal health care is often provided through a decentralized set of insurance companies, the British government actually owns and manages the health care system.  Doctors are government employees. 

And consider this item from a recent article on school choice in The Economist:

Will it work? The evidence from other countries is broadly positive. Swedes in general approve of their new schools, and the parents who patronise them are satisfied too: nine in ten say they are happy with their children’s education, compared with under two-thirds of parents with children at state-run schools. Studies have found that they have better results, and also spur improvements in nearby state-run schools. The system as a whole responds better to parents’ wishes, too: if local authorities try to close a much-loved small rural school, parents simply apply to open their own one. When officials realise that the hoped-for efficiency savings will not materialise, they back down.

It is hard to draw general conclusions about America’s charter schools because laws differ so much from state to state, but Caroline Hoxby, an economist at Stanford University, has found a similar positive “competition effect”. And the Netherlands, where 70% of children attend independent state-funded schools, comes well above average in the OECD’s ranking.

.   .   .

Kunskapsskolan, a Swedish for-profit company that runs more than 30 free schools, is also interested, even though the Tories would not allow schools to be run for profit.

So it seems that the Swedish system is simply too right-wing for the British conservatives.  Profit is something of a dirty word in Britain, whether applied to health care or education.  So who are the real neoliberals?

Size of government?  Under Labour it increased sharply (even discounting the recent spike to 50% of GDP, which was partly reflective of the recession.)  Under the Labour government the top MTR in Britain was 40%.  It is expected to be 50% under the Conservatives.

I don’t deny that there are some areas where Britain is more laissez-faire than the typical eurozone country, but I don’t see how the crude stereotypes held on the Continent can be justified.

Part 2.  Does it matter who wins?

I was dining with some Oxford people when news came that Cameron would be the new PM.  There was a bit of excitement among the people at the table, indeed for one of them this news meant a job in the economic policy team.  I am skeptical about how much difference a new British PM can make, but perhaps those closer to the issues see some important advantages.

Is this the near/far distinction Robin Hanson keeps referring to?  Do we think our own elections are important (“Reagan’s America”, etc) and yet instinctively think that Switzerland will always be Switzerland, regardless of who’s elected to lead their country?  I was reminded of this when I saw a Drudge headline trying to blame Obama for the oil disaster.  (In fairness, the Dems also blamed Bush for Katrina.)  In contrast, when foreign governments badly mishandle crises (i.e. the Naples and Kobe earthquakes, we don’t tend to examine who was leader of Italy or Japan at the time, but rather assume that the incompetent response reflected the political realities of those countries.  (BTW, the Drudge headline linked to this article.)

In the case of Katrina, how many would have been killed if the people in Louisiana had been culturally identical to the people of Minnesota?  Prior to the hurricane, would New Orleans’ well-known unpreparedness for a major hurricane have been treated as a big joke?  Just so you don’t peg me as a cultural determinist, I think cultures can change.  Indeed I believe that after Katrina, the Louisiana voters looked in the mirror and realized that they were to blame.  After years of electing charismatic governors like the one who joked that he could never be defeated unless caught in bed with a live boy or dead girl, they turned to a boring but effective technocrat.

[BTW, I wrote a long piece on Krugman’s recent use of the oil spill to refute libertarianism, but deleted it when I saw that Alex Tabarrok beat me to it, and did a much more thorough job.]

So maybe disaster prevention doesn’t much depend on who’s elected.  But what about health care, or civil liberties?  Surely there is a huge gap between the parties on those issues.  Well, take a look at the health care plan Romney implemented in Massachusetts.  Last time I looked Romney was the Republican frontrunner for 2012.  And here’s Matt Yglesias on Obama’s decision to buy into the Bush stance on civil liberties (or lack there of) in the war on terror.

people who want to halt the erosion of civil liberties need to do a better job of persuading people that the erosion of civil liberties would be a bad thing. If you have an incumbent administration being urged by the opposition to seize more power, and the public wants the administration to seize more power, then you get what we have today. People on the good team are sometimes in denial about opinion on this subject, but read the numbers“”the public wants Guantanamo Bay open, wants suspects tried in military courts, and thinks we should give up more civil liberties in order to enhance security.

So how much does it matter who gets elected?  I’ll grant you that Obama’s space exploration policy is much more free market than Bush’s.  And Obama does favor higher taxes.  From up close the differences are significant.  But from far away?

PS.  OK, Hitler made a big difference.  But I’ve found that roughly 99.9% of political, philosophical and/or foreign policy arguments that refer to the Nazi example are fallacious.

PPS.  Just to be clear, I think Bush deserved some criticism for Katrina.  My fatalism doesn’t mean that I give policymakers a pass.  If we ever stop failing to hold the government accountable then all is lost.



11 Responses to “Just how neoliberal are the British?”

  1. Gravatar of StatsGuy StatsGuy
    17. May 2010 at 22:02

    Ugh. Alex Tabarrok is coming up just a little short, in spite of the adulations of most of his raving knee-jerk anti-Krugmanite fans. One of his more astute commenters raises the appropriate issue:

    “A “peanuts” strict liability rule of $75 million coupled with a safe harbour from tort liability for the oil company as long as it obeyed then-current regulations when the well was commissioned and operating won’t get us there.”

    Dead on right.

    Another question: If the $75 million cap is not material, then why are Napolitano & Co. asking BP to confirm its liability, and why is BP still being somewhat cagey?


    Recognize that the standard for common law claims is different than the standard for OPA. Common Law needs to prove _negligence_, not merely responsibility. BP has in no way indicated that it does not intend to contest the _negligence_ claims. Indeed, by trying to blame its partners (equipment manufacturers), BP seems to be denying that its agents were negligent. If BP met existing standards (which were pitiful) this might be used as a preemption defense, IF it could show that that such standards set the guidelines for reasonable care.

    One could argue that government regulations (and hence preemption) should not exist. That is a good joke, since that presumes that industry has no power over government. But in that case who would set the standards for reasonable care? The industry groups? (That is a bad joke.) Or a 12 person jury?

    And whatever your answer for oil companies, shouldn’t that apply to medical torts?

  2. Gravatar of scott sumner scott sumner
    18. May 2010 at 04:41

    Statsguy, If you really believe in regulation (which I don’t) and if the company followed the regulations, did everything the government told them to do, then why in the world would you want to allow the company to be sued? Of course regulations don’t work, which is why lawsuits (or externality taxes) work better in these sorts of cases.

    I do agree with you about the negligence being an inappropriate criteria, I see this as a sort of externality problem, due to high transactions costs. I don’t see any parallels to medical torts, which are one on one transactions where Coase’s law is highly applicable.

    But even if everything you say is right, it is certainly not an argument against libertarianism. After all, it could equally well be said that if one required all government officials to be uncorrupt than statism wouldn’t work either. The question is whether real world government corruption creates more problems for the statism argument, or the libertarian argument. I think the answer is fairly obvious.

    And even if everything you say is right Krugman is still making a completely bogus argument against Friedman’s claim, unless you can show there are tort limits on product safety, which is the issue Friedman was addressing. Otherwise it’s a complete non sequitor.

    Here is my prediction. Tabarrok will be shown right and Krugman will be shown wrong. BP will eventually pay much more that $75 million in damages. If I am wrong than I will publicly retract my criticism of Krugman.

    Regarding health care, the best way to improve quality would be to switch from our current system, where all sorts of medically harmful things are done to avoid lawsuits, to a completely free market where health care providers compete on reputation. I am not opposed to all tort cases, I am just opposed to government laws that outlaw consensual contracts limiting litigation.

  3. Gravatar of scott sumner scott sumner
    18. May 2010 at 04:43

    Statsguy, One other point. Krugman has said regulation will work as long as the good guys are in charge. Obama’s people gave BP an award for the well. How does this case show the efficacy of regulation vs libertarianism? Doesn’t it show that even when the “good guys” are in charge, regulation still doesn’t work?

  4. Gravatar of R I R I
    18. May 2010 at 07:30

    I’ve always considered that a change of leadership of a country doesn’t steer the country in a completely new direction, but it does nudge it one way or the other. When you add up all the nudges from all leaders that have been there over a relevant period, you end up on the course that you are on.

    As far as blaming one leader or another for disasters, I think it ignores the fact that each leader inherits the bureaucracy that existed before it. Unless there is a crisis that prompts a sweeping change, once again, the best you can hope for is a nudge. A particular arm of government is just too specialized (and requires too much specialized knowledge to understand its intricacies) for a President or PM and their staff to walk in and overhaul. Especially when there is no crisis.

  5. Gravatar of Philo Philo
    18. May 2010 at 08:44

    “If we ever stop . . . hold[ing] the government accountable then all is lost.” Alternative version: “If we ever . . . fail[] to hold the government accountable then all is lost.”

    This is greatly overstated. We already fail to hold the government accountable for most of the harm it does, yet all is not lost. “There is a deal of ruin in a nation.”

  6. Gravatar of StatsGuy StatsGuy
    18. May 2010 at 09:32


    All fair points, but I’m not defending pure statism. I’m attacking pure libertarianism.

    First, torts have huge challenges – due, as you say, to transaction costs, but by extension due to information asymmetry, bargaining costs for small/needy litigants (like sick patients, or near-bankrupt small businesses threatened by an oil spill), incomplete contracting…

    But EVEN with transaction costs low, we have problems with bankruptcy. Imagine, for instance, a SMALL company had blown a hole in the sea floor. Such a company, even if liquidated, might not be valuable enough to pay the damages. Even without limited liability, the company and all its employees (under threat of debtor’s prison) might not be able to pay off the damages over a lifetime. This creates asymmetric incentives for the company. This asymmetry is not the exception; it is the rule with small business. This truth is ubiquitous.

    It is ALSO true that many of the protections in law exist to defend _small_ business from tort risk. Without limitations on liability for tort damages provided by meeting code or standards (and without limitations on _personal_ liability), the tort threat to small business would be overwhelming. Look not far for an example – medical malpractice, where pro-business lobbies are very eager to place heavy limits on tort liability. (I still fail to see how a libertarian can support regulations to limit tort claims.)

    As it turns out, the BP catastrophe is the closest one could get to the tort system functioning well, since BP ‘deep pockets’. A much worse example might be a small mining company, which might set up a limited liability venture (under a separate corporate entity) to play out a finite vein of minerals, leaving environmental costs in its wake.

    Second, torts and regulation are not incompatible – they reinforce each other. Good regulation may alter or establish the landscape for conducting torts, thereby altering incentives. The selection of a regime depends on aligning enforcement with incentives and information, and can be top down or bottom up. Centralized or decentralized. Does decentralized market-incentivized regulation count as statism?

    Third, defending Krugman… do you really expect me to agree that Obama’s team consists of the ‘good guys’, rather than merely the ‘not despicably evil guys’?

    There’s normal corruption (aka, what we have now), and despicable corruption from Bush II (under the guise of a reactionary anti-liberal pro-war statist dogma).


    Fourth, I agree that BP will pay much more than 75m – but Krugman never said they wouldn’t in his post. The law makes them liable for full cleanup costs, and it turns out they may be subject to negligence claims (they ignored failed test results on the concrete seal).

    But Krugman is a talented PR person. What he writes, and what he implies, are different. Look at what he actually wrote, vs. what Alex Tabarrok seemed to read.

  7. Gravatar of Doc Merlin Doc Merlin
    18. May 2010 at 10:18

    Politicians no longer make most law or policy. That is up to the bureaucrats…. and elections haven’t really had much of an effect on them since the Pendleton Civil Service Reform Act.

  8. Gravatar of Chad Hime Chad Hime
    18. May 2010 at 23:22


    The question you pose about how much a country’s leader truly matters is a good one, and one that the vast majority of people don’t consider regularly.

    Have you ever read anything by George Friedman, and his company called Stratfor? Stratfor provides what they call Geopolitical Intelligence, and one of their recurring themes is that leaders are severely limited by the geopolitical realities imposed upon them by geography, demographics, and security conditions. Friedman would argue (and has) that Obama’s continuation of many of Bush’s policies weren’t necessarily because he did or didn’t support them, but because they were driven by the same geopolitical realities that Bush himself was constrained by.

    I highly recommend Friedman’s recent book The Next 100 Years, if you want a quick read that stimulates the imagination. Forecasting into the future is completely impossible, but the process for thinking about the future which Friedman utilizes is instructive in understanding the true driving forces behind the way nation-states act.


  9. Gravatar of scott sumner scott sumner
    19. May 2010 at 07:20

    RI, Good points. I might add that my sense is that off-shore drilling is an incredibly complex engineering feat. The government may lack the expertise to second guess the engineers on the “ground,” especially as those engineers have every incentive to avoid disasters from a profit and loss perspective, so it’s likely that any mistakes being made aren’t obvious during a casual inspection.

    Philo, Good point, but we do hold them partly accountable. Governments that screw up are less likely to be re-elected than those who do well.

    statsguy, You said;

    “I still fail to see how a libertarian can support regulations to limit tort claims”

    That’s not my argument. Current regulations limit the ability of people to sign contracts saying I won’t sue if I fall on a ski slope. I want to eliminate those regulations, I don’t want to restrict people’s right to contract under whatever terms they desire. If you wish, the government could outlaw contracts that give up the right to sue when there is intentional negligence (of the sort people should go to jail for.)

    The small oil company example is a good point, but why not require oil companies to post a bond, or have some sort of insurance for the maximum plausible damages. That might limit offshore drilling to the big companies, but skilled small drillers could still work for big companies on a profit sharing basis.

    I actually think this would reduce oil spills much more effectively than regulation–as I said above oil drilling offshore may be too complex for the Feds to regulate effectively.

    I don’t follow your argument regarding Obama. Krugman says we need good guys to make regulation work. He says that means electing Dems not Republicans. Now you say even Obama isn’t good enough. So are you saying regulation only works if saints are in charge? If so, I agree.

    BTW, Krugman has recently been saying that the Congress is doing a great job with regulation. He seems to actually think the new financial regulatory bill somehow addresses the problems that caused the crisis. I haven’t followed this closely, but have one question:

    Does the bill ban sub-prime mortgages? (say less than 10% or 20% down.) My hunch is that it doesn’t, and hence won’t work.

    You said;

    “But Krugman is a talented PR person. What he writes, and what he implies, are different. Look at what he actually wrote, vs. what Alex Tabarrok seemed to read.”

    I looked at what he actually wrote, and it seemed to have no bearing to Friedman’s argument. Was there something I missed?

    Doc Merlin, Good point, but the Congress gives them their marching orders. If Congress hadn’t created OSHA, we wouldn’t have OSHA bureaucrats.

    Chad, That sounds good, I’ll try to read it sometime.

  10. Gravatar of StatsGuy StatsGuy
    19. May 2010 at 10:39

    “I want to eliminate those regulations, I don’t want to restrict people’s right to contract under whatever terms they desire.”

    Perhaps a little more of this would be a good thing, but I wish I knew more about how common law handles different kinds of negligence. As I understand it, much of the inherent limitations on the ability to contract away negligence liability are derived from common law. AKA, if I could make the case that a company was concealing information on risks, I could ask a judge to nullify a contract.

    This solution (removing the preemption rules that protect from liability) essentially makes judges and juries into policy makers – a position judges retreat from. Without administrative standards, businesses find themselves facing huge legal uncertainty since their culpability and liability depends more on the whims of a judge/jury.

    So perhaps pro-consumer groups should be lobbying against codes & regulations, since over time their existence is more often than not coopted by business groups to shield business from torts.

    But likewise, pro-business groups (especially small business groups) should be lobbying for codes & regulations, for the same reason.

    On good & bad guys: A good regulation is one that addresses a sufficiently critical need in a sufficiently intelligent way that even if it’s implemented by semi-competent, semi-honest agents, it still does more good than harm over time. I think Team Obama qualifies as semi-competent, semi-honest.

    Team Bush didn’t even hit that low bar.

    If we set the bar for regulation such that it works even when wielded by a totally corrupt administration and Congress, then all regulation fails.

    But if the default assumption is a totally corrupt system, then _everything_ fails. Even the core institutions of capitalism, in which case libertarianism doesn’t work either, which (giving Krugman the benefit of the doubt) may be what he meant. BTW, very nice iceland pics.

  11. Gravatar of ssumner ssumner
    20. May 2010 at 04:58

    Statsguy, I also wish I knew more about this area. My views partly reflect my personal frustration with the tort system–which has negatively impacted my life. Also the feeling of freedom I have when traveling in other countries. Also that fact that when intelligent outsiders (like say The Economist magazine) look at our system they think it’s nuts. I don’t have any precise answers, but my gut instinct is that something is very wrong.

    You said;

    “But likewise, pro-business groups (especially small business groups) should be lobbying for codes & regulations, for the same reason.”

    Maybe, but I think the larger businesses often gain more, as they have an easier time adhering to complex regulations. If the regs are simple, then I think you are right.

    I have no problem with your views on Obama, but do you see my point that if we are going to hold him up as a semi-good guy, then the oil spill isn’t really an argument against libertarianism, given that the Obama administration did regulate the rig, and failed to notice the flaws.

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