Bottom Up Public Policy Works Better

Commentary, Role of Government, Frontier Centre

The federal NDP is engaged in serious soul searching, with only 9% of Canadians supporting the party in a recent opinion poll. Against this bleak backdrop, a group of party activists has been working on the “New Politics Initiative”, an attempt to redefine where the party is going and what it stands for.

Unfortunately, its “new” thinking sounds old – solidly at odds with the mainstream of public policy. Anti-globalization rhetoric reigns large, a continuing rejection of the principles of market-based capitalism that lie at the foundation of all successful economies. Contrast this with “New Labour” thinking in Britain, where that country’s social democrats gained power by accepting the realities of the new economy.

In 1993, Hilary Wainwright, a labour specialist at the University of Manchester and a pillar of Britain’s New Left intelligentsia, wrote a book called Arguments for a New Left: Answering the Free Market Right. It argued that the Left had to abandon its statism – its blind faith in government ownership and control of society. She suggested it engage in “knowledge-based politics with ties to neither party nor state”. Unlikely as it seems, Wainwright was drawing on the ideas of the Nobel Prize winning economist Friedrich Hayek, the same ones that guided Margaret Thatcher’s dramatic rescue of the British economy in the 1980s.

Wainwright’s suggestion caught on. By the time Tony Blair’s New Labour party gained power in 1997, it had dropped its narrow emphasis on special privileges for unions, broken its historic obsession with government ownership and freed itself from its envy-based fascination with punitive taxation.

Re-elected this June to a second term, it has started to burrow at the foundations of one remaining old labour shibboleth: monopoly public healthcare. New Labour has introduced “public-private” partnerships into hospital management and is moving to buy surgical procedures from private clinics. A creeping process of privatizing the production of services within Britain’s public health system has begun, under the umbrella of public funding.

The reforms play to Wainwright’s underlying theme, that markets work better than central planning, a perception now dominant in public policy thinking. Just ten years ago, this view had much less support. For decades thinkers recommended that government regulate the economy in great detail, own key enterprises, deliver services directly through a multi-tiered civil service, and pay for it all through steeply progressive taxation, inflation of the money supply and non-stop borrowing. Today this old orthodoxy, still hanging on by its fingernails in Manitoba, has been relegated to the “fringe” of public policy. A few gut-wrenching recessions, the Berlin Wall’s collapse and the unmistakable success of key market-based policies changed a lot of minds.

This change in thinking is in no small amount due to Friedrich Hayek, a World War II expatriate to the West whose impact is chronicled in a new biography by Alan Ebenstein. In a series of books, Hayek explained how markets, constrained only by general rules of co-operation like laws against force and fraud, enable millions of people to achieve individual goals mutually and voluntarily, without state intervention. Hayek pointed out that the buying, selling and producing of goods and services in countless market only looks like a buzzing, chaotic confusion. In fact, they create a highly coherent economic system he called a “spontaneous order” or an “order without commands”.

The organizing principle of a spontaneous economy, Hayek explained, is the price system. As prices rise and fall, they instantly communicate information about what people actually want and can offer in exchange. Market prices provide producers and consumers with a guide to what is most advantageous for each of them. Prices help them decide how many cars to make, how much meat to package, how many lathe operators to hire, even where to live. Because of the mind-boggling variety and number of exchanges, the only practical way to ensure orderly change is to take advantage of what we can learn from freely set prices.

When economic decisions are made by a chosen few, whether they be a cabinet or a team of planners, the knowledge applied is limited to what those few can bring to the table. But when decision-making is dispersed among millions of producers and consumers in a market economy, they individually bring to bear the information each of them uniquely possesses. To the dismay of those who believe in central planning, the knowledge needed for rational economic decisions is not located in one rich central golden vein. Instead, like nuggets, it is scattered here, there and everywhere in no discernible pattern. Hence the need for a decentralized system that maximizes what we can garner of it.

A simple, now rhetorical, question from recent history illustrates Hayek’s point: Who was more likely to have concrete knowledge of what to do with cropland, the Moscow farm bureaucrat, or the Ukrainian farmer actually living on it? One could apply the thought to modern public policy. Who should determine the shape of education and health services? Is it from the top down, the politician pouring more money into creaky one-size-fits-all monopoly models? Or rather from the bottom-up, the consumer choosing between competing suppliers in a publicly funded framework using school vouchers, education tax credits, or medical savings accounts? It’s no contest.

To become a relevant force again the NDP needs to take a cue from modern left-wing thinker, Hilary Wainwright. Policy frameworks based on decentralized decision-making produce far superior social and economic outcomes to those erected by a handful of planners and politicians trying to decide what the masses should have and do.