Blair s true mantra: regulation ... regulation ... regulation

Core Values by John Blundell in The Business

I LOVE the ability of Tony Blair’s government to come up with projects that plainly achieve the opposite of their nominal purpose. What I want to ridicule today is the ever deeper thickets of rules that make it more hazardous to employ anyone. This has the effect of rendering ever more unemployed. What we will need next to join the existing “Better Regulation Unit” is “A Better Employment Task Force”.

Let me be specific. The National Minimum Wage sets thresholds beneath which people cannot sell their labour. This is quite cosy for those with jobs. Yet at the margin it has deterred employment. The Working Time Directive, regulating the use of part-time and agency workers, has compromised a previously active market. Since the UK abandoned its opt-out, further legislation banning discrimination on grounds of religion, sexual orientation and age have been imposed by the European Commission under the Treaty of Amsterdam

By this autumn it will be illegal for firms to retire people at 65, so look for thousands of people, aged say 63 or 64, to be let go this summer. And look for some pretty grisly employment tribunals and big settlements a couple of years later.

Can you see the common themes to all these intrusions? They are all breathlessly well-meaning but not quite of the real world. The Civil Service can afford generous maternity and paternity leave. It is less easy for a corner shop or perhaps a decorating team employing four. The politicians and regulators can bask in a glow of benevolence. Lower down, the sound of grit in the workings of the employment market goes unheard by officialdom.

Half of our new employment rules do not originate from our own democracy. They were imposed upon us by the Commission in Brussels. There was no Parliamentary scrutiny. There was no consultation. There was no discussion.

Sir David Arculus, who used to head the Better Regulation Unit, also identifies a peculiar British addition – that we are a law abiding lot. Where Italians or Spaniards ignore their governmental intrusions, we are trained to comply. Sir David also describes the phenomenon of regulatory “creep” by which the DTI or Department of Employment “gold plates” an initiative from Brussels. Hopefully his succesor, Rick Haythornthwaite, will continue to exhort Whitehall to regulate as the last, not first, attempt to solve a problem, but he is utterly powerless as far as Brussels is concerned.

Professor Len Shackleton, of Westminster University, shocked me with his disclosure that there are now 80 laws governing employment contracts. He adds that 100,000 employment tribunals are held each year. The increasingly complex web of obligations, all of blamelessly kindly intent, have created conditions that make it ever more difficult for buyers to bargain with sellers.

Shackleton detects another way to measure the excess volume of regulation. In 1979, when Callaghan’s Labour government lost out to Mrs Thatcher, there were 12,000 personnel managers. Now there are 120,000 such folk. I think this is a vivid piece of evidence that we are quietly strangulating employment, except for those in HR of course.

It is not all bleak. The exclusion from tort law the trade unions won a century ago has been forfeited. They are now legal entities without their previous power to bully. Millions have chosen not to operate through unions and their marginal productivity has risen accordingly. Union membership has gone from over 50% to under 20% of the workforce. The result is prosperity, not penury.

We can all see how the French and Germans have made their jobs markets over rigid. It is fairly lush to be in secure employment with the cocoons of benefits and pensions, but painful for those outside. My point is that our flexibility, especially on price, is now atrophying. We are still looser than Paris or Berlin but our regulatory advantage is evaporating.

Let me rehearse the case for regulation. It can be summed up in two fantasy fears. “But for regulation, little boys would be climbing chimneys and little girls being mangled in textile looms”. This is entirely fanciful, but memories still haunt us from Charles Dickens and Friedrich Engels. Such jobs no longer exist given our capital structure. They do exist in attenuated form in the so-called Third World but our tariff barriers amplify such conditions.

The other daft but potent fear is “market failure” or, if you really want to sound expert, “asymmetrical information”. This is the hoary old myth of trade as a zero-sum exercise rather than both being enriched by a bargain or exchange. The style of economics that talks of “perfect competition” and “equilibrium” is deluded. All markets are great vortices of data, misapprehensions, optimism and pessimism. You might just be able to argue a brutal coal owner could oppress a community where he has a near monopoly of jobs. Do you know of any such places? Before you write to me, read Soft Coal, Hard Choices by the American economist Price V Fishback. They never existed.

I could be slightly more sympathetic to those who mutter about “market failure” if they would ever concede there is a phenomenon we might term “government failure”. A current example of this may be driving out foreign doctors who are unable to comply with the restrictive practices of the British Medical Association. The clinicians’ professional body wants to raise its prices by constricting the supply of doctors and the dim NHS bureaucrats comply. “Fewer Doctors” has a certain refreshing quality as a slogan.

Many ministers and some journalists seem to regard income taxes and national insurance provisions as a cost imposed upon callous companies by an enlightened state. They seem unable to grasp that both taxes merely make it far more difficult to pay employees greater salaries. Half of the average Briton’s wages go in taxation. For a brilliant account of all the taxes that surround us read I, Job by Julia Sotnikova.

Employment regulation represents tangible costs but I think the greater damages may be more unquantifiable. How many small ventures do not create an apprenticeship or employ a new secretary or retain an extra marketing person because the experience of job-related hassles deters them? This does not apply in the public sector, where those costs don’t touch the pockets of those employed in the Civil Service, National Health Service or municipal entities.

The European Commission, fount of most of our new regulations, could reverse its direction and seek to liberalise the jobs market. Perhaps it will one day as the unemployment figures continue to look more adverse.

The market may be evolving its way around these thickets of regulation. Ever more people are electing to be self-employed, up from 7% to 14% of the working population. It is not easy to regulate such people. It is an observable mystery which we can all see that the self-employed seem immune to those diseases and diversions of the salaried. They do not get the flu. They seem to have fewer dental appointments and fewer family funerals than public sector staff. The self-employed can only be defined as adaptable – or they cease to earn.

British business still has a slight edge over our continental colleagues in the freedom of contract, but the difference that was undeniable in 1997 looks barely discernible in Blair’s ninth year in office. We have also abandoned the discretionary power to reverse these errors. They are locked deep in the bureaucratic glacier that is the Commission.

See also
I, Job by Julia Sotnikova. An essay inspired by 'I, Pencil' by Leonard Reed

John Blundell is Director General of the Institute of Economic Affairs

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