Preface
Foreword
When Micropolitics was first published in 1988, it was intended less as a manifesto and more as a manual for policy engineering. It did not argue why liberty was superior to collectivism (that battle had largely been won in the ‘battle of ideas’), but rather how to dismantle the structures of the state in a world dominated by interest groups.
Nearly four decades later, the physics of politics remains unchanged, but the terrain has shifted. While the great privatizations of the 1980s have largely held firm—the state no longer makes our cars or runs our airlines—the public sector has found new ways to expand. It has swapped ownership for regulation, bogging down the private sector in a mire of compliance. The economy has stagnated for nearly two decades, and the engine of prosperity is sputtering.
Worse still, the interest group calculus has shifted against the young. We face an intergenerational crisis that has never been more acute. Through the ‘triple lock’ on pensions, unsustainable welfare commitments, and the servicing of a colossal national debt, we have allowed the present to plunder the future. The planning system has been captured by those who already own homes, blocking those who wish to. We have created a ‘capitalism’ in which about half the economy is run by the state, the other half is heavily regulated, and the next generation has no stake. Many of our brightest are simply choosing to exit.
The mood in 2026 feels uncannily like that of 1976. There is a sense of drift, of ungovernability, and a despair that ‘nothing can be done’. But just as the despair of the 1970s birthed the policy innovations of the 1980s, so too does today’s stagnation offer the opportunity for renewal.
We have perhaps just three years to prepare the ground for a future government. The lesson of this book is that the transformation will not come through a grand, holistic plan; recent governments of all colours have proved that such plans are doomed to failure on the rocks of reality. Transformation will come through the incremental, micropolitical approach. Reformers must work with the grain of human incentives to trade benefits, dissolve obstructions, and make the right thing the profitable thing.
I am delighted Micropolitics has been abridged and revitalised for a new era. We must recognise that the mode of consuming information has changed; the attention span of the digital generation demands brevity and impact. The ideas herein have been sharpened for the age of Twitter and TikTok, ensuring that the manual is accessible to those who will need to use it.
I must also pay tribute to James Lawson. In taking over as Chairman of the Adam Smith Institute, he has done more than abridge texts or simply keep the flame alive. He has made the Institute once again a formidable force for micropolitics, identifying the new ‘locked doors’ of the state and forging the keys to open them.
This new edition, including a fresh section on 1989–2026 and looking toward the future, is his initiative. It serves as a reminder that while the challenges have evolved, the political engineering techniques remain as vital as ever. The wind of exhortation still blows uselessly against the cloak of the state; it is time, once again, to be the sun.
Dr. Madsen Pirie | President, Adam Smith Institute
Introduction to Micropolitics Revisited
There was a moment when the victory of markets and liberty seemed absolute. Capitalism was spreading like wildfire across the globe; communism had been not just defeated but dismantled. Even China, the last great redoubt, was lifting millions out of poverty by embracing the market. Neoliberal commentators, intoxicated by the era, arrogantly described our victory as total. We were told that we had reached the ‘End of History’.
But history, it turns out, was merely taking a breath. Precisely because we believed the intellectual battle of ideas was settled, we forgot the mechanics of how that victory was engineered. Now, the vacuum has been filled by a resurgent populism that promises prosperity through protectionism and interventionism. Japan speaks of its ‘lost decades’ of economic stagnation; tragically, Britain must now speak of its own.
I belong to the generation that inherited the dividends of the micropolitical revolution, but I now watch as they are squandered. It is a sobering, even humiliating fact that the average income in the United Kingdom has now fallen below that of Mississippi, the poorest state in the USA. In 2007, we were ahead of the entire United States. In two decades, we have drifted far from the frontier of progress, bogged down by a state that has swapped ownership for obstruction and dynamism for decline.
Nowhere is this failure more acute than in the betrayal of the next generation. We now have the meme of ‘Nick, 30’, the archetype of the young professional who did everything right. He studied hard, works long hours, and pays punitive marginal tax rates to fund the triple-locked pensions of a generation that sits on housing wealth he can only dream of. Nick cannot afford a home; he cannot afford a family. He is slaving away for a state that treats him not as a citizen to be served, but as a host to be harvested.
He looks at a welfare system corrupted from a safety net into a lifestyle choice, funded by his labour. He watches as new arrivals—whether crossing the Channel in boats to be housed in hotels or navigating official channels to abuse our generosity—seem to command more state capacity than the citizens who fund it. The social contract is broken.
This paralysis is not a partisan failure, but a systemic one. We have witnessed fourteen years of Conservative governments that struggled to conserve, followed by a Labour government with a commanding majority that seems equally paralysed by the machine it seeks to operate. Even the Prime Minister, Sir Keir Starmer, has publicly confessed his frustration that, ‘the action from pulling the lever to delivery is longer than I think it ought to be’. Regardless of the rosette worn by the minister, the levers of power appear disconnected from the gears of government. The ‘blob’ has become unresponsive.
Micropolitics has long been the secret handbook of the brightest policy minds in SW1, passed around like samizdat among those who understand that being right is not enough. But a secret manual is of little use when the machine is breaking down. It is not enough for the few to know; the method must be mastered by the many who share our belief in markets and liberty, but lack the tools to deliver it.
We face a binary choice. We can sleepwalk into the 2030s, repeating the tragedy of the 1970s (and recent years), with administrations that possessed the trappings of office but lacked the mechanics to effect positive change. Or we can seek a revitalisation on the scale of Thatcher.
The prize is immense. Britain still possesses vast reservoirs of intangible and cultural capital. We have the potential to rise like a phoenix towards the technological frontier, closing the gap with the United States and restoring the promise of Capitalism for a generation that has lost its stake in it.
We publish this abridged edition to recruit a new cadre of policy engineers. It is my hope that by mastering the creative art form of micropolitics, this and future governments will not only embrace the ideals of the market but successfully implement them.
How This Book Is Laid Out
In what follows, Parts I–V present a condensation of Pirie’s original text. The narrative attempts to abridge the work while retaining the original tone and much of the wording. Minor edits have been made to align with modern terminology, without distorting the argument. Where pertinent, references to contemporary examples have been added to illuminate specific topics or case studies.
The indented paragraphs in italics are Dr. Pirie’s own words, quoted verbatim from the original Micropolitics. These are woven throughout the text to preserve the distinctive voice of the original work.
The original text used American English while this revised version uses British English primarily, except for the words, ‘Privatize’ and ‘Privatization’ (a quirk of the ASI house style).
Part VI, Revisiting Micropolitics, explores key examples of policy engineering since 1988 and considers how the approach must be reapplied to the structural issues facing the UK and much of the developed world today.
Throughout the new sections, we occasionally apply micropolitical analysis to emerging ideas from across the political spectrum. This allows us to consider the opportunities and obstacles a future government may encounter. This is not intended as a manifesto or an endorsement, but as a practical guide to how these techniques may function in a modern context.
Acknowledgements
With thanks to the Adam Smith Institute team for their support, particularly Sebastian Charleton, Viggo Terling, James Hodgkinson and Mitchell Palmer for reviewing the text.
Part I: The Role of Ideas
1 Ideas and Events
The most difficult explanations to find are the ones no one is looking for. The way in which ideas come to exert an influence on events falls firmly into this class. We have too long supposed that there is nothing to explain, that events simply follow the ideas which suggest them. The ‘naive’ model suggests that the political thinker produces an idea, and the legislator implements it. This is obviously wrong.
‘It would be naive to suppose that political leaders spend a great deal of time ploughing earnestly through scholarly publications to keep abreast of the output of ideas’.
Instead, we must look to an intermediate agency to bridge the gap between the scholar's study and the cabinet room.
The Transmission Belt
There are what F.A. Hayek termed ‘second-hand dealers in ideas’. These are the journalists, activists, and lobbyists who translate dense scholarship into language that decision-makers can digest.
‘They perceive their task to be one of acting as salesmen for the original insights and ideas, taking them and explaining them at the level where they can be effective’.
Alternatively, influence may arrive through a generational change. A significant proportion of our governing classes undergo higher education, where they are immersed in the new thinking of their day. This explains the curious time lag, where political ideas often take a full generation before they are applied in practice.
The Wilderness Years
It would be pleasant if the real world took on the roseate aspect of John Stuart Mill’s theoretical vision, where truth emerges triumphant from a fair contest. Alas, it does not.
‘In our world truth is often silenced by force. ... The more velvet-gloved force of modern times gives academic preferment to those who toe the line, and denies it to others’.
The process resembles Thomas Kuhn’s account of scientific revolutions. A prevailing paradigm rules, and those who challenge it face the ‘wilderness years’. The innovator is ostracised, grants are hard to come by, and students find it difficult to gain appointments. Survival depends on a ‘clan loyalty’, where disciples and advocates form a community of interest to keep the idea alive until the old system’s inadequacies become undeniable.
‘Often they appear to the intellectual mainstream as dedicated bands of zealots, trying to talk to the academic and intellectual community in general, but talking much more often to each other’.
The struggle to capture the next academic generation is fierce.
‘The 'battle' for ideas is well-named, for the military metaphor is overpowering. One is led into seeing the struggle to capture the next academic generation as a long drawn out war, punctuated by skirmishes on different fields’.
Furthermore, we must be wary of the retrospective comfort that truth always wins.
‘The argument that the truth wins through eventually commits the Whig fallacy of history by assuming that the function of the past was to lead up to the present. We see what did happen, we do not see what might have happened in its place’.
The Keynesian Illusion
Intellectuals have always exalted the role of the intellectual. This vanity finds its most seductive expression in the words of John Maynard Keynes:
‘Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back’.
We have been mesmerised by these words because they are comforting.
‘It tells the intellectuals what they want to hear... that they are the real rulers’.
This leads to the unquestioned belief that ‘winning the battle of ideas’ will automatically result in changes to the way people live.
‘It comes naturally to such people to suppose that ideas are the ultimate determinants, and that to win the battle for ideas is to win thereby the battle for events’.
This is the weak link in the chain of reasoning. It is an assumption, rather than a reasoned claim, that intellectual victories translate into practical ones.
‘The familiar scenario by which 'winning the battle of ideas' takes place is at its weakest in the final scene’.
There remains a critical gap between the idea and the reality. We must question whether the ideas are enough, or whether the relationship between thought and policy is far more complex than our simple models allow.
2 Theory and Practice
‘In every department of human affairs Practice long precedes Science: systematic enquiry into the modes of action of the powers of nature, is the tardy product of a long course of efforts to use those powers for practical ends’.
We have long laboured under the misapprehension that the great works of political philosophy were blueprints for the future. Closer inspection reveals a different, perhaps more humbling, truth: often, the practice came first, and the theory followed in its wake. The writers and thinkers were not necessarily proposing a leap into an unknown future, but were setting down the intellectual basis for interpreting recent events.
The Retrospective Rationalisation
Consider Plato’s Republic. It describes an ideal society of martial virtues, strict censorship, and communal living. It would be an achievement of the imagination on a grand scale, were it not for the fact that such a society already existed in all of its basic elements: Sparta. Plato did not invent it or set down its rules; he described them and justified them.
‘Plato's 'Republic' is an ex post facto rationalisation of the state of Sparta. He wrote as theory what men had already achieved in practice’.
Similarly, John Locke’s Two Treatises on Civil Government provided the intellectual superstructure to justify the limited monarchy arising from the Glorious Revolution. Locke gave them the arguments to vindicate what they had done.
‘The world came first, the books followed’.
The Marxist Revisionists
The pattern is starkly visible in the history of communism. Marx’s theory predicted that revolution would occur first in the most advanced economies. Yet Lenin seized power in Russia, and Mao in China, societies that fitted nowhere into the Marxist model of economic development. They did not apply the theory; they did what was necessary to win, and the theory was rewritten afterwards to accommodate the new reality.
‘The theory was not applied in order to change the world. The world was changed first, then the theory was reconstructed to give those changes their theoretical superstructure and their intellectual justification’.
The tragic case of Che Guevara illustrates the danger of reversing this order. In Cuba, success came because practical exigencies overcame theoretical preconceptions. But in Bolivia, Guevara tried to apply the theory derived from the Cuban experience to a different society and terrain.
‘Success came in Cuba because practical exigencies overcame any theoretical preconceptions. ... Failure came in Bolivia because the theory dominated’.
Guevara failed because he was transfixed by the model which brought victory in Cuba, rather than applying the true theory of success: Opportunism.
‘Men of action seize the moment to do what it takes to win in the conditions they encounter’.
The Interpretation of Battle
Even Hegel, who recognised the role of the 'World Historical Figure' in ushering in new ages, offered a theory that was totally retrospective. There is no way of predicting when these figures will come; they are only identified after their success.
If we accept that practice precedes theory, the ‘battle for ideas’ is downgraded from a struggle to determine the future course of society into a struggle to decide how changes shall be interpreted. The intellectual battle is no less bitter, but we must recognise that the victory in the world of ideas does not automatically pull events in its tow.
‘It may be that men and women of ideas, thinking themselves quite exempt from any influences, are in reality the slaves of some defunct man of action’.
‘Scholars who fancy they hear voices in the air suggesting new ideas may be doing no more than distilling the practical experience of those whose impact is made upon the real world’.
3 Illustrations from Democracy
It might be argued that while men of action can take the lead where public opinion is of little consequence, the rules must surely be different in democratic societies. Where governments rely on popular support, one might suppose that ‘winning the battle of ideas’ is an essential prerequisite of change. Yet, history suggests otherwise.
Plato attempted to found his Republic in the real world, by advising the rulers of Syracuse. This floundered and he narrowly escaped the fate of those who approach society with a preconceived theory. Even the American Constitution was not the product of a battle for ideas won in advance; it was pushed through by a minority, and the Federalist Papers were written afterwards to provide the retrospective rationalisation.
The Parallel Lives
There are two recent cases from democratic societies which merit close attention: the administrations of Margaret Thatcher in Britain and Ronald Reagan in the United States. It is striking to realise that each had a predecessor of the same party elected on a broadly similar mandate.
‘Richard Nixon took up office as President of the United States in 1969, Edward Heath as Prime Minister of Great Britain in 1970... The significance of Nixon and Heath is that they were elected to do what Reagan and Thatcher were elected to do. The difference is that they did not do it’.
Both Nixon and Heath were elected on platforms hostile to collectivism, pledging to roll back the state and cut regulation. It did not take a ‘battle of ideas’ in the intervening years to convince the electorates of these merits; they voted for them the first time.
‘If it took a battle of ideas to reach that stage, it had been won by 1968 in America and by 1970 in Britain’.
The Great U-Turn
Despite their mandates, neither administration implemented their programme. Indeed, they did the opposite. Nixon introduced wage and price controls and expanded federal regulation. Heath nationalised Rolls Royce and Upper Clyde Shipbuilders and introduced his own statutory controls on the economy.
‘The phrase 'U-turn' entered the political vocabulary to describe a government which turns in the exact opposite direction to the one it started upon’.
Why did this happen? Several explanations have been advanced, but most are found wanting.
Duplicity? It is implausible to suggest they never believed their own rhetoric, as both made early attempts to introduce parts of their programme.
Lack of Toughness? This description simply does not fit. Nixon showed resilience during Watergate; Heath showed a strength of will bordering on stubbornness.
Political Reality? It was widely claimed that conservative programmes were not realistic in the modern world. This explanation collapsed only when the Thatcher and Reagan administrations proved that such policies could be implemented.
Intellectual Opposition? It is true that the ‘effete corps of intellectual snobs’ opposed them. But the intellectual community remained just as hostile to Reagan and Thatcher.
‘If the hostility of the intellectual community had been sufficient to thwart Nixon and Heath despite a popular mandate, why was it unable to stop Reagan and Thatcher?’
The 'Hair Shirt' Strategy
There is a strategy often urged upon governments by their most ardent supporters, which we might term the ‘hair shirt’ approach.
‘This, in essence, claims that anything worth doing in politics is bound to produce unpleasant effects and unpopularity to begin with’.
The logic is seductive in its simplicity. It suggests that an incoming administration has a duty to implement its most radical and painful measures immediately, ‘in the teeth of an outcry of enraged opposition’. The government should then simply sit back and ‘ride the storm of unpopularity’, trusting that the long-term beneficial effects of the market will work through and vindicate them before they must face the electorate again.
Critics often blame the Nixon and Heath administrations for failing to adopt this rugged stance. Yet, this criticism is unfair.
‘In the first place, it took the experience of office to make them realise the problem. By the time they realised that they lacked a technique, it was already too late to implement the 'hair shirt' solution’.
Furthermore, the very nature of our constitution militates against such an approach.
‘It must be said that the checks and balances of democratic societies, the separation of powers and the space provided for a voice of opposition, are all designed precisely to prevent such tactics being used’.
The failure was not one of nerve, but of method. Radical change requires more than the willingness to endure pain; it requires the technical capacity to effect change against a system designed to stop it.
This is revisited again in Part VI, particularly in the context of the failed Truss administration.
The Skill Issue
The difference lies not in the men, nor the times, nor the ideas, but in the policy technique. Nixon and Heath were victims of the assumption that changes in events follow automatically upon changes in ideas. They knew what they wanted to do, but they did not know how to do it.
‘They might have known that free markets were a good thing, but they did not know how to get them. They might have been persuaded of the case against big government, but they did not know how to make it smaller’.
When they encountered the inevitable obstacles of the political system, the entrenched interests and the bureaucratic inertia, they lacked the tools to dismantle them. Frustrated, they turned back to the old corporatist paradigm.
By contrast, the administrations of the 1980s were equipped with detailed policy engineering. They understood that ‘it is not ideas which are implemented, but policies’. They had moved beyond the ‘hair shirt’ strategy of simply inflicting pain and hoping for the best.
‘The later teams were very much more concerned to have a battery of policy techniques developed... The Nixon administration did not know how to do it, but the Reagan team did’.
From Advocacy to Engineering
The failure of the Nixon and Heath administrations suggested that a crucial switch in strategy took place sometime in the 1970s. Before this period, the argument had been fought on the level of principle.
‘The emphasis had been that of pointing out the evils wrought by collectivist policies, and of the superior virtues of the market economy. Books and papers were published, lectures delivered, seminars held, all designed to sell the case for free enterprise’.
That these governments were elected on such platforms attests to the success of that campaign of persuasion. That they failed to implement them attests to the value of the maxim that one should not put one's trust in princes. The new element which emerged in the 1970s was policy research.
‘The new element was policy research, in which the detailed mechanisms of policy proposals were put under scrutiny, honed and polished to maximise their chances of success’.
Short-Circuiting the Delay
Part of the reasoning behind this new action was a hard-headed appreciation of the time lag between an election victory and the actual preparation of legislation. The process could take a full year, with a further year allowed for delay caused by civil service procrastination. By the time legislation could be enacted, the end of a term of office would be approaching, and the government would be reluctant to take risks.
‘One of the ideas which lay behind policy research was the idea of short-circuiting the delays by having developed policies worked out in advance and ready for immediate action by an incoming government’.
Breaking the Monopoly
Perhaps even more critical was the realisation that the Civil Service establishment enjoyed a ‘virtual monopoly of practical knowledge’. Outsiders might advocate ideas in general, but only within the bureaucracy was to be found the expertise to set events in motion.
‘The result of that monopoly was that the civil service view tended to prevail. Even the strongest willed minister with clear ideas of what should be done was alone against a united phalanx of expert opinion proclaiming this to be impossible’.
The policy research teams acted to end that monopoly. By preparing detailed studies of technique in advance, they could offer the minister an alternative source of initiative, overriding the effective veto the Civil Service had possessed by virtue of their exclusive command of detail.
The Credibility Barrier
This advance preparation also served to breach the ‘credibility barrier’. General ideas are easily dismissed by officials as 'irrelevant' or 'unworkable', but a detailed policy proposal demands serious attention. This is revisited further in Part VI, particularly in the context of the modern concept of ‘The Blob’.
‘It would be harder to claim that certain things could not be done if there existed detailed plans and mechanisms for accomplishing them. ... The detail given to the method of application lent credibility to the idea underlying it’.
Thus, while groups continued the work of winning converts to market solutions and spreading disillusionment with the record of collectivism, there were ‘new kids on the block’. New institutes appeared whose function was not advocacy, but the investigation of the detailed policies which might secure those ideas in practice. They took as their starting point the failure of the 1970s, and researched ways in which choice and enterprise might be extended in the real world.
‘They gave policymakers what they were looking for: policies’.
4 Scientists and Engineers
We praise the pure scientists who add to our understanding of the world. They give us insights into the universe and help us to predict what we shall observe there. In a similar way, great political thinkers change the way we look at the world.
‘They try by their insights to increase our understanding of the world we live in. From Plato and Aristotle, through Adam Smith and Edmund Burke, ... down to thinkers such as Friedrich Hayek in our own time, they can change our perception of the world’.
However, there is a crucial limitation. The pure scientists change our understanding of the world; they do not change the world itself.
‘It may look different after they have done their creative work, but it is the same world as it was before’.
The Role of the Engineer
After the pure scientists have put forward their ideas, a second group of creative minds comes to build machines which operate on their laws. We honour James Watt and Isambard Kingdom Brunel no less than we honour Newton and Boyle. Why? Because it is the engineers who change the world itself.
‘The pure scientists change our understanding of the world; it is the engineers who change the world itself’.
‘With Boyle we understand gases under pressure; with Watt and Stephenson we make it work for us’.
Without this second stage of creativity, we would be left with a much richer understanding of the universe as we tilled our fields with wooden ploughs.
Policy Engineers
The parallel with social and political theory is exact. The great scholars give us insights, but the world remains the same after they have made their pronouncements upon it. It takes a second group, policy engineers, to put the flesh of practice onto the bones of theory.
‘Policy is an intricate process which requires skill, sensitivity and creative intelligence. It does not just happen, any more than machines do’.
‘If, after the pioneering work of Adam Smith or Friedrich Hayek, we waited for a change in events to follow automatically in its wake, we would be waiting still’.
There is, regrettably, an intellectual fashion in Britain which affects to sneer at the role of the engineer, elevating ‘pure science’ as if engineering were somehow impure. This preoccupation with pure research has led to the erroneous notion that the ‘battle for ideas’ is what changes events, causing the essential role of the policy engineer to be overlooked.
Theory Follows Practice
In science, the theory usually comes first. In public policy, however, inspection reveals the opposite pattern: practice usually comes first, and the theory follows to interpret it.
‘The Republic of Plato set out the general style and many of the detailed rules of the comparatively successful society of Sparta’.
‘Locke's Two Treatises on Civil Government delineated a theory for the already accomplished limited monarchy of the Glorious Revolution’.
‘The Federalist Papers argued the case in principle for a constitution of the United States already decided in practice’.
In all these cases, it was the policy which was applied first, and the ‘pure’ theory which came afterwards.
The Missing Link Explained
Once the role of policy engineering is appreciated, it becomes possible to account for the difference in performance between the Nixon and Heath governments and those of Reagan and Thatcher.
The difference was not in the ideas, nor the times, nor the acceptability of the mandate. It was that the later governments were equipped with the detailed mechanics of policy implementation.
‘Both Heath and Thatcher manifestos mentioned the desire to return state industries to the private sector. ... But whereas this remained only an unfulfilled wish of the Heath era, the Thatcher team went in with some conception of the policy problems, some notion of possible options’.
The earlier leaders did not know how to do it; the second two did.
‘The difference reflected itself in a self-conscious appreciation of technique by the later administrations’.
The emergence of policy research in the 1970s was a response to this gap. It realised that the Civil Service enjoyed a monopoly of practical knowledge, and that without detailed policies to give them effect in a way which succeeds, the ideas may change our thinking, but they will not change the world.
Part II: The Public Sector
5 Public Choice
The 1986 Nobel Prize for economics was awarded to Professor James Buchanan of the United States. Alongside Professor Gordon Tullock and others, he developed the 'Theory of Public Choice'.
‘The constant theme which ran through their work was that people behave in political life in a very similar fashion to their behaviour in economic life’.
The 1970s saw the rise to prominence of several schools of economic theory, not all incompatible with each other, which gave theoretical refutations to the central tenets of the Keynesian system, beginning by then to be discredited in practice.
The Creative Ferment
First, there was the monetarist 'Chicago School' led by Milton Friedman, himself a Nobel Laureate in 1976. They pointed relentlessly to the link between money supply and inflation. Less visible was the slow rise of the 'Austrian School', led by F.A. Hayek (Nobel Prize, 1974), which rejected macroeconomics in favour of the view that reality lies in microeconomic activity driven by individuals and the spontaneous order they generate. New concepts such as 'rational expectations' rose to prominence, while the celebrated Phillips Curve sank into the swamp of 'stagflation'.
It was, and perhaps still is, a period typical of the scientific revolutions described by Kuhn. The prevailing paradigm had collapsed under the weight of contradictions, and scholars searched for something to replace the 'Keynesian consensus'.
The Political Marketplace
Against this background, Public Choice theory rose in esteem. It sits uneasily in an economics classroom of because it is not fundamentally a theory of economics, but of politics.
Previously, scholars had supposed there was a dichotomy: that people acted for private gain in economics, but for the public good in politics. Public Choice shattered this illusion.
‘A major insight of the public choice school was the appreciation that political activity proceeds in very similar ways to economic activity. People act to maximise their advantage. ... They make trade-offs’.
We established that there is a marketplace for votes. The vote has an economic value and is traded as such.
When votes are in short supply, they command a higher price and must be bought more dearly.
‘The majority does not simply overrule the minority. Rather does the minority trade its votes for an acceptable recompense’.
Just as in commercial life, people trade the vote for something they consider to be worth more. It is an exchange, a rational transaction where individuals seek to maximise their reward from the system.
The Anatomy of Interest Groups
Public choice theory has shown itself to be an extraordinarily powerful tool when it comes to predicting the behaviour of the various groups operating in the public sector. It strips away the comforting myths of public service to reveal the raw mechanics of self-interest.
‘It sees bureaucrats not as public servants who dispassionately implement the policies of elected leaders, but as a distinct interest group or series of groups with a strong interest in those policies’.
A treatment which looked only at stated political objectives would miss the crucial element of the personal stake of the people involved.
The same analysis applies to other players in the game, for example:
Legislators: They cease to be simply the representatives of the public and emerge as yet another interest group with priorities to pursue.
‘Activities which bring visible credit to legislators from voting groups, for example, are of greater benefit to them than activities which gain no visible credit, no matter how much more worthwhile they might be’.
Trade Union Leaders: Their interest lies not in efficiency, but in expansion.
‘The interest of trade union leaders operating in the public sector does not lie in producing the best possible level of public service at the lowest possible price. It lies in maximising the level of subscription to the union’.
Public Sector Workers: They are in a position to influence very strongly the level and quality of services. They can threaten non-cooperation or strike action, knowing that politicians are uniquely vulnerable to the public outcry.
The Mechanism of Oversupply
Public Choice allows us to predict the behaviour of those operating within the public sector. We see bureaucrats not as neutral administrators, but as a distinct interest group.
Just as business corporations struggle for market share, bureaucracies compete for funds and ‘empire building’. Legislators, too, emerge as an interest group, trading policies for the visible credit that ensures re-election. The result is a system where everyone has an incentive to demand more public goods than they would be willing to pay for individually.
‘The tendency of democratic societies to oversupply public goods and services can thus be understood in terms of the pressures within the system’.
When the voting public is broken into interest groups, the tendency of democratic societies to oversupply public goods becomes explicable. It is usually in everyone's individual interest to maximise their consumption of goods paid for collectively.
‘Groups which receive services form more distinct and more effective groups to trade with than does the general mass of taxpayers which foots the bills’.
Consider a hypothetical case where ten people in a village seek an improved level of maintenance for their road. Ten is not a powerful political group. However, there are others who would welcome improved roads for their own area. There is thus the basis for a coalition.
Politicians bid for the support of that group by promising to increase road maintenance. Crucially, even those who do not need the road will not oppose the principle very strongly, since they do not generally perceive the dispersed costs to be large enough to arouse their opposition.
‘The cumulative effect of this activity might well be a level of road maintenance higher than necessary, and certainly more than people would spend if they had to part with the funds directly’.
This is not to say the oversupply delivers effectively or quality outputs, otherwise the UK might not suffer from such abundant potholes!
The Feeble Reed of Government
It is a good predictive tool to take it for granted that these groups behave like businesses in an economic environment: they seek opportunities, try to increase benefits, and act to lower the effort required to secure a given output.
All of these pressures upon the political system are very real.
‘The will of governments, by contrast, is a feeble reed. It might set out a course in its manifesto... but it has no choice but to respond to the pressures which it encounters’.
Public choice theory allows us to look backward and interpret events. We see why programmes were derailed: often because the potential losers stood to lose big and were ready to pay a high price to prevent it.
‘That high price need not be paid in money. It can be paid in time and effort, in sacrifice, or in terms of what is traded to secure the support of other groups’.
The Interest Group State
This analysis provides a powerful tool for understanding why political outcomes often seem irrational. It explains why minorities can be benefited more readily than majorities.
‘To benefit a majority it means that an amount greater than that benefit must be taken from the minority. ... Conversely, to benefit a minority requires less than that benefit to be taken from the majority’.
Small groups with concentrated interests (such as conservationists or specific industries) will trade their support to secure benefits, while the dispersed majority, facing only a fractional cost, offers little resistance.
‘Political reality is constructed not upon the merits of the individual cases, but on the arithmetic of traded support’.
Coalitions are built out of these trading groups (’horse trading’ and ‘log rolling’), creating majorities composed of minorities who have agreed to support each other's special interests.
This solves the riddle of why minorities are so often benefited at the expense of majorities. On the conventional model, one would expect the majority to rule. Public choice demonstrates why the reverse is true.
To benefit a majority, a substantial amount must be taken from the minority. The minority, facing a heavy loss, will squeal loudly. Conversely, to benefit a minority requires only a trivial amount to be taken from each member of the majority.
‘When the many support the few, the few receive a lot but the many give only a little each. The blame bestowed by the many is light, but the praise gained from the few is heavy’.
This explains the survival of agricultural subsidies. Farmers, once a majority, are now a small minority, yet they receive huge subsidies from urban taxpayers. As their numbers decline, their ability to command support effectively increases.
The Hierarchy of Influence
Not all minorities count equally in this marketplace. To trade effectively, a group must be visible and self-conscious.
‘The minority of conservationists seeking to block the building of a new housing estate in their area form a clear and identifiable group. ... Those who might benefit from a new housing estate might well be more numerous, but they are not self-conscious’.
The parents of an existing school threatened with closure can march and demonstrate; the future parents of a school not yet built cannot.
Furthermore, influence depends on the capacity to cause trouble.
‘Social workers might be more numerous than electric power technicians, but a potential disruption in social work makes less trouble than interruptions in the supply of electric power’.
Thus, majorities in politics are not expressions of a ‘general will’ but are often collections of minorities put together for the purpose. Coalitions of special interests trade support to gain what matters most to them.
6 The Public Sector
Public choice theory is particularly effective at explaining features of that part of the economy in which the goods and services are paid for out of taxation and produced by the direct responsibility of government. There are aspects of the public sector which seem very difficult to explain or to understand on any of the conventional political models, yet which succumb readily to this new analysis.
The Logic of Over-Production
There is, for example, the marked tendency towards over-production in the public sector. When people pay collectively for their goods and services, they consume more than they do when each makes payment individually. Public choice theory points the way: there is always a demand for more service.
‘If there are no restraints, people prefer to have the bus service run twice a day instead of once, they choose to have even more street lighting, even better roads and more of them. ... In an extreme case, people might want empty buses to pass every half-hour on the off-chance that they might wish to catch one’.
In the private sector, the consumer limits consumption by what they are prepared to pay for.
‘The consumer selects the goods and services which meet his or her requirements, and rejects those which do not. As a result of this process the goods and services tend to meet consumer preferences. Those producers who fail to do so risk bankruptcy if customers go elsewhere’.
In the public sector, the restraints are less effective because they are felt less strongly and are less visibly connected to the supply.
‘The consumers have no choice but to pay for its production because the funding for the most part comes out of taxation. Consumers have no effective alternative, first because the public sector is often characterised by monopoly, and secondly, because when they have been forced to pay for the public supply, very few of them can afford to pay yet again for a private supply’.
Politicians bid for the support of groups who want improved services. The benefit of such an improvement is valued highly by the recipients, whereas the fractional additional cost imposed on the general taxpayer is of less consequence.
‘The result of this is to have public goods and services supplied in greater quantities than individuals would have chosen had the decision rested with them individually’.
Producer Capture
While the political system favours over-production, it does not favour consumer responsiveness. Consumers have no choice but to pay for public production through taxation, and usually have no effective alternative supply. They have no opportunity to make economic inputs; they have only periodic political inputs, which form part of a very large package where specific items are lost.
The producers (management and the workforce) exert very considerable influence. They have a direct stake in the type of service produced and the power to bring real pressure to bear.
‘The bureaucracy has the power to impede, to delay and to thwart changes which would adversely affect their own status and position. The workforce can interrupt, or threaten to interrupt, the service, and bring public protest down upon elected leaders’.
The producers have more influence to trade than the consumers.
‘The result is that the public services tend to be 'captured' by the producers. By this is meant that over a period of time they tend increasingly to meet the needs of the producers rather than those of the consumers’.
The evidence of this capture is plain to see. The Post Office ended the second Saturday delivery and the Sunday collection not because consumers demanded it, but because it makes life easier for the producers.
‘Services which exist nominally for the benefit of the public are increasingly geared to the benefit of those whose livelihood is gained within them’.
Consider the refuse collectors who wake householders at dawn. They do so because they have negotiated 'task and finish' agreements which allow them to finish their day's work by midday.
‘It is inconceivable that a private clinic would wake its patients before six o'clock in the morning because the staff found it more convenient to clean the hospital in the early morning. ... Yet both of these practices can be found within the hospitals of the health service produced in the public sector’.
The result is that agreements are negotiated over years which increasingly alters conditions of service for the producers. Many of the specifications written into conditions of work would be incomprehensible without public choice analysis.
The Burden of Over-manning
If one feature of public supply is the convenience of the workforce, another is the tendency towards over-manning. It takes more resources to produce each unit of output in the public sector than in the private.
‘It is generally in the interests of producers and consumers to have efficient manning levels. ... But the public sector does not usually operate in a competitive market, and does not usually allow its consumers the luxury of choice’.
Management gains status from larger staffs; unions gain membership. Neither has an interest in efficiency that threatens jobs. An American observer at a waste management conference once noted that the real tourist sight in London was not the historic buildings:
‘It was the sight of five men on the back of a garbage collection truck, picking up sacks by hand and throwing them into the back. He found this sight more historic than the buildings’.
This inefficiency is confirmed when contractors are brought in. They perform the same task more cheaply and with less manpower, not by making employees work harder, but by making more efficient use of their labour.
Eating the Seed Corn: Under-Capitalisation
A feature of the public supply not predictable on conventional theory is its chronic under-capitalisation. Why would people choose to own services which lack the capital to maintain themselves?
There is a lop-sided pressure on funding. The pull is stronger on the current side of the account (wages and immediate services) than the capital side (future services).
‘Current spending sustains the provision of existing services and the payment of those involved. Capital spending, on the other hand, sustains future services’.
The beneficiaries of future service can exert little pressure today. Thus, it is always easier for legislators to raid the capital budget to satisfy immediate wage demands or prevent service cuts.
‘It involves less political cost to postpone the purchase of new equipment or the building of new premises, than it does to oppose pay claims or to implement service cuts’.
Over a period of years, this results in a constant decline in the proportion of funding devoted to capital spending. This leads to the phenomenon of ‘private affluence and public squalor’. There is a sleek private sector alongside a shabby, antiquated public sector where equipment is made to serve longer than it should.
The Bureaucratic Imperative
Finally, we must apply this analysis to the bureaucracy itself. While civil servants may indeed be dedicated, and may form an essential and valuable part of the 'machinery of government,' we must treat them not as machines. They are people motivated by aims similar to those in the private sector, maximising their advantage. Reward in the bureaucracy comes from seniority and responsibility.
When a problem arises, the Civil Service is asked to study it.
‘It is very much in their interest to add new programmes to their field of responsibility, and even to compete with other departments to be the one selected to do so. This is the origin of the process known as 'empire building' within the Civil Service’.
By expanding their area of activity and the size of the staff under them, they increase the salary scale open to them. This process exacts a parallel with senior executives in a private corporation who compete for status and influence.
‘Just as it is routine in the private sector to expect executives to move into new areas... led by their own section of the company, so does the bureaucracy mirror this pattern of behaviour’.
While they may indeed be dedicated, a more accurate explanation is generated by assuming they behave like businessmen, bidding and trading in a political market. Public choice theory revolutionises our view of them.
‘Instead of treating them as the traditional view does, in the role of referees standing outside to administer the rules in a fair and unbiased way, it treats them as players in the game’.
Civil servants compete for funds just as executives compete for markets. But they also have a unique advantage: they are part of the public sector themselves. When we add up all those dependent on the state (public servants, employees of state industries, and subsidy recipients etc.) we see a powerful force for expansion.
Each of these groups has a vested interest in seeing spending in their section increased. While they may object to taxes caused by increases elsewhere, each fights their own corner strenuously.
‘From the point of view of an elected representative, there is great advantage in having more than half of those who vote dependent upon the state for their livelihood’.
Whether they are public servants, public employees, or public beneficiaries, if there are enough of them to constitute a majority, they will generally elect politicians who live and trade by redistributing benefits in the political market.
‘The process may be self–sustaining, perhaps self–accelerating, even though it is probably against the interest of most of the parties involved. It causes them to sustain a higher level of consumption of most services than they would have chosen themselves, and there is the additional cost imposed by producer domination of those services, under–capitalisation and over–manning. Adding the cost of the layer of bureaucratic control, it can be seen that people are voting for more services than they want, and at prices higher than they need pay. But once again, the loss set against each programme is tiny, compared with the large gain brought to them by their own benefit. The pattern of trade in political markets leads people to act individually in ways which can be opposed to the general good, including their own’.
The Intergenerational Fraud
One group has nothing to trade: the next generation. They bring no current gains in terms of support, and can strike no bargains. We therefore see a strong tendency for gains to be offered to this generation at the expense of the next.
‘By persuading today's voters that their benefits will be paid for by tomorrow's voters, today's support is gained, while tomorrow's support is of no account’.
In democratic societies there is a tendency for generous pensions and social security, which bear no relation to payments made by the recipient. The immediate beneficiaries naturally support it. These will be funded by their children and grandchildren who at the moment have no say in the matter. It is the morality of the chain letter.
‘John Maynard Keynes said that 'In the long run we are all dead.' In his case it is true, but the cornerstone of the system of pensions and insurance is that it will also be true of those who made gains by introducing and extending it’.
They make their gains now; by the time the crisis hits, today's politicians will be safely transformed into statesmen, beyond the reach of the angry future electorate.
This is revisited further in Part VI, particularly in the context of the concept of the current intergenerational divide, and pension reform.
7 Response of Bureaucracy
The features of the public sector which run counter to the general interest (its lack of cost-effectiveness, its inefficiency, its unresponsiveness to consumer needs), have long been noted. The tendencies of the bureaucracy towards ‘empire building’ have been documented not just in political science, but in popular humour.
‘One of Britain's most successful television situation comedies [Yes Minister] took as its theme the behaviour and attitudes of the Civil Service, and assumed that its audience would understand the fundamental truth which lay behind its humorous exaggerations’.
Before public choice theory, there was a general assumption that these problems were accidental, rather than essential facets of the system. It was supposed that these were contingent activities which could be eliminated by appropriate remedial measures. If the public sector is overmanned, then its manpower levels should be trimmed. If it is inefficient and non-cost-effective, new management techniques and working practices should be brought in to improve it.
The question arises as to why, after being known about for so long, these adverse practices should still be a feature of the public economy. The answer is that the remedies failed.
The Resistance to Cure
Attempts to correct these defects fail because they ignore the interests of the groups involved. Consider the attempt to reduce over-manning. In the private sector, workers accept cuts because the alternative is the bankruptcy of the firm. In the public sector, there is no such threat.
‘It is not in the interest of either workers or management to acquiesce in cuts in manning levels. ... Union leaders lose unless they keep manning levels, and potential membership, to a maximum’.
They have the capacity to thwart any attempt to impose job cuts. They control the service and have access to the media via protest. Legislators soon learn that the costs in political terms exceed the gains in economic terms.
Similarly, attempts to solve capital depletion by voting additional funds are like trying to cure a sickness by working only on the symptoms.
‘Any new funds are subjected to exactly the same pull as the previous funds. The extra cash intended for the capital account is used instead to relieve pressure on wages’.
A lack of consumer responsiveness is dealt with by the establishment of new institutions designed to represent their interests. In the private economy, consumers express their needs and requirements by their purchases, or lack of them. Firms respond to what customers want to buy, otherwise those customers go to someone else. Firms learn what consumers think of their service through their spending patterns, and market research.
Government ‘consumer watchdogs’ set up to represent the public interest are ineffective. They act as a poor substitute for the power of the purse. Watchdog bodies are 'captured' by those they are established to monitor. They study the industry over the years, negotiate with it, and come to understand difficulties. Very subtly, their role switches to one of acting as spokesman.
‘A watchdog is less effective if it has dined for years at the same table as the intruder it is supposed to guard against’.
The real public does not take the trouble to learn about any problems and organisational difficulties which a private firm like Honda might be going through. They are not interested. If Honda fails to deliver the right quality at the right price, they buy from a competitor instead.
The Fallacy of Transplantation
Knowing the practices is one thing; correcting them is another.
A fundamental error lies in the attempt to transplant the techniques of the private sector onto the public sector. Experts are called in, time and motion studies are performed, and recommendations are made. Yet, the practices continue.
‘Reform of the Civil Service is like a tide which washes backwards and forwards, but the rocks are still there each time the tide recedes’.
The mistake derives from the assumption that the public sector can be made to behave like the private sector, but in the absence of the forces which drive the private sector. The private sector is disciplined by competition, consumer choice, and the bottom line. The public sector is not.
It may well be that the motivating forces within both public and private sectors are the ordinary aims and aspirations which people have in common. But the rules and conditions which prevail in each are so different that these same motivations will inevitably produce different outcomes.
The failure to recognise the structural differences is the source of the error. The adverse practices are not accidental; they are necessary consequences of the way the public sector is set up. They are a by-product of the political market. The features which make the economic market successful and responsive to the general good are absent from the political market.
The Bureaucratic Counter-Attack
A hypothetical illustration can be used to trace some of the techniques and practices which thwart the attempt to make the state sector behave more like private industry. When governments attempt to impose discipline through budget cuts, the bureaucracy has a sophisticated arsenal of responses. If cuts are threatened, the start of infighting between departments begins.
Ministers are briefed to defend their department's ‘essential’ work, turning a general economy drive into a cabinet fight for privileged position. The process is repeated on a smaller scale inside each department, with sections putting their efforts into justifying their appropriation, rather than on seeking opportunities for saving.
‘The bureaucrats are perfectly aware that it is not in their interest to have less spending within their section, or on their overall departmental budget’.
Governments have tried two methods to overcome this: across-the-board cuts and cash limits. Both assume that if a ceiling is imposed, departments will be forced to cut waste
The reality is different. Ministers respond to the suggestion of across–the–board cuts with the response that this is fine in general, but should not apply to the essential work of their own department. Cash limits are undermined with figures showing the impossibility of keeping within them. They are then breached by contriving situations, such as a pay dispute with a vital workforce, that force the government to release extra funds to resolve the crisis.
Although the idea behind across–the–board cuts and cash limits is that administrative wastage will be curbed, the pressures are such that it is easier to overturn the policy than to achieve the savings
The 'Bleeding Stump' Strategy
If one took public servants at face value, one might expect them to seek savings by streamlining administration. However, public choice theory predicts a different response.
‘When the cuts are imposed, the plans presented propose to achieve them not by administrative savings, but by cuts in services’.
This is the ‘bleeding stump’ strategy. Instead of cutting office work, they propose cuts in the most sensitive and valued areas of service—the ones with the most vociferous public support and high media visibility.
‘Economies in the health service might involve hospital closures or the suspension of life-saving operations in certain areas. Cuts in the education budget could reduce the number of mathematics teachers’
The outcry is immediate. The media respond, legislators receive hostile mail, and the government feels its popularity slipping. The saving seems too small a gain to justify the political damage.
‘A mountain of bitter and debilitating struggle against administrative obstruction labours to bring forth a mouse of cost saving’.
A fictional episode of Yes, Minister showed a hospital with a full administrative staff but no patients. The service had been cut to save money, but the bureaucracy remained. Fiction often pales beside reality. When the US Customs and Immigration Service faced a 10 per cent cut, its director did not trim administration.
‘He responded by immediately taking off duty all of the officers whose job it was to stop drugs coming into the country through the airports. No administrative saving was offered, just the most valuable service, and the one government was most vulnerable on’.
This was considered an extreme case, and the officer in question lost his job. He was not dismissed, however, just transferred to another department.
This illustrates the immense power of the producer groups to thwart reform.
Part III: Micropolitics
8 From Critique to Creativity
Public choice theory is a critique. It is an analytical tool which enables us to understand and to explain why it is that some things happen in the public sector in the way that they do. It traces the interests of the various groups involved in public policy and anticipates the responses evoked by it.
Equipped with this approach, we can see why conservative programmes have laboured under such difficulties. The essence of the conservative formula, curbing the role of government, reducing regulation, and cutting spending, runs counter to the interest of almost every group involved in the process.
‘They might indeed be of benefit to society as a whole, to the wealth–creating process, and they might even leave the overwhelming majority better off than they would otherwise be. None of this is sufficient to take them into the realm of practical politics’.
The Socialist Ratchet
Conservatives have long complained of a ‘socialist ratchet’, by whose turns the size of the state moves in one direction only: it increases. State power and spending are extended rapidly under collectivist and centralist administrations, and more slowly under conservative ones. If a conservative administration manages a brief holding action, preventing an increase while it holds office, this is regarded as the best which can be hoped for.
Public choice explains why. Bureaucrats fight to expand their empires; beneficiaries fight to retain their subsidies. The pressures are unidirectional.
‘It is not that the proposals are 'irrelevant to the modern world,' or even 'impractical in the real world.' It is that they are politically too difficult to push by the will of government against the entrenched pressures which act in the opposite direction’.
This illuminates the failure of the Nixon and Heath governments. Neither had effective technique to set against these pressures. They subscribed to the notion that events followed ideas. Lacking a valid model of behaviour in the public sector, they did not know what they were up against.
The senior advisers and experts on which it relied to implement policies were the very people whose interests those policies threatened.
‘Neither the Nixon government in the United States nor the Heath government in Britain really knew the constraints upon political action which are imposed by the self-seeking behaviour of those who are its participants. Had they realised how much opposition would be generated by interest groups who saw their perceived benefit threatened, or by the bureaucracy which saw its own career opportunities challenged, they might have attempted very different policies and achieved a different result’.
The Creative Counterpart
Public choice theory teaches politicians their limits. It acts as a sieve, winnowing out policies doomed to fail. But this is negative knowledge; it tells governments what not to do.
‘If public choice is a critique, there is a creative counterpart implicit in its findings. If the prevailing political system acts to thwart certain types of policy, perhaps others can be constructed which work with the pressures it imposes, instead of trying to override them’.
This is the genesis of Micropolitics. If the interest of groups lies in receiving benefits enabled by state power or funded by taxation, it would seem impossible to make them support a reduction in the state. Yet, there are routes by which this apparent contradiction can be resolved.
We must bring the principles of exchange to the surface. We must enter the political market with intent to trade.
‘Bring to the surface the principles of exchange which are already there and functioning in the political market … start with the recognition that there is such a market, and then enter it with intent to trade. Instead of trying to oppose the forces and pressures within that market by no more than the will of government, they use those very same forces to achieve more acceptable outcomes’.
‘Instead of facing head on the opposition of the various groups which perceive value in their state benefits, the new policies seek to trade in the market, offering where possible something of greater perceived value which nonetheless makes possible a reduction in the size and scope of government’.
The Mechanics of Trade
How do we persuade people to act against their apparent interest in a larger state? The answer lies in constructing policies which offer acceptable trade-offs. We must enter the political market not to fight, but to deal. Four examples by which this can be achieved include:
Substitution of Benefit (Trading source): People might surrender a state benefit if an alternative benefit is available to compensate them. If the new gain is perceptibly larger, they will trade.
Most people might gain if the benefit transfer system was ended; but this would not work because it is difficult to make this evident. People feel the gain of benefits strongly and the cost of funding the gains of others weakly.
‘It might be possible to construct policies under which people are ready to accept the loss of a state benefit because they perceive more advantage for themselves through the acquisition of a private benefit which seems larger’.
In this scenario, the system of state benefits is eroded not by abolition, but by the substitution of a superior private benefit in exchange.
Capitalising the Benefit (Trading Time): It is a commonplace in economic markets that people trade off the long-term against the short term. They will often give up a continuing, long-term gain in return for a substantial, immediate one-off gain.
‘If they value the larger benefit now, and if its nearness in time outweighs the ultimate accumulated value of the continuing benefit, there is the basis for trade’.
If people regard a one-off capital sum now (such as a discount on a house or a share allocation) as an acceptable substitute for a continuing state subsidy, the policy can gradually reduce the cost of government in the future, even if it requires an increase in the immediate short term.
Such transactions are routine in economic markets; yet policies which embody them seem novel in politics.
Outweighing the Group (Creating New Players): Sometimes a group enjoys a position of such power that they can command a benefit greater than any which can reasonably be offered in return. In these cases, the strategy shifts to altering the balance of forces in the political market.
‘Perhaps a new group can be established and built up which will outweigh the first. It will then be a potential trading partner with a policy which does take on the original group’.
The loss of votes and support among the original privileged group will be more than offset by the gain of support from the new group. Legislators will then feel able to act to curb the benefits enjoyed by the original group, secure in the knowledge that they are gaining net support.
Eroding Power (Neutralising the Leverage): Finally, policies can be constructed to circumvent and neutralise the power of a group before attempting to deal with the benefit they enjoy at the expense of society.
‘Once their power has been undermined, so has their capacity to command and retain so high a benefit’.
If their ability to cause trouble declines as their power diminishes, they have less to trade with in the political market. Consequently, less need be given in exchange for their acquiescence.
Micro vs. Macropolitics
This approach implies a radical difference in style. It involves minute attention to detail.
‘There are no ideological formulae which automatically produce the correct answers. There may, indeed, be no correct answers; only better solutions and worse ones’.
Just as macroeconomics deals with aggregates while microeconomics deals with individual choices, so too does politics need to move to the micro-scale.
Macropolitics proposes broad sweeping remedies. For example, ’abolish all subsidies’ or ‘end state industries’. These fail because governments cannot simply wish them into existence against the political reality.
‘Macropolitics proposes the broad sweeping remedies which are not implemented, and which fail when they are tried. They fail because they take insufficient account of political reality, of the decisions made by individuals and groups which trade for advantage in the political market’.
Micropolitics, by contrast, operates at the level where individuals give expression to their preferences. It creates policies which alter the choices people make by altering the circumstances.
Characteristics of Micropolitics
Several characteristics mark this approach as distinct from conventional policy:
It is Non-Confrontational: Conventional free market policy regards state benefits as illegitimate and seeks their removal. This arouses resentment. Micropolitics accepts that the benefit is there and will be defended.
‘The attitude of micropolitics is to accept that the benefit is there, and that it will be defended, whether or not it has any claim to legitimacy. ... The point missed on conventional analysis is that the status quo itself is regarded as a source of legitimacy’.
It is Less Holistic: It does not seek to implement a vision all at once, in the shortest time possible. It seeks policies here and there which can make inroads.
‘In place of the broad sweeps it offers the fine detail. It involves close study of each situation, and the formulation of policy designed to achieve success in that area. It is thus more piecemeal and more gradual’.
‘In order to succeed it tends to work with the grain of entrenched interest groups, instead of against them. Sometimes it will contemplate an increase of state expenditure in the short term in order to set it on a downward path in the future. Sometimes it will make available what seems like an unfair benefit to a select group in order to encourage it to trade in an even more unfair and more long–term advantage’.
It is Less Coherent: It produces different policies in almost every area, because every area presents different problems with different interest groups. It does not seek to apply everywhere and at once the simple principles of markets free from state interference.
‘The interest groups, the character of their benefit, and its past operation vary from one section of society to another. There is no simple formula for dealing with them. On the contrary, the detail will be different for each case. If the problems are different in each area, then so must be the solutions’.
It is Gradual (but not Gradualist): There is a clear distinction. Gradualism involves taking small steps against the grain of society, hoping they are small enough to be tolerated. Micropolitics takes steps with the grain.
‘The policies created within its framework are not designed to be tolerated, but to be preferred to the prevailing state of society’.
An Approach, Not a List
Micropolitics is not a revolutionary programme in the sense of a sudden overthrow. It is a technique.
‘It begins with a detailed analysis of the status quo, of the various advantages and benefits enjoyed, of the nature of the interest groups involved, and of the power and the pressures which they are able to deploy. From there it proceeds to the construction of policies which will offer trade–offs in benefit, alter the structure of power between different groups, and set up incentives to lead individuals and groups to accept circumstances which lead to the long–term diminution of transfer gains and to a reduction in the proportion of goods and services supplied from the state sector’.
The approach is more conservative than conventional free market policies precisely because it is more piecemeal and more gradual. It takes society as it is and introduces policies to change it remorselessly in the direction of less subsidy and government involvement.
‘Whatever society emerges as a result of that process will be one resulting spontaneously from the interplay of different decisions and actions, not one decided by planners to be superior’.
It does not start with a list of things to be done. It starts with a technique for creating policies in response to the situations it encounters.
‘It is an approach, not a set of priorities. In place of a list of policies to be implemented is a means of generating policies’.
The emergence of this radical new method in the 1970s explains why the later administrations of Reagan and Thatcher succeeded where their predecessors failed. They knew what they wanted, but unlike the others, they were equipped with the policies to bring it about. Instead of running headlong into opposition, they introduced policies which offered such groups the opportunity to trade for greater advantage.
‘The difference between the two was policy technique. It was the entry of ideas concerning political markets into the activity of policy formulation’.
9 Problems, Non-Solutions and Solutions
It is instructive to compare the differences between conventional policy suggestions and those which emerge from a treatment of the political process as a market. The divergent approach is easily illustrated by looking at the measures with which both political styles propose to treat long-standing problems.
The Problem of Local Government
The provision of local government services presents a classic case study. The basic problem is that the gradual accumulation of services by local authorities has led to an extension of the state into economic processes, with all the attendant problems of public sector supply.
‘The long-term tendency has been towards oversupply of quantity, decline in cost effectiveness, over-manning, depletion of capital, capture of the service by its producers, and lack of any inputs of consumer preference’.
The political market explains why. The small minority who pay rates (property taxes) count less than the majority who perceive themselves as beneficiaries. Candidates for local office have an interest in offering the highest possible number of services perceived as free at the point of consumption.
Conventional Non-Solutions
Two solutions were put forward on the conventional paradigm.
1. Reorganisation (The Giantism Fallacy) The hope was that amalgamation into larger units would make possible economies of scale and new peaks of business efficiency. This was implemented in the early 1970s and achieved exactly opposite results.
‘The new areas were too large and remote to sustain any influence at all by electors. ... Inefficiency and wastage increased, and abuse quickly became endemic’.
Some authorities found they had funds to spare to bid openly for the votes of minority groups, making grants available to causes whose main thread was dependence on the politicians who funded them.
2. User Charges (The Economic Trap) A more persistent suggestion has been the introduction of user charges. The theory is sound: if people pay directly at the point of consumption, they will feel the cost and limit their demand to what they are willing to pay.
‘On the face of it, user charges offered a considerable degree of consumer input where none had existed before. ... They would not have a choice between suppliers, but they would at least be able to decide how much was supplied’.
However, on the level of political markets, user charges are a non-starter.
Continued Public Production: They leave the production entirely within the state sector, meaning inefficiency and producer capture continue unabated.
Political Suicide: Most people perceive benefits more strongly than costs. ‘Giving people their money back instead of the free services runs counter to the findings of public choice analysis... user charges work against the grain of the political marketplace’
The Self-Reversing Mechanism: Charges must be reviewed annually by elected councillors. At this point, they come under immense pressure from minority groups pleading ‘hardship’.
‘Over a period of time it is quite possible for what started as a full-cost user charge to finish up as an ever more nominal charge, with the balance borne by subsidy... In this way political pressures can make user charges self-reversing’.
The Micropolitical Solution: Contracting Out
As an alternative, micropolitics developed the idea of contracting out, inviting private businesses to bid for the provision of public services.
‘Just as user charges proposed to take the finance into the private sector and leave production in public hands, the use of contractors involves transfer of the production to the private sector, while leaving the funding still public’.
This introduces competition. Firms must bid against each other, driving down costs and driving up quality. Any firm which fails to be efficient risks losing the contract to one that is.
‘The result is that most of the features of public sector supply are removed. The inefficiency, the over manning, and the capital shortage are all far less common in the private sector... for the very simple reason that firms which permit such practices lose business to those which do not’.
Savings typically lie in the range of 20 to 40 per cent. But the real triumph of this policy lies in how it manages the political market to ensure implementation. It does not simply impose the change; it constructs a policy to handle the interest groups.
The Public: They fear for quality. This is met by tightly drawn contracts with penalty clauses and performance bonds.
The Bureaucracy: They fear loss of status. This is countered by moving management up to the higher-status work of contract monitoring and enforcement.
The Workforce: They are most at risk as private providers can deliver the same output and quality with fewer more productive people. The policy often specifies they have first refusal on new jobs, or offers reabsorption elsewhere in the council to avoid forced redundancies.
‘In general the offers and conditions to the employees must be sufficiently attractive to go over the heads of the union leadership and seek support directly from their members’.
This is a policy which succeeds because it is tailor-made.
‘The methods of micro politics show clearly through the process. An analysis identifies all of the groups in the political market in question, and traces the perceived benefit they receive. A policy is then constructed to offer as many of them as possible a bigger gain from the new method than they enjoyed before. All possible objections are anticipated, and the policy is structured so that most of them can be dealt with in advance’.
While advocates of a ‘pure’ market criticise it for not going far enough, micropolitics recognises that it makes substantial progress towards free market goals: better services at lower cost, involvement of enterprise, introduction of competition, and encouraging innovation and efficiency. A full free market solution would fail to pass the political obstacles.
‘While the advocates of a total solution were still attempting to win the battle for ideas, the micro politicians meanwhile managed to take the use of private contractors to such a stage of success that the British government felt confident of enough support to mandate local authorities to seek outside bids’.
The Problem of Education
State education offers another clear example. Some 93 per cent of children depend on the state sector, where parents have no effective choice and are forced to pay for a service they cannot control.
‘Parents were dissatisfied with the quality of education, and saw decline in standards met not by a determination to improve, but by the attempt to prevent measurement’.
The system exhibits classic producer capture: quality is judged by inputs (class size, salaries) rather than outputs (attainment), and priorities often include political indoctrination rather than education.
People were used to the system of education free at point of consumption, yet dissatisfied. One set of solutions turns to private schools, and ways of making it easier for parents to have access. One idea is to make school fees deductible against tax, thereby lowering the price in real terms, and giving more people access. A variant is a rebate on taxation to those who opted out of state allocation by choosing a private school.
The theory behind this is that parents save the state the cost of educating their child, so incentives would encourage more to do so. If the deductions/rebate are set well, the state could save more net, by not having to educate the children.
While all sound economic ideas, these suffer from the fundamental weakness that the numbers who stand to gain from its expansion are too small. The evidence suggests that there is a lobby from the middle classes which would like access to private schooling to be easier financially, and few who resent this. However even if private provision double, this would leave 86 per cent of parents trapped in an underperforming state sector. Reform must mean improvement of the state sector.
The Voucher Failure
Advocates of free markets have long supported education vouchers. The voucher takes the place of cash, allowing parents to spend it at the school of their choice. The voucher scheme is by no means designed to bring about a full free market situation. There are still subsidies and transfers. The aim of the voucher scheme is to introduce market pressure. By choosing where to spend their vouchers, parents would be choosing the types of school they wished to proliferate.
‘Unpopular schools would not receive enough voucher income to pay their way, and would face contraction and possible closure. Popular schools... would gain additional voucher income to enable them to expand’.
There are several variants of the voucher scheme, but many allow parents to add to the value of the voucher in order to purchase a place at a more expensive school.
The voucher scheme has many attractive features and would, if it could be achieved, be a vast improvement on the effective state monopoly of education.
However, despite its economic logic and decades of discussion, the voucher scheme has consistently failed to be introduced in the UK. Why? Because it is holistic and threatening. It changes everything at once.
The voucher system is hard to introduce gradually. Despite talk of experimental schemes, it would have to cover all of the schools within a very large area to be effective and to allow for real variety and choice.
‘It would be prone to sabotage by those determined not to lose control over education. ... Parents would find pieces of paper arriving through the mail in place of their free school place. Schools, as well as the parents, would suddenly face uncertainty’.
It unites the teachers' unions, the bureaucracy, and fearful parents (who worry they’ll need to pay to get a decent education) against it. Governments always retreat in the face of such combined political pressure.
The Micropolitical Solution: The Three-Legged Stool
Micropolitics proposes an alternative: three separate reforms, each justifiable on its own, which together constitute a new market system.
Open Entry: Parents must have the right to send their child to any school that will accept them.
‘This policy is calculated to be popular with parents. Many of them are trapped by location into the catchment area of a bad school. Choice of school would enable them to escape’.
School Independence: Control is transferred from the local authority to a governing board dominated by parents. They hire the head teacher and set policy.
‘With such a reform, schools would show much more variety... This, in turn, would give reality to the choice between schools’.
Per Capita Funding: Schools are funded directly from the centre based on the number of pupils enrolled.
‘The reform would cut the local bureaucracy out of the picture... The money follows the child as its parents make choices between a variety of schools’.
One great advantage of this approach is that each of its steps can be supported independently by different groups, yet the combined effect of them produces the change. Once these three legs are in place, their combined effect is to establish a market. Schools must respond to parental demand to attract the enrolment on which their budgets depend. whereas the voucher system was rejected for years, this type of system was in the Conservative election manifesto of 1987 with elements implemented after.
This approach is gradual, piecemeal, and works with the grain of the political market. It does not force change upon those who want the status quo, but it opens the door for a new reality to emerge from the choices of millions of individuals.
10 Practical Details
Although the programmes of the Conservative governments of 1970 and 1979 in Britain were very similar, the practical details of their policies were very different. It could be claimed that the later government had knowledge of the failures of the earlier one; but this would only have told it what not to do.
‘A major feature of the intervening years... was the rise to prominence of the public choice school and its description of how political markets operate’.
The change in thinking is best exemplified by a comparison of the approach to several key issues. The early attitude was one of determination to put the slide to socialism into reverse by imposing conservative alternatives, even though this meant incurring major hostility. By the end of the period, it had changed to a search for new techniques which could be implemented by giving people more gain than they had enjoyed previously.
The Housing Revolution
The attitude to state housing illustrates the point perfectly. Some 35 per cent of the population lived in publicly owned homes, usually at highly subsidised rents. To Conservatives, there was an obvious unfairness in taxing homeowners to subsidise tenants often richer than themselves.
The old approach was to advocate bringing rents up to economic levels. This failed because ‘the council estates formed a vast block of opposition to reform’. As always, those in receipt of the benefit valued it more highly than the others resented paying for it.
The new policy did not abandon the idea of economic rent, but it placed its emphasis on giving council tenants the Right to Buy.
‘While council tenants liked subsidies, many of them liked even more the idea of becoming home-owners’.
To foster their support, the policy provided for sale below market valuation. Discounts ranged from 20 per cent to a maximum of 50 per cent (later 70 per cent) depending on tenure.
‘A new offer had appeared in the political market... The new offer was worth more to some than the subsidies had been’.
The result was a transfer of power and property on a massive scale. By 1986, over one million tenants had bought their homes. The new group of homeowners already formed a powerful new force in the political market. The Labour Party, originally opposed, was forced to do a U-turn and pledge to keep the policy. Council officials saw their empires crumble, while elected local councillors saw their captives slipping away. The government was working with the political market this time, by offering them more.
‘The old approach tried to override the interests of the council tenants... The new method sought to offer an exchange with something of greater value’.
Reviving the Private Rental Sector
The private rental sector in Britain had been decimated by rent control and security of tenure laws, which dried up the supply of new properties.
‘Since tenants are allowed to take possession of someone else's home, and live in it at less than its economic worth... it is difficult to see how this differs from theft, except for the obvious difference that it is not against the law’.
Previous attempts to repeal these controls failed because they provoked ‘outraged reaction’ from tenants and the media, who cast landlords as ‘Ebenezer Scrooge’ figures exploiting the poor.
The micropolitical solution is not ‘fair’, but it is workable. It proposes protecting the advantage of the current generation of tenants, but permitting new leases to be offered outside the scope of controls.
‘The thinking is that the current tenants will have no reason to oppose the move, since their own advantage is not threatened. On the other hand, a situation will have been created in which all new tenancies would be free from the restrictions’.
Over time, as old tenants move or die, the market becomes free. It works because it neutralises the opposition of the only group powerful enough to stop it.
Managing Industrial Decline
When loss-making state industries face closure, the workforce typically demonstrates, threatens strikes, and occupies plants. Governments usually retreat, finding it easier to continue the subsidy than to face the political cost of closure.
The new approach seeks to secure the acquiescence of the workforce.
‘By making very generous redundancy offers, or providing relocation grants, the government makes the proposal more acceptable to the workers’.
In place of a subsidised job, the worker is offered a capital sum, sometimes enough to start a business or retire early. The threat to the job is balanced by the offer of a job elsewhere.
‘The exercise might cost more in the short term than forcing through simple closure, but when it has been achieved successfully there is a long-term saving not available where closure is thwarted by the potential losers’.
Taming the Trade Unions
The reform of trade union law provides the most vivid contrast between the failures of the 1970s and the successes of the 1980s. Both the Wilson and Heath governments attempted comprehensive reforms (In Place of Strife; the Industrial Relations Act) which tried to restrict enjoyed by trade unions and members. Both failed because they united the union movement in defiance.
The Thatcher reforms succeeded because they were different in three crucial respects:
Gradualism: They came in a series of steps, not one ‘big bang’ Act.
‘Each measure seemed very limited, perhaps calculated to fall short of anything which would arouse a major outcry ... It was the cumulative effect which added up to real reform’.
Democratisation: Instead of taking powers away from unions to give to the government, they devolved power down from the leaders to the members.
‘Ordinary members... now found that the new laws brought in their opinion much earlier by secret ballot. ... The members were hardly likely to rally against measures which gave them more powers’.
Civil Law: The reforms used civil law (injunctions, damages) rather than criminal law (fines, imprisonment).
‘There were none of the opportunities by which union leaders might have evoked the familiar loyalties of their members in mass defiance of the new laws’.
This strategy was vindicated during the 1984–85 Miners' Strike. Unlike the 1974 strike which brought down the Heath government, this one failed.
‘A strike by the miners' union had defeated the Heath government, after plunging the country into power cuts and a three-day work week. The strike which took place under the Thatcher government was a failure. The differences are revealing’.
The second strike, although led by the militant president of the National Union of Mineworkers (NUM), Arthur Scargill, was significantly hampered by the new legal framework and the micropolitical strategy employed by the government.
1. The Absence of a Ballot The strike was only a strike by part of the union. Crucially, the union had twice voted down strike action in pithead ballots previously. Because it was called without a ballot, sections of the union, particularly the Nottinghamshire miners, felt justified in not joining it. If the strike had taken place just a few months later, the new legislation requiring a secret ballot would have been fully in force, potentially preventing the strike entirely.
2. The New Legal Framework The ‘salami-slice’ reforms to trade union law now made it difficult for the NUM to expand the conflict.
‘The new laws which covered the picketing of secondary firms made it more difficult for the other unions to be forced to help’.
Firms were able to go to civil court for injunctions. When the union disobeyed them, it was found guilty of contempt of court.
‘Its funds were seized for non-payment of fines, not to be released until the leaders undertook to comply’.
3. Removing the Cause for Conflict Perhaps most critically, the government neutralised the central grievance of the workforce. The strike was claimed by leaders as a battle to save jobs and prevent pit closures. Yet, the government's proposals ‘guaranteed that not a single miner would be forced out of a job’.
The micropolitical approach of offering trade-offs was in full effect:
Job Guarantees: All displaced from closing pits were promised jobs elsewhere.
Relocation Grants: Grants were offered to those who moved.
Voluntary Redundancy: The most generous voluntary redundancy payment in British history was offered to miners who chose to retire.
As there were no forced job losses, and huge cash sums for miners who chose to quit instead of taking a job at another pit, there was some confusion as to the issue at stake. The dispute ultimately boiled down to a fight over the future size of the industry, a factor of great interest to the union leadership, but hardly a crucial issue for the present workers.
The strike resulted in the break-up of the miners' union, validating the new approach. Whereas the government of Edward Heath had used the head-on confrontation approach on both issues and had lost, the government in power a decade later used policies which assuaged the interest groups and offered trade-offs to compensate them for any benefits threatened by the changes.
Leaders vs. Members
A key insight of micropolitics is that the leaders of interest groups do not necessarily represent the views of their members.
‘Militant leaders always howl for more benefit and rarely admit that any offer is more than a pittance; that is their job. Their members, on the other hand, might be quite happy to trade what is offered’.
Policies must be tailored to the members. By going over the heads of the leaders and offering benefits directly to the workforce (such as ballots or shares), the government can split the interest group and render its leadership impotent.
11 Privatization
The word as well as the idea of privatization were comparatively latecomers to the Thatcher administration. The 1979 manifesto referred to the sale of aerospace and shipbuilding, as well as the National Freight Corporation, but with no indication that this was to be more than the ‘denationalisation’ long advocated as a goal of Conservative policy.
The 1976 publication by the Conservative Party, The Right Approach, had stated that, ‘in some cases it may also be appropriate to sell back to private enterprise assets or activities where willing buyers can be found’. The key word is ‘back’, indicating an intent to undo some of what years of nationalisation had done.
Privatization, as achieved in practice, has been vastly different from the token sales of a small brewery and a travel agency which took place in the 1970–74 administration, or even the return of parts of the steel industry to the private sector in the 1951–55 administration. Both of these were cases of denationalisation, a term which implies the simple reversal of a previous act.
The word ‘privatization’ has gained currency since the 1979 government took office precisely because of a general recognition that it is something new.
‘It does not revert to previous circumstances, but achieves a new state of affairs instead. In no cases since 1979 have parts of the state sector been handed back to previous owners. In every case of privatization they have found their way into new hands in the private sector’.
It is not merely a reactionary policy of undoing history. It is a creative policy of constructing a new commercial reality. Although commonly thought of as no more than the sale of state assets, it is in reality a complex series of policies designed to have performed in the private sector activities which have hitherto been done in the state sector. There is no simple formula; a great variety of different techniques has been developed.
The Learning Curve
A considerable degree of the expertise now possessed has been learned in practice. This learning process is illustrated vividly by the contrast between the failure to sell the gas showrooms in 1981–82, and the huge success gained with the privatization of British Gas in 1986.
The first venture involved an attempt to separate the profitable gas showrooms from the rest of the industry. It incurred the immediate wrath of the industry's management, led by the dour Sir Dennis Rookes, who fought to keep his empire in one piece. The workforce threatened strikes, and scare stories were spread about ‘cowboys’ fitting dangerous appliances. The proposal was withdrawn, having alienated every significant interest group—it was a lesson in how not to privatize.
The 1986 flotation was a triumph because the policy had changed. It has three key features:
Management Support: The management had objected to the break-up; the new policy kept the industry in one piece.
‘Keeping the industry intact offered a trade-off. The board liked the power and authority as heads of a major public enterprise, but liked even more the prospect of becoming the directors of a powerful, profitable and private corporation’.
Worker Participation: Having previously threatened strikes, the workers now supported the move. A substantial number of shares were set aside for them, including a free issue and priority reservation.
‘With expectation about the sale and the subsequent value running high, over 90 per cent of the workforce bought shares in the new company. ... They became part-owners of the company, with a personal stake in its future performance’.
Public Involvement: To counter fears of ‘cowboys’, the sale was pitched directly to the gas-using public. They received preferential share allocation and were offered vouchers toward gas bills as a bonus. A massive media blitz promoted the flotation, and shares were offered on easy terms (only 50p down payment) to encourage first-time buyers.
The first gas privatization alienated the interest groups and failed, whereas the second offered them all trade-offs and succeeded. The lessons of the years which separated the two had been learned by experience.
Telecom: The Test Bed
The sale of Telecom in 1984 broke new ground as the first major utility to be privatized. It served as a test bed for the techniques of privatizing a giant monopoly. Since no one had ever sold a national telecommunications network before, every step had to be invented.
The initial assumption might have been to break it up to ensure competition. However, this was quickly discarded in favour of a micropolitical strategy designed to secure success.
‘A fight to privatize Telecom in pieces was a fight for a policy that would fail. It would have incurred the hostility of the management and the unions, and would probably have resulted in the sort of retreat which accompanied the first attempt to sell the gas showrooms’.
To ensure the sale went through, the government constructed a policy that systematically neutralised objections:
Management Buy-in: By deciding to sell the corporation intact, the government won the support of the management. They preferred to head a private monopoly rather than a fragmented competitive market.
Worker Participation: The union leadership launched a fierce campaign against the sale, featuring posters of a telephone cord being cut by shears. The government went over their heads, offering free shares and priority purchasing to the employees.
‘The result was that 96 per cent of the workforce bought shares in the new company. ... The workers were, as so often in other companies, taken aboard as partners on the privatization’.
Protecting the Public Interest: To answer charges that a private monopoly would abuse its power or neglect essential services, specific safeguards were built into the legislation:
The Golden Share: The government retained a single ‘golden share’ which gave it veto power over specific changes to the company's articles, primarily to prevent it falling under foreign control.
Universal Service: A legal requirement to maintain rural pay telephones and emergency services was written into the licence.
Regulatory Oversight: A new body, OFTEL (Office of Telecommunications), was created. Unlike US regulators who limit profits (and thus efficiency), OFTEL's mandate was to promote competition and limit price increases to a formula of ‘RPI minus X’.
The Marketing Triumph: The flotation itself was a massive logistical exercise. It was the largest share issue ever undertaken in the world at that time.
‘It was important to make the first utility flotation a success... It was also important to involve the general public, and to attract as many of them as possible as share buyers. This would spread the base of ownership and make nationalisation by a subsequent government harder to do’.
By offering bill vouchers and instalment payments, the sale attracted two million buyers. It proved that a ‘natural monopoly’ could be transferred to the private sector with popular support, provided the package was constructed correctly to balance the interests involved.
Pricing the Sale
There were charges that the government sold assets too cheaply, especially when shares opened at a premium (a discount from the real market price) – a loss to the taxpayer.
‘To be accused of selling national assets too cheaply, to the gain of ordinary members of the public, is easier to take than a charge involving 'monied friends in the City', but there is still a mistake implied’.
However, a premium is desirable and deliberate feature of privatization. A premium is not merely a financial miscalculation; it is a political necessity. If shares were to fall in value immediately after the sale, the political consequences would be disastrous.
‘A sale which goes to a discount, leaving the buyers with a loss, creates a group of people who are disillusioned with capitalism’.
The objective was to create a ‘share-owning democracy’, transforming ordinary citizens into capitalists. If they see themselves becoming personally better off as a result of policies which favour free enterprise, they will be more inclined to support those policies in the future.
‘By being owners of part of the nation's business, they acquire a stake in seeing a climate favourable to economic enterprise’.
The charge of ‘selling out cheap’ also ignores the government's ability to retain a stake. The government does not need to be right the first time. By selling only a portion of the company (e.g., 51 per cent) initially, the government retains the option of selling the residual shares at a much higher price later, once the company has become efficient in the private sector.
‘By selling just over 50 per cent of the company, the government retained the option of disposing of its residual shares at higher prices later on. It is usually the case that firms become more profitable and more efficient in the private sector... This is the case with Telecom, as it has been with other sales’.
For example, in the case of British Aerospace and Cable & Wireless, subsequent tranches of shares were sold at prices significantly higher than the initial offering. This allows the taxpayer to share in the capital appreciation that privatization creates.
The ‘underpricing’ must also be weighed against the risk of failure. A failed flotation (where shares are left with the underwriters) damages the credibility of the entire privatization programme.
‘The policy has been that it is a good thing to have the shares open at a premium, to encourage future investment and to gain political support from those who benefited from it’.
The cost of the premium is, in effect, the insurance premium paid to guarantee the success of the transfer from public to private hands.
The Purpose of Privatization
A frequent criticism levelled by academic economists and supporters of market economics is that the government's privatization programme has often failed to create perfect competition. They argue that replacing a public monopoly with a private monopoly yields no benefit to the consumer, as the new owners can still exploit their dominant position. This criticism misunderstands the fundamental objective of the policy.
‘The purpose of privatization is not principally to make state industry competitive, it is to make it private’.
Public sector operations do not exist in a vacuum; they lie within a political market. This distorts their behaviour in ways that are far more damaging than the lack of competition alone. State industries cannot raise finance on a commercial basis. Their borrowing counts as government borrowing (the Public Sector Borrowing Requirement). Consequently, their investment plans are not judged on whether they will yield a return, but on whether the Treasury can afford them that year without raising taxes or interest rates.
‘If funds are sought for expansion or capital investment by state firms... It must fit into targets set for the PSBR, and must thus compete with other government priorities instead of standing on its own. ... The public sector cannot be funded on a commercial basis’.
In the public sector, commercial decisions become political footballs. The decision on where to site a new factory or close an old pit is not made based on logistics or profitability, but on the political map of marginal constituencies.
‘The public sector firm faces political inputs on a similar decision, with elected representatives attempting to secure the factory for their district by political pressure. ... The point is that a state firm is a political football, to be kicked around by the interest groups and those who apply political pressure on their behalf’.
When choosing between a public monopoly and a private monopoly, the public choice analysis is clear.
‘Of the two, the fact that it is public constitutes the greater evil’.
A private monopoly, even if it dominates the market, operates under different constraints:
It is more vulnerable to technological innovation and substitution. It cannot rely on the state to ban competitors or subsidise its losses indefinitely.
It is further from the political domain. It lacks the direct political clout that state monopolies wield to secure subsidies and protection.
It can be regulated by an independent body (like OFTEL or OFGAS) more effectively than a minister can regulate a department he is also responsible for defending in Parliament.
Therefore, the priority is to move the asset into the private sector first. Competition is desirable, but the transfer of ownership is essential.
‘A private monopoly is more vulnerable to technological innovation. It is further from the political domain than are the state monopolies... Whereas private monopolies are eroded over time, public ones are sustained by new laws brought in to protect them from new threats’.
Preparation as Catalyst
Often, the mere preparation for privatization acts as a catalyst for reform. The knowledge that a sale is approaching concentrates the mind.
British Airways is the classic example. In 1983 it was making huge losses and was grossly overmanned. By its sale in 1987, it was profitable and popular.
‘It was not life within the private sector which did this, but rather the preparation for that life’.
This was achieved by micropolitical techniques: generous voluntary redundancy to reduce the workforce from 59,000 to 39,000, and buying out index-linked pensions with cash sums. They bought out the inflation-proof, index-linked pension scheme—a massive liability for any private company—by offering employees a lump sum cash inducement to switch to a standard funded scheme.
The looming sale forced a shift in attitude. Staff realised that in the private sector, their jobs depended on satisfying the customer, not the minister.
‘The lesson drawn from the experience of British Airways is that a loss-making operation can still be sold. ... The preparation for privatization can itself be a sufficient incentive to turn a loss-maker into a profitable and competitive outfit’.
12 What About the Workers?
The attitude of the workforce is critical to the success of privatization. It was often assumed that workers in state industries would fiercely oppose the return to the private sector. However, micropolitical analysis suggests that workers weigh the benefits.
‘The offer made to them must be such as to equal at least the perceived benefit they already receive. ... The definite job in the private sector is worth more than the possibility of continued employment with the state’.
The strategy is to construct a policy where workers become winners, creating a divide between the ideological stance of union leaders and the practical interests of the members.
‘The detailed proposals for privatization... had the effect of dividing the interest of the members from that of the union leaders. Those leaders thus found uncertainty in the ranks behind them; they could not claim the automatic loyalty which direct confrontation produced’.
The Techniques of Participation
To secure support, or at least acquiescence, a ‘menu’ of incentives is developed to make participation easy and attractive:
Free Shares: To break the ice, shares are often given away.
‘Sometimes, as in the case of British Gas, a number of shares are offered free’.
Priority and Volume: Workers are often allowed to buy more than the general public.
‘Sometimes the workers can purchase a higher number than are available to the general public. This was the case with both British Gas and Telecom’.
Credit Terms: To help those with few savings, purchasing is made easier.
‘Sometimes those who work for the company are allowed to buy shares out of their wage packets on extended credit, usually interest–free. This happened with the Jaguar car company’.
Collective Investment (Unity Trust): Even where individual ownership is difficult, unions can be involved.
‘In many cases finance has been provided by Unity Trust who invest on behalf of the trade unions. ... it does provide for a stake in the company on a collective basis’.
The cumulative effect is to change the calculation for the individual worker. When employees weigh the advantages, ‘the overwhelming choice has been to disregard any opposition from union leaders, and to take part in the process of change’.
The National Freight Consortium: A Case Study
A dramatic example of worker involvement came with the privatization of the National Freight Corporation (NFC). This was a ‘management–worker buyout’ of a road haulage federation.
‘The workers of National Freight, including drivers and loaders, checkers and sorters, bought into the new company. Some mortgaged their homes to buy shares. Others pooled their life savings’.
The results were spectacular. The new company proved highly profitable in the private sector.
‘The share–owning workers saw the value of their shares increase first four–fold, then eight–fold, then ten–fold, then 54–fold. All of the worker and management owners made several thousand per cent capital gain’.
The Logic of the Buyout
This technique has proved very fruitful for privatizing fairly small entities—at least compared with giants such as Telecom.
‘When the outfit is small enough for a real sense of community to be possible, there is a potential candidate for a buyout. Management will be likely to know both the potential and the problems... They are in a position to know what improvements could be made’.
This method was used for some of the British Rail hotels and many of the National Bus companies.
The Collapse of Opposition
The success of early sales paved the way for acceptance elsewhere.
‘It is notable that when the sale of a state company has involved a special allocation set aside for employees, the take up rate has every time exceeded 90 per cent of employees’.
This participation fundamentally alters industrial relations.
‘It shakes away the old attitude of 'us and them', and has workers identifying with the company, instead of seeing it as adversary’.
The Vickers Shipyard Case In the case of the Vickers shipyards, the micropolitical trade-off was used to play a local consortium against a commercial giant. The yard was offered for sale, and a worker-management consortium bid for it against Trafalgar House.
‘The most dramatic feature of the Vickers privatization is that the sale was made to the second highest bidder. ... The consortium of management, employees and community participants was successful, even though its offer was less’.
To ensure success, ‘novel credit terms’ were used alongside an ‘intensive education programme’. Uniquely, favourable share rates were offered ‘not just to workers, but to members of the local community’.
Handling Redundancies (The Miners) Where job losses are inevitable, resistance is diffused by generous terms. In the coal industry, closure plans were sweetened to avoid strikes:
‘Relocation to other pits was offered, complete with a moving allowance. Retraining was made available. Terms for voluntary redundancy were totally unprecedented in the amount offered’.
A New Class Interest and Economic Reality
The ultimate goal is to alter the structure of interest groups. By distributing share ownership, the government creates a ‘built in bias towards private property and capitalism’.
This makes reversal difficult.
‘Meanwhile the union leaders... now come to terms by accepting that much of what has happened is irreversible. The new interest groups... are already too powerful to take on’.
There is also a correction in pay structures. In the public sector, unions often ‘bid up the pay of the more numerous unskilled at the expense of the smaller numbers who have professional or other qualifications’.
‘Therefore, once they are in the private sector, firms initially have to make awards which give more to the highly qualified. ... After the distribution which characterises the private sector has been reached, however, one would expect pay settlements to respond to the market’.
Part IV: Special Techniques
13 Routes in Depth
Privatization is not a single technique; it is a range of techniques derived from the analysis of political markets. The first lesson learned was that no two cases are the same. Every activity in the public sector has unique characteristics, and therefore presents unique problems.
‘Rarely does the finished policy show the simple elegant lines of a clear ideology. It is far more likely to be bristling with ad hoc clauses tacked on to cope with special interests’.
The process of dismantling the public sector is delicate and dangerous.
‘If the exercise of dismantling the public sector can be compared with any other activity, it is like that of dismantling an unexploded bomb. ... The analogy is not a very good one, except perhaps that if it is done wrongly it can blow up in the face of whoever attempts it’.
The Smorgasbord of Direct Sale
Even within the limited scope of direct sales, the variety of methods used is immense. Micropolitics rejects the idea of a ‘right way’ in favour of whatever works for the specific case. Variations include selling 100 per cent or 51 per cent, selling to a private corporation or a worker consortium, and selling for ‘cash down, or on easy terms’.
Amersham International: Sold 100 per cent in one go. No large-scale advertising was used; City professionals piloted the sale. The price rose immediately, along with the false charge of ‘underselling’.
British Petroleum: The first major privatization, almost by accident. Government owned just over 50 per cent since the crisis of 1976. The government sold enough equity to drop its holding below 50 per cent, complying with the IMF. Later, as the now-private company prospered, further tranches were sold at higher prices.
British Aerospace: Just over half was sold, with an employee allocation, introducing the ‘golden share’ to guard strategic interests. Government later sold all its residual holding except this one share.
National Freight Consortium: Sold 100 per cent to the management and workers, with a five-year ban on resale.
Cable and Wireless: An initial sale of 49.4 per cent in 1981 was followed by a rights issue in 1983 where the government did not exercise its option, allowing its stake to fall to 45 per cent.
The pricing mechanisms also varied wildly. Cable and Wireless was a set-price sale; Britoil was by tender. Enterprise Oil was under-subscribed, while for Jaguar shares people fought in the street to get applications in on time.
‘Those who claim that privatization is just 'selling off state assets' should note the huge variation of the techniques used. It suggests that the aim is to achieve rather more than a simple sale. Substantial benefits are targeted at important groups as political trade–offs for losses they might otherwise sustain. In many cases the aim is to make some groups sustain benefits in order to make the process less susceptible to later reversal’.
Micro-Incrementalism: Growing the Alternative
Direct sale is high-profile, but another technique can be equally effective: Micro-Incrementalism.
‘Policies which encourage exit from the state supply come into the class called 'micro–incrementalist'‘.
This involves leaving the public supply intact while growing a private alternative alongside it. The public effectively privatizes the service themselves by choosing to exit the state sector.
‘The most secure revolutions are ones which people make for themselves over time; these are the ones we call evolution’.
Typically only the very rich have choice, by being able to afford to pay twice over—as taxpayers and again privately. Micro-incrementalism makes the private option more accessible to the wider public, allowing more private competition or changing the financial incentives—tax exemptions, business expenses, vouchers etc.. This approach is often fiscally prudent for Government too, as people moving to private provision reduces demand on the state supply.
These are not purist solutions. Conventional free market politics might advocate biting the bullet, ending the state service. Such a policy would fail because it would not deal with the fears and anxieties of consumers any more than it dealt with the benefits enjoyed by public sector stakeholders.
Two examples of micro-incrementalism include:
Transport Deregulation (1981): Long-distance inter-city bus services were deregulated, allowing private operators to compete. Their entry led to spectacular fare reductions, down to one–third of the state monopoly levels in some cases. Service was vastly improved, with innovative levels of comfort. The public started using the private services on the first day.
Private Medicine: Health is particularly sensitive and precious; people value the security of the NHS, and the certainty of care, free at the point of use. A micropolitical solution is to leave the NHS intact but make the private alternative more accessible. The Chancellor restored tax-exempt status for employer-provided health insurance for low wage earners (below £8500).
‘The numbers covered by it in Britain have quadrupled since 1979... and include hundreds of thousands of trade unionists for whom it is a negotiated benefit’.
With this approach the NHS is still there for those who need it and wish to make use of it. As more go private, they relieve the public sector of a part of its burden, enabling its scarce resources to be deployed more effectively.
Articulate middle classes are effective at applying political pressure. Once they move to private medicine, they form a strong interest group anxious to retain it. Attention turns to other ways of helping private medicine to grow. These might involve extending the modest tax concessions, or perhaps making charitable donations easier to make on a tax–exempt basis.
Subdivision of Classes
Conventional policy often fails because it tries to deal with broad classes—’landlords’ or ‘businesses’—in a holistic way. This generates massive opposition from the entire group. Micropolitics subdivides these classes to reduce the size of the opposition and target the specific problem.
For example, instead of trying to reform the entire rental market (which might enrage all tenants), the policy might focus only on ‘new landlords’ or ‘small landlords’. If the problem is a shortage of new rentals, exemptions can be given to those owning only one or two properties.
Burdens and regulations often fall heaviest on small firms. Rather than a total restructure of business law (which would provoke a confrontation with unions), the policy proposes a subdivision of Small and Medium Enterprises (SMEs) (e.g., those with fewer than 250 employees) for special treatment.
‘There is clearly something wrong if the laws designed to protect employees in factories cause the small businessman with one assistant to devote his time to checking temperatures and the size of toilet seats instead of making more sales and generating more jobs’.
Applying the pareto principle, it might be possible to address 80 per cent of the problem, while only encountering 20 per cent of the opposition. Selecting the boundary is somewhat arbitrary, but can be informed by likely contribution to the problem and desire to keep the number of opponents down to manageable levels.
Critics argue this creates ‘boundary effects’—disincentives to grow beyond the limit. However, the micropolitical view argues that ‘Subdivision of classes does involve boundaries, but what it does is to move them, breaking one big hurdle into more smaller ones’.
‘It is indeed better to do it for some, the more so if most of the problem can be solved by doing so. There is always the added bonus possibility that doing it for some now will make it easier to do it for others later’
Purists counter that if it is right to deregulate and lift burdens, it should be done for everyone. This may be true, but the question is one of whether it is possible to do it for everyone in the current political market. Similarly, they argue subdivision makes it harder to generalise later, that improvement should be avoided because it hinders the pursuit of the perfect.
‘This is apocalyptic politics, taking no steps until the great day dawns when they can be taken all at once. It bears little relation to the real world, in which improvement is made by degrees, and in which problems which are left unsolved continue to become worse indefinitely’.
The fact that the boundaries are arbitrary can be turned to advantage. Once the categories have been selected and the benefits of selective treatment have been reaped, and seen to derive from the reform, there is little reason not to move them.
Geographical Experimentation
Similar to subdividing classes, this technique subdivides by area. Proposals like Enterprise Zones and Freeports allow deregulation to be tested on a small-scale.
Enterprise Zones are designated areas offering holidays from local taxes (rates), easier planning laws, and other incentives to accelerate business growth. Freeports are zones focused on promoting overseas trade, where goods can be handled without immediate customs intervention.
‘Given the dire warnings which are uttered when deregulation or the easing of controls and burdens is raised... the proposal is made that the ideas should be tested in a limited area to observe the effects’.
This neutralises opposition in two ways:
Limited Risk: If disasters occur, they are confined to the test area.
Local Lobbying: Areas compete to be chosen. The proposal for free ports in Britain was followed by applications from 46 localities seeking the status.
‘Locally elected representatives of all parties backed the applications of their own area, showing once more the strength of interest over ideology’.
The argument that ‘everyone should have it’ is irrelevant. The small-scale experiment succeeds politically because it creates a focused lobby of beneficiaries who want their area to win.
There are valid criticisms. Experience in Britain suggests that a high proportion—perhaps roughly half—of the new jobs in Enterprise Zones were simply ‘moved’ from elsewhere to take advantage of the breaks. However, this still is a significant net gain of new jobs. Free Ports have a less strong tendency for displacement because of the emphasis on overseas trade, but they face a different problem: bureaucratic capture.
‘The Civil Service has made them into extensions of regional policy, turning them into islands of subsidy rather than zones of enterprise’.
Free ports fared even worse, being ‘hamstrung at every turn by Treasury officials determined to subsume them under the existing regulatory framework’.
However, the principle remains: it is easier to secure a beachhead in a limited area and then expand it than to fight a national battle from the start. The success of the process creates a demand from the next group or area to be included, turning the ‘unfairness’ of the boundary into a driver for expansion.
The Antibody Approach
Many of the calculations will involve not so much empirical study as ‘guesswork backed by market research’. There is no accurate way to determine how many people will choose a private alternative, short of actually offering it.
If anyone expected micropolitics to produce a clear and coherent system of policy formulation, they are mistaken. It produces a system based on the computation of advantage and of the construction of policies which offer acceptable trade-offs.
‘The benefits and advantages enjoyed by interest groups stick out like protein groups on the surface of foreign bodies entering the bloodstream. The policy to cope with those interest groups must, like the antibodies which cope with invaders, be constructed to match them and neutralise them. Each one may look unwieldy and appear to be put together on an ad hoc basis; but the unity lies in the method of construction and the principles by which it is performed’.
14 The Role of Choice
The public sector is structurally marked by uniformity rather than by variety. This is because the decisions determining supply are political, not economic.
‘The decisions as to which services are to be provided, and in what degree, are largely political decisions. ... The system is one in which producers find it convenient to offer a uniform service designed for the great majority of people, though not necessarily what they would have designed for themselves’.
Because the state bids for votes, it counts heads.
‘A service to the many picks up support even if it is a small one. A major service to the few has rather less value in the political market place’.
This leads to distortions. In the health service, roughly nine of every ten ambulance journeys are rated as non–emergency cases, effectively providing free taxi rides. Conversely, the service lacks many emergency facilities necessary to give life–saving help.
The Mechanisms of Improvement
Micropolitics relies on three conceptual mechanisms to drive improvement, all of which are jammed in the public sector but active in the market.
1. The Selection Mechanism (Evolution) Progress requires that successful variations expand while unsuccessful ones contract. In the state sector, bad services continue indefinitely. Introducing choice creates a selection pressure.
‘Universities which attracted them would flourish, others would decline, unless of course they were able to change’.
2. Political vs. Economic Feedback (Voice vs. Exit) In the public sector, consumer input is weak because there is no ability to leave.
Denied alternative choices of service, the public must take the standard product. In the private sector, the feedback is immediate because consumers can curb their consumption or turn instead to a technological competitor.
The Telephone Example: Under the state monopoly, having a phone meant renting a Bakelite handset with a rotary dial, looking like the 1930s without the art deco. Once choice was introduced, variety exploded into push-button, cordless, and even phones shaped like Mickey Mouse.
3. The Intangible Benefits (Dignity) Beyond efficiency, choice confers status. In private medicine, patients pay not just for treatment, but for the greater dignity which private medicine manages to accord to its clients. They avoid the feeling that they are processed like sausages in some vast machine.
The Task of Individuation
The strategic goal is individuation: transforming a standardised output into one that meets individual preferences.
‘The service is 'individuated' by being broken down from a basic identical output into the proliferation of varieties which are geared to meeting the preferences of individual consumers’.
This is difficult because people value the security of the state system. The prospect of a Britain without universal state health is ‘unthinkable’ to most.
‘People really do value the security which the free health service brings. ... There is no point in telling them that these services are not free... That is not how they perceive it’.
Micropolitics accepts this reality. It suggests it is easier to change the attitudes after the policies have changed, rather than before.
Techniques of Transition
To achieve this, micropolitics uses several techniques to introduce market pressures without threatening the core security.
1. Encouraging Exit: The state pension scheme was individuated by allowing people to opt out into private schemes.
‘The provision that people may opt to leave the state earnings–related pension scheme (SERPS) is accompanied by tax advantages for those who do so’. The result is that the ‘state scheme is gradually being individuated by the choices of individuals’.
2. Blocking Entry To reduce the state sector over time without hurting current beneficiaries, new entry is restricted.
‘Restrictions on entry will typically be imposed to prevent new workers joining the state scheme. Instead, they will be invited to enter into one of the private alternatives offered’.
3. Redirecting Funding (Internal Markets) Where the state service remains, the goal is to make the money follow the consumer. In education, this means per capita funding.
‘The parent chooses the school and the money follows the child’.
This principle can be applied to universities.
‘If the funding bypassed the UGC [University Grants Committee], and were allocated according to the institutions selected by students, universities would have an interest in satisfying demand’.
Case Study: The NHS Internal Market
The National Health Service represents the ultimate challenge for micropolitics because of the deep attachment to its security. However, it suffers structurally from being overwhelmingly a two–tier system (GPs and hospitals) that lacks the flexible intermediate facilities seen in private sectors.
The solution is not to replace the service, which would incur political odium, but to reorganise it to create an Internal Market. This involves re-routing funding so that resources follow consumer choices rather than administrative decree. By establishing independent management units to act as purchasers, the monolithic bureaucracy is replaced by bodies with a direct incentive to seek cost-effective treatments.
‘General Practitioners would sign up with one, taking their patients in with them’.
The core mechanism is portability of funding. The budget is not given to the hospital directly, but to the patient's representative.
‘If a patient left one [unit] and joined another one, their annual allocation would move with them’.
When treatment is required, these purchasers select from available hospitals and specialists, forcing providers to compete for the business. This structure imposes a discipline on hospitals to know their costs and perform efficiently, lest they lose the funding to a more competitive rival.
‘They would have an incentive to choose a cost–effective supply from the alternatives available. Each hospital would have to know the cost of all of its activities, and to perform them efficiently.
The result is a system that remains free at the point of consumption but is internally driven by the pressures of competition, variety, and choice.
‘The change is that an internal market has been created in which there are variations and choices, in which there are incentives for efficiency and competition, and in which the resources of the state are redirected as a result of those decisions’
15 More Technical Devices
Two other methods deserve special attention: establishing a Right to Service and the introduction of Private Capital. The former involves establishing a right to the service offered, with provision for consumers who fail to receive it to seek satisfaction elsewhere. The latter seeks to deal with the problem of capital depletion in the public sector by augmenting with private investment.
The Right to Service
One of the least popular features of public services is the queue. Producers find it convenient to keep consumers waiting, whether for housing repairs or hospital treatment.
‘Even consumers who value the service and the security which they feel through the public funding of it, do not like the delays. ... If no other provision is made, this can prove useful material to those who wish to increase public spending’.
The micropolitical solution is to establish a statutory ‘right to service’. This means that if the public sector fails to deliver the service within a set time, the consumer acquires the right to seek satisfaction elsewhere at public expense.
Case Study: Housing Repairs When tenants require urgent repairs, local housing departments often delay, citing lack of funds.
‘A more imaginative alternative sets a time limit for the public sector to respond, and permits the tenant after its expiry to hire private contractors from outside, and bill the public service for the work done’.
Case Study: Health Waiting Lists The same principle can be applied to the NHS.
‘A right to treatment in the Health Service might involve the NHS in the obligation to provide treatment within, perhaps, six months. If it failed to do so, it would be required to purchase treatment for the patient from the private sector’.
The goal is not necessarily to privatize the service en masse, but to create a pressure mechanism, using the threat of effective privatization to force efficiency.
‘If the tenant who fails to receive his repair job in an adequate time can go elsewhere and send the bill, there is a strong incentive for the state to make sure the necessary work is done on time. If it fails to do so, a part of its service will be automatically privatized’.
This tactic is politically potent because it aligns the government with the consumer against the bureaucracy.
‘The device is carefully calculated to offer consumers what they want from the state service: responsiveness to their needs’.
There are obvious protective clauses to be included in practice. For example, the cost of work done by private suppliers must be reasonable and ought not to deviate significantly from public sector costs. There ought to be clear evidence that the public service concerned knew about the requirement first.
Private Capital in Public Projects
The second device addresses the chronic under-capitalisation of the public sector outlined above. As political pressure pulls funds toward current spending (wages and immediate services), capital investment (buildings and equipment) is always squeezed.
‘It is always easier to raid the capital side of the account to meet strong demands on the current side’.
The solution is to introduce private capital on an investment basis. The private sector builds the facility (a bridge, a prison, a road), and the government pays to use it. This increases the investment in capital items, without funding a further upward twist in current spending.
‘This is a lease–back arrangement. Private capital is used for necessary public works, and government pays to lease them from their owners’.
This is revisited further in Part VI, particularly in the context of Private Finance Initiatives under Blair.
In Britain, Treasury rules count guaranteed payments as ‘government borrowing’, defeating the object of the exercise. To circumvent this, the scheme must include a genuine element of risk.
‘A figure must be agreed for the break–even usage of a bridge, for example... If more vehicles make use of it than that figure, the investors will gain, but if it turns out to be less, they will lose’.
This approach allows the government to secure new infrastructure without immediate capital outlay.
‘The capital projects are built now, but the money is paid for over the years, much of it by future taxpayers who do not have much clout in today's marketplace’.
Furthermore, private maintenance is often cheaper.
‘The package is similarly attractive to investors because it offers a long–term agreement reasonably certain to pay them a good return with low risk’.
Private investors will usually be able to present a total package which is attractive to government in that it costs less than government itself would spend to attain the same results. The package is similarly attractive to investors because it offers a long–term agreement reasonably certain to pay them a return with low risk. Government also makes a political return. If the project goes ahead with private funding, the government ends up with capital projects for which it does not have to commit upfront public funds.
Of course, government will have to pay for the use of them, but this is more acceptable than public capital spending in several respects. Government would have to pay to use its own facilities in the sense of operating them and maintaining them; and its payment to the investors covers those costs as well. Moreover, government is used to current account spending, what it finds it difficult to do is to make adequate provision for capital replacement and acquisition.
Governments are not very good at spending money now to secure future provision. With political markets current voters have a great deal to trade, future voters have little. This is why in areas such as pensions the rewards come now, the bill later. The use of private capital to build public facilities fits in with government's usual pattern of giving the present a premium and the future a discount.
Both methods—Right to Service and Private Capital—illustrate the micropolitical style: analysing the specific defect of the public sector and tailoring a policy to correct it by redirecting the forces of the market.
There is no fixed list of such methods, no set range of techniques which covers the whole field. A facet of this approach is that it is limited only by what creativity can produce. Once the political market is understood, devices can be introduced to change incentives. This is all that micropolitics seeks to do.
Part V: Conclusion
16 Range, Limits and Origins
Micropolitics has so far been examined as a technique. The analysis tells us why certain policies fail because they do not take account of political markets. The new policies produced by micropolitics try to overcome the objections which caused other policies to fail.
‘They do take account of the political markets, and are designed to work with them rather than to override them’.
The assumption has been throughout that micropolitics will bring more market forces into the economy. It is appropriate to ask, however, whether micropolitics must of necessity serve such ends, or whether it might be applied with equal success in the opposite direction. It might be possible by devising new policies working with interest groups to achieve more centralism, less consumer input and market forces, and a larger public sector than before.
There would be little point.
‘The conventional approach has proved quite sufficient to achieve all of these things. In democratic societies the political system acts to subvert the market process and has no need of the extraordinary measures here described’.
The findings of the public choice school show how people lose a little at a time the freedom to choose their own goods and services as the political provision of these items is made instead. Interest groups bid and trade in the political market to greater effect than individuals can wield.
‘The advantages gained by groups in political markets exceed in their impact the gains which individuals can make in economic ones. ... In the absence of the extraordinary techniques examined herein, the democratic process itself will replace economic markets by political ones’.
Micropolitics was conceived as a means of reversing this tendency. It offers techniques and instruments by which that process can be set to work in the other direction. The basis which underlies all of its technical devices is the alteration of circumstances such that individuals and groups will perceive greater advantage in the extension of free market characteristics.
‘At the bottom line of all of its creative policies lies the preference of both the interest groups and of the individuals who comprise them’.
Micropolitics introduces marginal utility into politics. It seeks to influence decisions on the margin, at the point where people form a view that one choice gives them more benefit than another. It promotes and encourages those choices.
‘If use of its techniques were attempted for the opposite purpose, it would ultimately be self–negating. ... Victory would involve a limitation of the choices which had made it possible. It would mean that part of an economic market ruled by individual preferences had been swallowed into the public sector and was now ruled by interest group pressures instead’.
Not only is micropolitics unnecessary to achieve centralist ends, it is inappropriate. For centralists to take up micropolitics in an attempt to augment the size of the state sector would be for them to enter a contest in which they were handicapped.
‘If they can exploit the desires of interest groups to gain benefits at the general expense, and a political system which encourages them to trade such benefits for support, they have no need to take up battle with armaments which are unsuited to their purpose’.
Micropolitics moves down to the micro–scale because it recognises that it can win on the level at which motivated individuals make decisions. As they exercise the choice in that direction, they constitute an interest group to set against those which already operate on the macro–scale.
The Scope of Application
The range of micropolitics is the whole of the public sector of the economy. Within its ambit come all of the state industries and utilities, state services, transfer programmes including welfare policies and the regulatory activity of government. It produces tactical devices in all of these areas aimed at the strategic objective of a society which is oriented to meeting the needs of consumers rather than those of producers.
‘Although there is an ad hoc look to the devices which emerge as the products of this type of thinking, it is only a surface look.
At a deeper level there is a unity of analysis and purpose. The approach does not seek individual tactical victories on a case–by–case basis. The methods are all designed to work in the world of interest group pressures, and all to give individual preferences primacy in the political process. The public sector presents many aspects, all different, and all sustained by different groups and different forces. To the micro politician these aspects are like a series of locked doors; the objective is to open them up in order to let in consumer choices and responsiveness to individual need; and the instruments are the keys which each of the micro political techniques constitute. No two keys are identical, but information learned about the opening of one door can be used to help unlock others’.
Origins: The Failure of the 1970s
It is precisely this range of techniques which explains the vast difference in achievement between the administrations espousing conservative ideas in the early 1970s and those which came along a decade later. The Nixon and Heath governments did not manage to gain many successes for economic markets and individual choices, despite a climate of ideas which had helped to elect them on that kind of programme.
Like many scientific theories, it originated from the perceived inadequacies of the prevailing model. It was the experience of the failures under President Nixon and Prime Minister Heath which led some analysts to the conclusion that it was not enough to win the battle of ideas, or to elect people committed to them.
‘It was important to have policies which could succeed and which could work. ... Some of those who had worked to win the battle of ideas, and to elect those prepared to support programmes based on them, saw in public choice analysis the explanation for failure’.
The result was the concentration of some groups in the 1970s not on the battle for ideas, but on policy engineering. Instead of simply waving free market flags and shouting the traditional battle cries, attention on both sides of the Atlantic turned instead to the technical and mechanical details of policies which could circumvent the public choice objections.
In some cases this involved a rejection of the conventional market alternative on the grounds that it took insufficient account of the forces at work in political markets. In other cases, it took the form of working for partial market solutions on the grounds that these would not only succeed, but would establish a base on which more market elements could be constructed later.
Over the course of the 1970s, the broad principles behind the new style were developed. The new policies caused some puzzlement, not only by their originality of approach but also by the limited nature of their objectives. Instead of seeking the immediate replacement of the public sector by private alternatives, they appeared to look for more modest progress.
‘All of these methods of circumventing the built–in opposition of interest groups seemed to others as unnecessary compromises, and unjust ones. ... Instead of abolishing the advantages which some groups had secured through political markets, the new tacticians seemed intent on exchanging them for others’.
On this point, if not on the others, the perception was correct. At its most vulnerable points they proposed to introduce new options calculated to divert the pressures which sustained it in its old form.
The successes achieved by the new–style policies allowed for the rise of the attractive but erroneous view that the work of the lonely scholars, their acolytes and their advocates had finally paid off and brought results in its train. That these results had not come in the earlier administrations which attempted them was put down to a wrong climate or wrong personnel. In fact, it was wrong policies.
‘It was the policy engineers, coming in the wake of the pure scientists of political and economic theory, who made the machines which changed events. The ideas had been sufficient to win the intellectual battle, but this was not enough. Men and women with spanners in their hands and grease on their fingers had first to devise the ways in which the ideas of pure theory could be turned into technical devices to alter reality’.
Theory Follows Practice
None of this should give the impression that the administrations which assumed office in Britain and the United States at the end of the 1970s had only to apply the policies developed by the new approach while they were in opposition. This misses the empirical elements of micropolitics, and fails to admit how much of it was learned in practice.
‘Although much work was done in the opposition period to develop the style of the approach and the general outlines of some of its methods, the detail has been filled in during office. ... The techniques... have been developed for the most part by the application of them in practice, and their improvement by the trial and error feedback of actual experience’.
What was available to those later administrations and was lacking from the earlier ones was an approach, as well as a set of policy proposals. This approach enabled those existing proposals to be modified in action to succeed better, and it enabled new ones to be developed. Many of the actual policies which have been applied successfully have been developed in practice since 1979; they are not taken from the lore of free market ideas which was generally available before.
‘Many of the ideas of micro politics have been abstracted from practical application, as exponents have compared successful attempts with unsuccessful ones in order to highlight the essential ingredients’.
The relationship between theory and practice in micropolitics is a complex and interactive one. The broad ideas about interest groups and their benefits suggest avenues of approach, and the practical test of these leads to modifications in the body of technique. Micropolitics has learned as it has gone along.
Privatization, for example, was not the result of pure theory. It was developed by the micro political approach as an alternative to denationalisation. There was no conversion to this concept which made it possible. The word featured not at all in the 1979 Conservative manifesto, and the idea only in limited outline for less than a handful of cases.
‘Only after many successes did opinion swing to general support of privatization as an idea. It won its converts after its success, not before’.
Even the theory underlying privatization came under study late in the day. Scholars in universities and colleges became interested in what was being done, and the studies, monographs and theses began to appear. The events came first, and the theory followed in their wake.
The micro political approach clearly distinguishes the governments of the early 1970s from those of the 1980s, but it must not be taken for granted that the later ones had access to a complete printout of policy options. What they did have was an understanding by the policy research institutes of why the programmes of the earlier administrations had not been implemented.
‘It was the success of the few micro political stratagems which were tried which led to more from the same stable being run. The policies which did not bring about good results were dropped in favour of more of those which did’.
The rise of micropolitical solutions took place while governments were in office trying them out. Now it was the policies which did work which turned the attention to theory.
The Limits of the Method
Many observers have not understood the significance of the method which has been used. On conventional free market policies, there are cases in which the Thatcher administration fell far short of what theory required. Some have taken it that nothing of note was accomplished.
The shortfall has centred on conventional free market goals of total deregulation and free competition. There are those who voice criticism that the major utilities have not been exposed to full competition, or that the government should not intrude its political goals of wider share ownership into what ought to be a straightforward commercial sale.
‘The criticisms miss the point of micro politics altogether. They fail utterly to see that pursuit of a full free market solution would have produced no solution at all, or that the support of large interest groups is needed to achieve success impossible for straightforward commercial sales’.
Micropolitics can rarely be used for the immediate attainment of holistic goals. Its character is that of a piecemeal approach. It looks at the small-scale in fine detail, and generates proposals to solve each section at a time. It is limited in the scale on which it can operate. Nonetheless, it can produce its solutions in a cumulative way. British Petroleum and Amersham International and the others made only a very modest start. However, they soon added up as the pace accelerated.
A further limitation on it is that it works by political trading. It does not win converts through ideas, but wins supporters by conferring advantages. It is limited, therefore, by the benefits which can be found to offer. If entrenched advantages are traded instead of attacked, there will be ones which government simply cannot afford to buy. None of this is very satisfactory to those who want results within the lifetime of one term of office.
Finally, it must be said against it that in many cases it achieves at best only a partial solution. Contracting out local services is not the same as a free choice for the householder. Persuading 20 per cent or even 40 per cent to buy their state–owned houses does not restore a free market in housing. Introducing variety and choice into schools and directing funds toward the popular ones is a shadow of a full free market in education.
‘It takes time for free choices to spread, and for a new reality to emerge from the old. By working with the interest groups in political markets, micropolitics opts for the gradual way’.
In doing so, it exposes itself to criticism at any stage that things have not gone far enough, and that more is needed. The criticism is justified; the fact that its policies seek to secure support from interest groups and to divert them to the pursuit of more attractive benefits means that micropolitics will usually offer progress which is both slow and incomplete. It turns to the small-scale, to the decisions made by individuals and groups, precisely because of the failures of macro–scale free market policies to gain substantial results.
‘The progress may be piecemeal, but it is progress, it is all in one direction, and it is securely made’.
17 A Time to Pluck Up that which has been Planted
It took more than a century for the public sector in Britain to grow to its present size. By 1979 it was a dominant force in nearly every aspect of economic life.
‘The state was the biggest spender, the biggest employer, the biggest service provider, the biggest manufacturer and the biggest insurer’.
Government was Britain's major industry and was one of its few growth areas.
Knowledge of the wrong, however, did not mean knowledge of the remedy. The rise of Britain's public sector to the level at which it posed these problems had not been due to any single cause: rather it was the product of many factors. Some of it was ideological, inspired by a desire to have individual aspirations supplanted by consideration of collective need. Some of it was paternalistic, deriving from the view that people could be cared for by the state better than they could look after themselves. Parts of the economy came into the public sector from a belief that large–scale operations could bring economies of scale. Parts entered by default, out of political pressures to keep ailing industries in business.
Most of the steady, remorseless growth was a product of a system which encouraged the making of decisions in political markets rather than economic ones. Other things being equal, the rise of the public sector is a tendency inherent in democratic societies. It needs no contrived or convoluted explanations; it is what happens.
The structural defects of the public sector are similarly inherent. It is a direct result of their status as political entities, and of the forces which work on them.
The Outdated Model
There is one other feature of the public sector which is harder to pin down. It is that state operations are seen as in some way out–of–date, relics of a former time which have survived into the present day like living fossils.
‘The state sector has to rely on out–of–date equipment and to keep its capital stock in operation for a longer period than the private sector would accept. This gives it an outdated air, with worn–out equipment and yesterday's technology’.
Part of that reputation is a consequence of the fact that many of the public sector operations stem from the age of mass manufacturing.
‘The point is that this was the industrial model of the previous age. The economy now is no longer represented by the giants of standardisation. ... Consumer products are increasingly customised rather than standardised, with the basic product serving only as the nucleus for individual choices’.
With this development visibly transforming the scene in both the manufacturing and service sectors, the public sector operations seem increasingly out of place, designed for a world which has already passed.
‘People no longer expect to do broadly similar things in the same place for most of their lives. ... Their needs are becoming more specialised, more varied, and more individual’.
The Political Deadlock
All these factors led to a recognition that public sector operations needed major change. The difficulty was that attempts to dismantle the public sector or to open up any of its locked–in group benefits brought hostile reaction from those directly involved.
‘No answer seemed forthcoming which could prise away the benefits which interest groups had obtained at the general expense. It was onto this political scene that the central ideas of micro politics were introduced’.
The solution seems obvious now that we have seen it working, but it was not so at the time. It provided instead a means of trading those benefits.
‘Rather than having political leaders try to destroy or override political markets, it suggested instead that they should enter those markets in order to trade. The resentment and hostility which would be encountered by any threat to their benefits would not be produced by an offer perceived by the interest groups to be more attractive’.
The Micropolitical Solution
In place of the systematic hostility as each group was alienated one by one, there appeared instead the prospect of accumulating the gratitude and goodwill of those who enjoyed greater benefits under the new arrangements.
‘In place of angry and bitter tenants opposed to attempts to make their state rentals 'economic', government is faced instead by a contented band of new homeowners... Where there might have been drawn–out and divisive disputes over denationalising the National Freight Corporation, instead there are worker–owners who not only take pride in their firm and its profitability, but who have all made substantial capital gains’.
Micropolitics is certainly different. In place of the apparent insensitivity to political reality of most advice, this style seems to be more political than the politicians. It identifies the interest groups and points out what they perceive to be their advantage, and how they will use the system to defend it.
‘It then suggests ways of securing the cooperation of those groups by making a more attractive offer to each of them. ... If there are small groups too entrenched in the public sector to accept counter–offers, even here the reform is made to generate larger and more effective groups with which to outweigh them’.
The new style has neither of the drawbacks of conventional attempts. Because it offers advantages to interest groups it is popular; and because they accept it, it works.
The Cumulative Effect
These techniques are small in detail, but they add up to large results. Individually, each item could be criticised as being too modest, but together they added up to a major shift away from the public sector and from state controls.
‘The impression given overwhelmingly by the changes was that these were only the first steps. ... If thwarted temporarily... it would regroup and come back from a different direction. A setback was seen as a delay, not a defeat’.
Most significant of all has been the gradual breakdown of standardised provision in favour of variety and choice. Little by little the scope for individuals to secure individual treatment is being extended.
‘By restructuring the supply to respond to the preferences of the consumers instead of the convenience of producers, the policies enable different needs to be satisfied simultaneously. The old monolithic state supply gradually breaks down into a variety of offerings from which consumers can pick and choose according to the lives they lead’.
The technique has succeeded in a few short years in reversing the seemingly ceaseless move towards more centralism. The rise of the public sector has been taking place for more than a century. It reached its high water mark in 1979, and is now flowing backward.
‘The new methods have done more than stem the rising tide of collectivism, they have set the ratchet into reverse. ... It will be very hard for a government of different complexion to reverse most of what the new technique has achieved; there are too many interests tied into the new arrangements’.
A Global Phenomenon
Nor is the effect confined any longer to Britain. The Pacific Basin countries have eagerly embraced the new ideas. The big surprise has been the rapidity with which the ideas have influenced developing nations.
Bangladesh has used the techniques extensively to place jute and flour mills into the hands of their workers, with the effect of increasing both productivity and output, and taking away the need for subsidy.
Only slightly less surprising has been the adoption of some of the ideas by communist nations. Without conventional democratic constitutions, there are not the active political markets we know in the West. There are, however, groups who enjoy benefits from the state.
‘Communist Cuba has followed the British model of selling state houses at discounted prices to tenants, and the People's Republic of China has traded opportunity for security in farming with spectacular effect on output’.
The result of all this activity has been to make the decline of the public sector a phenomenon on the world scale. It is in retreat nearly everywhere, in communist countries as well as in capitalist ones, in dictatorships as well as in democracies.
Micropolitics Works
In the final analysis it is not surprising that these techniques have succeeded. Politicians have long been used to receiving policy advice from outside—from economists, lawyers, and sociologists—most of which proved inappropriate. Micropolitics concerns itself with the generation of policies designed for the practical world. It represents one of the few methods of policy generation to emerge looking at the world from the point of view of the profession.
‘There is a very old proverb in which the wind and the sun make a wager about which of them can remove a man's cloak. As the wind blows more furiously, the man wraps his cloak ever more tightly about him, until the wind gives up, exhausted. Then the sun comes out and the man takes his cloak off. After years of being advised to behave like the wind and expend much effort with only failure at the end of it, micro politics has come along telling them to behave like the sun and succeed. It is hardly surprising that it has made an impact already, and highly probable that more is yet to come’.
Part VI: Revisiting Micropolitics
18 Micropolitics since 1988
When Micropolitics was first published, the intellectual landscape was shifting so decisively, some dared to call it, ‘The End of History’. The intellectual argument for the market, having been fought in the wilderness for decades, appeared to have won a decisive triumph in reality through the widespread application of Micropolitics.
This was not merely a theoretical victory, but a mechanical one; command economies collapsed because they could not function well without price signals. Consequently, markets began to emerge in the most unlikely of places, from the former Soviet bloc to the People’s Republic of China, where the embrace of market mechanisms by the Chinese Communist Party unleashed the greatest reduction in poverty in human history.
By the turn of the century, global literacy rates had soared and life expectancy had doubled. Extreme poverty had fallen from three-quarters of the world’s population in the early 19th century to one-fifth; child mortality from 40 per cent to 3.7 in the same period. The lesson appeared unanswerable: where markets function, prosperity follows.
The Persistence of Reform
In the United Kingdom, the specific victories of the micropolitical revolution proved remarkably durable. The ratchet effect, which had for so long worked only to expand the state, had successfully locked in some of the gains of freedom.
Today, the notion of the state running travel agencies like Thomas Cook or manufacturing cars is regarded not as a political alternative, but as a historical absurdity. No serious politician proposes the re-nationalisation of British Airways or British Telecom; no one suggests the reintroduction of exchange controls to shackle the British pound. The peak socialism of 1979 has not returned.
The Great Stagnation
However, as Adam Smith wryly observed, ‘there is a great deal of ruin in a nation’. While the grand edifices of state ownership were dismantled, the centralising tendencies of the political market remained. Since the financial crisis of 2007/08, the tendencies against markets have accelerated. The crisis became a pretext for a resurgence of state interventionism, one which has coincided with a profound economic malaise.
The statistics tell a damning story. In 2007, the average per capita income in the UK was higher than the US average. Today, it has fallen below that of Mississippi, the poorest American state. We have traded dynamism for drift, and the consequences are measured in the living standards of our people.
The Rise of ‘The Blob’
While the government retreated from direct ownership (trend that continued well into the 2000s), it dramatically expanded its scope through regulation and the proliferation of arm’s-length bodies. We have witnessed the birth of the ‘regulatory state’ and the paradox of the ‘quango’—bodies which manage vast swathes of public life yet are insulated from the feedback mechanisms of the ballot box.
The pernicious impact of these groups on the political market is widely recognised, and they have frequently come under political scrutiny. Interestingly, the absolute number of these bodies has actually declined from a peak in the late 1990s. A 2009 Cabinet Office Report identified 766 ‘Non-Departmental Public Bodies’ (NDPBs), a 10 per cent fall from a decade before1. The 2010 Conservative-Liberal Democrat coalition went further, promising a ‘bonfire of the quangos’. Each body was classified for retention, merger, or abolition. From around 600 in 2010, the count had fallen to 302 Arm’s Length Bodies by 20232.
However, the micropolitician looks beyond the headline number to the underlying power. While the quantity of quangos has declined, their influence and cost have ballooned. Between 2010 and 2021, the budgets of these bodies appeared to triple3. The entities that survived the bonfire grew larger, wealthier, and more potent; particularly in their ability to block private activity, distort prices, and gum up the market mechanism.
This phenomenon has coalesced into what is often termed ‘The Blob’. Crucially, this label encompasses more than just the arm’s-length bodies; it includes the permanent Civil Service itself. The obstructionism satirised in Yes, Minister, where the bureaucracy politely but firmly thwarts the will of elected representatives, has arguably hardened. Even when the voting public is clear in its demands, and a minister attempts to follow through, the machinery of government seems capable of absorbing the instruction and returning only delay or complication.
It is often unclear where the fault lines lie. How much of the paralysis is due to the statutory independence of an arm’s-length regulator, and how much is due to the cultural inertia within the belly of the department. In practice, the distinction matters little to the citizen. Furthermore, this inertia is reinforced by a web of complex legacy legislation and international obligations. The modern minister finds their hands tied not just by bureaucrats, but by lawyers. The proliferation of judicial review, human rights legislation, and international treaties has created a state of lawfare, where policy decisions are routinely moved from the democratic arena to the courtroom. Whether the obstruction comes from a quango or a Permanent Secretary or a judge, the result is a systemic paralysis where the lever of power is disconnected from the gears of delivery.
The term ‘The Blob’ alludes to the 1958 science fiction horror film where a gelatinous alien entity consumes everything it contacts, expanding with each meal, an apt metaphor for a distorted political market that absorbs resources and authority. As Prime Minister Sir Keir Starmer noted with frustration, “the action from pulling the lever to delivery is longer than I think it ought to be”. We see this paralysis in the inability to build homes in cities despite commanding a large parliamentary majority; in immigration numbers that balloon with welfare claimants despite voters persistently choosing otherwise; and in the surrender of strategic assets like the Chagos Islands to adversaries. The political market absorbs the mandate and either delays or returns a distorted product.
Case Studies
Yet, the story of the last forty years is not solely one of decline. Just as the state has adapted, so too has the art of micropolitics. The period since 1988 offers us valuable case studies of success where the method was applied. We have seen the introduction of the Citizen’s Charter, which sought to bring the ethos of customer service into the heart of the public service. The Gove education reforms, which successfully broke the producer monopoly in schools by empowering parents and teachers against the bureaucracy.
These successes prove that the decline is not inevitable. The techniques of micropolitics remain potent. By studying both the failures of the ‘Blob’ and the successes of recent reforms, we can equip ourselves with the new tools required to restart the engine of progress.
The Citizen’s Charter
As the great privatization programme began to run its course into the 1990s, micropolitics turned its attention to the services that remained within the public sector. The question posed was simple but devastating: ‘If the pullover I bought from Marks & Spencer was defective, I could return it and get my money back. Why did this not happen if the health treatment or education I had paid for in taxes turned out to be no good?’4
Private firms offered refunds not out of altruism, but to secure good public relations and repeat custom. Public services, funded by taxation and secure in their monopoly, faced no such bottom-line incentive.
At the time, the sociological fashion was to talk of ‘empowerment’ through ‘voice’, like giving people more consultative committees to sit on. Micropolitics rejected this. Consultative committees are often captured by activists and the producers themselves. In the classic choice between ‘voice’ and ‘exit’, exit works and voice does not. If you can take your custom elsewhere, producers compete to keep you happy. Where exit is impossible, we argued for a new mechanism: consumer rights to supplement citizen rights.
The resulting policy was the Citizen’s Charter. While championed politically by Prime Minister John Major, the micropolitical drive came from figures like Madsen Pirie. It was vital that this leadership set the right motives and tone from the start. This was not intended as a punitive attack on public servants; rather, it was an attempt to align the professional pride of the worker with the satisfaction of the consumer.
Crucially, the charters for each department or service could not be imposed from above as a rigid diktat of central government. For the standards to be realistic and for the staff to buy into them, the specific pledges had to come from the services themselves. This became a key micropolitical feature of the process: a back-and-forth negotiation. The services had to interrogate their own operations and propose what was achievable. This ‘bottom-up’ idea generation ensured that when a promise was made, the department owned it.
In defining these standards, a vital distinction was made: the service had to be consumer-led, not producer-led.
Producer View: ‘We cleaned the train three times today’.
Consumer View: ‘Is the train clean?’
Under the Charter, success was not measured by the effort expended (the number of cleanings), but by the result experienced (a clean environment). This forced bureaucracies to view their service through the eyes of the user.
The Charter operated on six principles, which remain a blueprint for any attempt to reform a monopoly bureaucracy:
Quality: A measurable improvement in service.
Choice: The introduction of alternatives wherever possible.
Standards: Explicit statements of what the public could expect (e.g., maximum waiting times).
Value: Efficiency for the taxpayer.
Accountability: Identification of who was responsible for failure.
Transparency: Clear procedures for redress.
Crucially, the policy demanded that public bodies publish their standards. Previously, the public sector ethos was ‘we do what we can’, and the public had to accept it. The Charter forced them to say, ‘We promise to answer the phone within ten rings’. Once a standard is published, failure becomes visible, and pressure for improvement becomes possible.
To operationalise these principles and drive competition, the Charter Mark was introduced. This was an award scheme for excellence in service delivery. It was a masterstroke of incentive alignment. By offering a prestigious badge of quality, it introduced a reputational currency into the public sector. Staff gained a genuine sense of satisfaction and pride in earning the Mark, creating a ‘virtuous competition’ between departments to see who could best serve the public.
The policy achieved notable successes, particularly where it managed to attach consequences to failure. In the rail industry, the principle was established that if the service failed (late or cancelled trains), the passenger was entitled to a refund. This created a direct financial incentive for management to improve punctuality, a proxy for the profit motive.
However, the Charter also exposed the stubborn resistance of the ‘Blob’. The Schools Charter, for instance, promised only information, not education. If a child left school unable to read, there was no redress, no right to private tuition, and no refund. The Department of Education successfully blocked any mechanism that would have imposed a real cost on failure.
The Citizen’s Charter teaches us that it is possible to improve public services by treating the citizen as a consumer rather than a supplicant. The sheer act of measurement and the threat of apology or refund did raise standards. It also taught us that such improvements are often temporary. Without the permanent pressure of competition (the ability to exit), the internal pressures of the bureaucracy will eventually reassert themselves. Strong leadership can simulate market discipline for a time, but ultimately, the only way to permanently secure the consumer's interest is to allow them to take their money elsewhere.
Private Finance Initiatives (PFI)
The concept of the Private Finance Initiative (PFI) was originally referenced in Micropolitics (1998) under the guise of private capital in public projects. Madsen Pirie described this as a ‘lease-back’ arrangement. The logic was elegant: instead of the government raising taxes or borrowing vast sums to build a hospital or a road, private capital would be used for these necessary public works. The government would then pay to lease the facility from its owners, much like a business leases an office building rather than buying it outright.
Implemented by the Major government in 1992 and expanded massively under Tony Blair, PFI was intended to bring private sector discipline to public sector construction. However, the execution offers profound lessons in the importance of contract design and incentive structures.
PFI was a distinct form of procurement. A public authority (such as an NHS Trust) would sign a long-term contract (typically 25 to 30 years) with a private consortium, technically known as a Special Purpose Vehicle (SPV). The SPV, usually a mix of construction firms, banks, and service providers, would raise the capital to build the facility. Crucially, the government did not pay for the asset (the bricks and mortar); it paid for the service. This was known as the ‘output specification’.
The government did not demand: ‘Build a school with 10-inch thick walls’.
The government demanded: ‘Provide a school environment at 21°C, available from 7am to 7pm, for 30 years’.
If the roof leaked or the heating failed, the private company (not the taxpayer) bore the cost of fixing it. The consortium was paid a ‘unitary charge’ over the life of the contract, strictly on a ‘no service, no fee’ performance basis.
In theory, PFI was a mechanism to transfer risk (construction delays and cost overruns) from the public to the private sector. In practice, it revealed three critical micropolitical vulnerabilities regarding negotiation, incentives, and flexibility.
1. The Asymmetry of Expertise A successful contract requires equal competence on both sides of the table. PFI revealed a dangerous imbalance. The private consortia were represented by top-tier City lawyers and financiers who understood every nuance of the contract. The public sector clients (often local hospital trusts or councils) lacked this commercial expertise. The result was that contracts were often drawn up loosely by the buyer but exploited ruthlessly by the provider. For example, the cost of ‘soft services’ (like catering or cleaning) was often locked in for decades, preventing the public sector from shopping around for better value.
2. The Trap of ‘Off-Balance-Sheet’ Accounting Micropolitics relies on transparent incentives, but PFI became a tool for political obfuscation. To meet European debt rules (the Maastricht criteria), governments used PFI to keep debt ‘off-balance-sheet’. It became a national credit card: buy the hospital now, pay for it over 30 years. This created a perverse incentive. Projects were approved not because they offered the best value for money, but because they didn't appear in the immediate national debt figures. There are around 700 PFI contracts, with a capital value of £57bn, with £160bn still to be paid for their use5.
3. The Inflexibility of Long-Termism A core tenet of micropolitics is the ability to exit or switch providers to drive competition. PFI contracts, often spanning 30 years, made this impossible. If a hospital’s needs changed five years in, altering the building or the service contract was prohibitively expensive. The public sector was locked into a monopoly of its own creation. Furthermore, when private companies refinanced their debt at lower interest rates after construction was complete, they pocketed the windfall profits.
PFI ultimately developed a toxic reputation because the cost of private finance (7–10 per cent) was significantly higher than the cost of government borrowing (3–4 per cent). While the National Audit Office found in 2009 that 69 per cent of PFI projects were delivered on time (compared to the dismal record of traditional procurement), the long-term costs proved unsustainable.
In some cases, the repayment obligations were so high they cannibalised the budget for actual services. By 2017, PFI payments in the NHS were projected to reach £2.1 billion annually6, forcing some Trusts to cut medical staff to pay the ‘mortgage’ on the building.
The failure was not in the concept of private involvement, but in the rigidity of the mechanism and implementations. Future public-private partnerships must adhere to stricter micropolitical application:
Shorter Contracts: Avoid 30-year lock-ins that prevent competition. Provide exit options and potentially segment the obligations to pay back for the initial capital outlay, from later service provision.
Shared Upside: If the provider refinances or makes efficiency gains, the taxpayer must share the profit.
On-Balance-Sheet Honesty: Projects must be judged on value for money, not accounting tricks.
Centralised Negotiation: Local bodies should not negotiate against multinational consortia without central government experts in their corner to level the playing field.
The Gove Education Reforms
If privatization was the grand project of the 1980s, the school reforms initiated by Michael Gove in 2010 were a textbook micropolitical project of the 2010s. It showed how to break a public sector monopoly, the ‘Blob’ of local authority control, shifting power directly to the school level.
While the ‘Academy’ concept originated from Andrew Adonis under Tony Blair, it was Gove who recognised its true potential. He moved it from a niche solution for failing schools to a systemic revolution. By allowing ‘good’ and ‘outstanding’ schools to convert to academy status, he unleashed a wave of exit from local authority control. The logic was pure micropolitics: if you offer headteachers the freedom to run their own budgets, set their own pay scales, and design their own curriculum, they will take it.
This created a ‘self-improving system’ where accountability shifted from the bureaucrat to the school leader.
To understand the Gove reforms, you can view them as a specific adaptation of the voucher concept. In a purer market, the state gives a citizen a voucher worth £X, and they can spend it at any provider they choose. In the UK schools market, this operates as ‘funding follows the pupil’. This specific mechanism was arguably the 'virtual voucher' concept pioneered by the Adam Smith Institute’s Omega Report. It was designed to achieve the market discipline of a voucher system without the political toxicity of the word itself. If a parent chooses School A over School B, the money flows to School A. This forces schools to compete for pupils (and therefore funding), simulating market discipline.
However, the UK implementation differs crucially from the theoretical ideal, particularly when compared to the Swedish Model. Sweden is often cited as a case study for school choice. In 1992, they introduced a universal voucher system that allowed private providers to set up ‘Free Schools’ (Friskolor).
The key difference is that Sweden allows private providers, and even for-profit schools. This attracts private capital and maximises competition, as entrepreneurs have a financial incentive to enter the market and build new schools in areas where existing provision is poor.
In the UK, this was deemed politically impossible. To make the Free School and Academy revolution feasible, the government had to accept two major constraints:
No Profit: All academies and Free Schools must be non-profit charitable trusts. This was essential to neutralise the accusation that state funds were lining the pockets of shareholders.
No Top-Ups: In a purer voucher system market, a parent could take their £6,000 voucher and top it up with £2,000 of their own money to access a ‘better’ school. The UK strictly forbids this to prevent a two-tier system based on parental income.
The trade-off was clear. We sacrificed the dynamism of profit-seeking capital to secure the political survival of the policy. Instead of private firms, we got Multi-Academy Trusts (MATs). These are large non-profit chains like Ark Schools or Harris Federation that use economies of scale to drive up standards.
The impact has been profound. Academies now make up nearly 50 per cent of all schools in England, including most secondary schools.
Turnarounds: The policy allowed dynamic leaders to take over failing schools and turn them around rapidly. Success stories like Mossbourne Academy in Hackney proved that the ‘poverty excuse’ for low standards was often just that, an excuse.
Closing the Gap: Initially, the disruption helped close the attainment gap between rich and poor pupils, as high-performing trusts targeted disadvantaged areas.
Breaking the Monolith: The monopoly of the local authority has been effectively broken. There is almost no demand, even from trade unions, to return to the old pre-2010 model.
The success of the Gove reforms offers a masterclass in micropolitical technique. The reform succeeded where others failed because it understood the psychology of change.
1. Weaponise Precedent (The ‘Trojan Horse’): Gove did not present his reforms as a radical free market rupture. Instead, he framed them as a continuation of Tony Blair’s agenda. By expanding a mechanism (Academies) that the Labour Party had invented, he split the political opposition. It became ideologically difficult for opponents to attack the core principle of a policy their own side had pioneered.
2. The ‘Opt-Out’ Incentive: Micropolitics teaches us that it is easier to let people leave a bad system than to force them to accept a new one. Gove did not initially compel schools to convert; he allowed ‘good’ and ‘outstanding’ schools to choose to leave local authority control. Crucially, he aligned the incentives: schools that converted received the funding that local authorities previously held back for central services. This made conversion financially attractive, creating a ‘coalition of the willing’ that eroded the municipality's power base from within.
3. Speed Creates Irreversibility: The reform relied on pace to prevent retrenchment. By moving aggressively (50 per cent of secondary schools had converted by 2012/13), Gove created ‘facts on the ground’ that could not be undone. Once thousands of schools had become independent legal entities with their own contracts and assets, it became administratively impossible to return them to local authority control. As a result, the monopoly was broken permanently.
The result is arguably one of the biggest legacies of the 14-years of Conservative Government.
What about Health?
The National Health Service represented the ultimate micropolitical challenge. As a treasured national institution, it was politically perilous to touch, yet as a monopoly provider, it suffered from the classic bureaucratic flaw where funding was based on inputs (budgets for existence) rather than outputs (payment for results). The solution, introduced by the Thatcher government in 1990, was the Internal Market. The intellectual architecture for this had been laid out in reports like the Adam Smith Institute’s, The Health of Nations (1988) as well as the original Micropolitics, which proposed 'Health Management Units'. In this system, doctors hold the budget and 'buy' care for their patients
The concept was to artificially separate the ‘purchaser’ from the ‘provider’. Health Authorities and, crucially, GP Fundholders were given the budget to ‘buy’ care for their patients, while hospitals became independent ‘Trusts’ that had to compete for these contracts. The logic was that money should follow the patient. If a hospital had long waiting lists or poor hygiene, the GP could take their ‘custom’ elsewhere, forcing hospitals to improve efficiency or lose revenue. This would become a proxy for market discipline.
The history of this internal market, however, is one of initial radicalism followed by slow dilution. While Tony Blair publicly declared the ‘dreaded Tory internal market’ banished, his government actually retained the mechanics, abolishing GP Fundholding but effectively universalising it through ‘Primary Care Trusts’. The micropolitical lever of patient choice remained central through the New Labour years and the Coalition's 2012 Health and Social Care Act, which attempted to reinvigorate competition. Yet, by 2017, the NHS began officially abandoning competition in favour of Integrated Care Systems (ICS), prioritizing cooperation between local hospitals and services over competition. The 2022 Health and Care Act formally dismantled the requirement to put services out to tender.
Ultimately, the internal market faltered on a single, immovable political reality: exit is impossible. In healthcare, no government can allow a local hospital to close due to bankruptcy. Without the credible threat of failure, the incentives for efficiency are blunted. When ‘exit’ is removed from the equation, the market mechanism is eroded.
Debates still rage about the absence of price signals elsewhere in the system. There is a recurring micropolitical argument for introducing nominal charges. For example, a small fee for GP appointments could be used to deter abuse or missed appointments (like some restaurant booking apps). However, the ‘free at the point of use’ principle remains core to the NHS identity, leaving this specific micropolitical tool largely untouched.
Turning NIMBYs into YIMBYs
The most recent and perhaps most vividly ‘micropolitical’ reform involves the housing market. By the 2010s, it was widely accepted that the UK faced a severe housing crisis, with prices and rents skyrocketing in key locations. While economists agreed that the solution was to build more homes, the political mechanism to achieve this was broken. The planning system created a dynamic where local homeowners, the most reliable voting bloc, blocked development. They feared developments would be ugly, strain local services, or lower their property values. This is the phenomenon known as NIMBYism (Not In My Back Yard).
In 2017, the Adam Smith Institute published Yes In My Back Yard by John Myers. The paper applied micropolitical logic to the problem: instead of imposing housing targets from the top down (which creates political backlash), the system should incentivise residents to choose development from the bottom up.
While the initial spark came from Myers, the concept was refined and championed by a coalition of thinkers across the political spectrum. Ben Southwood (ASI and Policy Exchange) and Samuel Hughes (Policy Exchange and Create Streets) were instrumental in developing the policy architecture. They argued that if you give local people control over the design and the financial rewards, they will support ‘gentle density’. This cross-party consensus, bolstered by dedicated groups like the YIMBY Alliance and Create Streets, moved the idea from a radical idea to a popular policy solution.
The core proposal was simple but radical: allow individual streets to vote on granting themselves ‘permitted development rights’.
Hyper-Local Democracy: Instead of a whole council deciding, a single street could vote to allow residents to extend their houses upwards (e.g., adding a storey) or fill in gaps (creating mews houses). Crucially, tenants are eligible to vote, ensuring that the people actually living on the street, not absentee landlords, have the final say.
Design Codes: To address the fear of ‘ugly’ development, the street would agree on a strict design code to ensure any new building matched the local character.
The Incentive: If the street voted 'Yes', every homeowner on that street would instantly see the value of their property rise, as they now possessed the right to extend or sell to a developer who could.
This flipped the incentive structure. Under the old system, development enriched a developer while annoying the neighbours. Under Street Votes, the neighbours capture the economic value of the development. It turns NIMBYs into YIMBYs (Yes In My Back Yard).
The macroeconomic argument for this micropolitical fix was immense. The ASI report estimated that if enough homes were built in the right places, GDP per capita could be 30 per cent higher in just 15 years—effectively adding £10,000 to the average household income. Furthermore, a portion of the land value uplift could be captured to fund local services and new social housing, ensuring the benefits are shared beyond the street itself.
Unlike many think tank ideas that languish on shelves, this concept rapidly transitioned into law. The policy was adopted by the government and enacted through the Levelling Up and Regeneration Act 2023. In 2024, the government launched a consultation on the mechanics of these votes, detailing a system that closely mirrored the original micropolitical design:
The Qualifying Group: A group of residents (at least 20 per cent of the street or 10 individuals) can submit a proposal for development.
The Check: The proposal is examined by the Planning Inspectorate to ensure it meets design and environmental standards.
The Trigger: A referendum is held via postal vote. For the permission to be granted, 60 per cent of eligible voters on the street must vote in favour.
The Cautionary Tale of Trussonomics
The brief premiership of Liz Truss serves as a critical case study in the failure of micropolitics. While supporters often characterise it as a failure of nerve and opponents as a failure of ideology, it was fundamentally a failure of sequencing and political engineering.
The administration operated on the assumption that the bond markets would share their optimism regarding the impact of tax cuts and reforms on growth. This proved to be a fatal miscalculation. It ignored the reality that the market is a powerful stakeholder which punishes fiscal indiscipline with brutal speed. In this regard, the administration became a modern analogue to the Anthony Barber ‘dash for growth’ in 1972, repeating the errors of inflating demand without fixing supply, but at an accelerated pace.
A primary failure was the neglect of the micropolitical necessity to ‘roll the pitch’. Successful radicalism requires preparing the ground, building alliances, and co-opting institutions before major announcements are made. Instead, the administration bypassed the Office for Budget Responsibility and dismissed the Permanent Secretary to the Treasury.
These actions declared war on the institutional architecture rather than managing it. Combined with a divided party, where opposing factions were leaking and briefing against the Prime Minister from the outset, the administration appeared chaotic rather than authoritative. When the market reaction turned negative, there was no reservoir of political capital to draw upon.
The defining policy error, however, was the sequencing of the fiscal announcements. The government committed to the Energy Price Guarantee, a massive non-market intervention with an estimated cost of between £70 billion and £140 billion. This liability was paired with a ‘Mini-Budget’ which announced significant tax reductions. Crucially, these measures were announced before any corresponding spending cuts or supply-side reforms had been detailed or secured.
Markets assess risk based on the probability of implementation. Investors understand that spending increases and tax cuts are politically easy to enact, whereas supply-side reforms and spending reductions are politically difficult. This asymmetry is particularly acute when a government relies on a fragile coalition within its own party.
The markets correctly calculated that the fiscal loosening was guaranteed while the balancing measures were speculative. This stands in stark contrast to the Thatcherite approach of 1981, where taxes were initially raised to control the deficit and establish credibility, before later reductions were applied. By attempting to bypass the hard work of fiscal consolidation, the risk to the net fiscal position appeared to worsen dramatically.
The political fallout demonstrated a misunderstanding of the necessary coalition for a right-of-centre government. The resulting collapse in confidence and spike in gilt yields directly increased mortgage rates. This alienated the aspirational middle class, the bedrock constituency for any conservative project.
No amount of abstract rhetoric about a ‘2.5 per cent growth target’ could compensate for the tangible loss of financial security felt by households seeing their monthly payments rise by hundreds of pounds. By prioritising theoretical purity over the material reality of their core voters, the government severed the link between their policy and their political base. Ultimately, the Truss experiment demonstrated that fiscal credibility is a prerequisite for radicalism. One cannot defy the arithmetic of the markets and expect to survive.
19 New Tools for Micropolitics
The Power of Polling: Testing the Deal
Micropolitics is not just about designing incentives; it is about identifying the ‘permission structure’ that allows politicians to act. Often, the political class is paralysed by the belief that a reform is unpopular, when in reality, the public is simply waiting for the right offer. Polling provides the mechanism to discover this hidden consensus. It allows micropoliticians to experiment with different ‘bargains’ in a safe environment, testing which combination of incentives shifts public opinion before a policy is ever announced.
This capability has evolved significantly over time. When the Adam Smith Institute first began using polling in the 1980s, it was a high-friction exercise. Polling was expensive, slow, and conducted almost exclusively over the telephone. Today, the landscape is different; online polling is inexpensive and rapid, allowing for iterative testing of nuanced policy conditions. Yet, the strategic purpose remains the same: to reveal that the public is often far more radical and pro-market than the establishment assumes.
In the late 1990s and early 2000s, the ASI commissioned a series of polls with MORI (Market & Opinion Research International) to test the mood of the nation. The political establishment at the time had convinced itself that young people were statists who demanded greater government intervention. The polling data shattered this conventional wisdom, revealing a generation that was optimistic, self-reliant, and profoundly entrepreneurial. Their top career goal was not a safe job but owning their own business.
Similarly, when the establishment fretted about youth disengagement from politics, the polling uncovered a rational, consumer-driven response: young people disengaged because they felt politics mattered less to their lives than their own personal choices. Further polling on public services exposed deep ‘producer capture’, showing that while the police prioritised internal targets like diversity awareness, the public overwhelmingly just wanted them to catch criminals. These insights allowed the ASI to bypass the media and civil service gatekeepers, presenting politicians with hard data that proved the water was safe.
Fast forward to the 2020s, and the ASI applied this same technique to the toxic issue of housing. The prevailing political wisdom was that building on the Green Belt was electoral suicide. The Rooms for Debate polling project deconstructed this assumption by testing conditions rather than just positions.
When asked simply if they supported building on the Green Belt, the public opposed it by a net margin of –31 per cent. However, the poll then tested a micropolitical bargain: what if a portion of the profits was given back to the local community and residents as a ‘community dividend’? Support swung dramatically to +13 per cent. This 44-point swing proved that the opposition wasn't ideological; it was transactional. People opposed development because they bore the cost without sharing the reward.
The polling also clarified the framing required for success. Abstract arguments about ‘economic growth’ or ‘construction industry stability’ left voters cold, whereas concrete benefits like ‘making local housing affordable’ (71 per cent support) and ‘helping young people onto the ladder’ resonated powerfully. This data provided the intellectual bedrock for the Street Votes policy, proving to politicians that they didn't need to fight a war against NIMBYs; they just needed to offer a better deal. These findings were briefed to policy teams across the political spectrum, ultimately supporting Labour’s pledge to build 1.5 million homes.
Target Operating Models
The Cameron government of 2010 pursued a policy of ‘austerity’. While some departmental spending was cut significantly, overall government expenditure as a percentage of GDP did not shrink as intended, especially with high non-discretionary spending on benefits like unemployment payments. To achieve savings without immediately breaking public services required a new level of operational rigour.
Since Micropolitics was first published, the management consulting profession had ballooned, specialising in exactly this kind of efficiency for private companies. Consequently, their methods, and often their personnel, migrated into the heart of government. The core tool they brought with them was the Target Operating Model (TOM).
A TOM is not just a strategy; it is the architectural blueprint for how an organisation delivers value. The standard design process can be condensed into four phases:
Strategic Vision: Define the desired future state and the capabilities needed to achieve strategic goals.
Gap Analysis: Compare the ‘as-is’ current state against the ‘to-be’ future state to identify inefficiencies in processes, technology, and structure.
Design & Roadmap: Detail the new operating model (processes, roles, governance) and create a phased implementation plan with clear resource allocation.
Implementation & Monitoring: Execute the change (often piloting first) while continuously monitoring performance metrics to refine the model.
The TOM adds a vital capability to our micropolitical toolkit: the ability to transform individual organisations towards better service, at lower cost, without legislation. This is particularly relevant at the core of the state—the police, the army, the courts—where competition is utopian and the external lever of ‘exit’ does not exist. Like the Citizen’s Charter, the TOM replaces the missing pressure of the market with the rigorous pressure of design. By treating the organisation not as a ‘black box’ but as a re-engineerable machine, it offers a way to reform the unreformable from within.
A prime example of using a TOM to deliver ‘more with less’ was the Metropolitan Police's ‘20:20:20’ challenge. The goal was ambitious: a 20 per cent reduction in budget, while aiming for a 20 per cent improvement in public confidence, and a 20 per cent decrease in key crimes.
To achieve this ‘impossible’ triangle, they fundamentally redesigned their operating model:
Rank and Grade Mix: The Met shifted its ratio of leaders to doers. Historically, some units operated with top-heavy ratios. The new model imposed a span of control target, aiming towards a 1:6 ratio or greater. This forced a reduction in expensive senior ranks and ‘back office’ staff to preserve frontline constable numbers.
Managing Headcount through Churn: Since mass redundancies of warranted officers are politically and legally difficult, the Met used ‘natural churn’. They froze recruitment for senior roles and let retirements naturally shrink the workforce to the new design. This maintained quality while slowly aligning numbers with the new structure.
Technology Capital: Capital investment was used to substitute for labour. Investing in tablets and mobile technology allowed officers to file reports from the street rather than returning to the station, effectively boosting the ‘productive hours’ of each constable.
Triage and Resolution Centres: The model introduced a new layer of triage. Not every crime requires a detective to visit. ‘Telephone Resolution Centres’ were established to handle minor issues remotely. This provided a middle ground: the public got a faster answer, and expensive detective resources were preserved for serious investigations.
While the 20:20:20 programme successfully cut costs and maintained headline metrics, it also illustrates a key political market danger: producer capture. Over time, the strict focus on ‘efficiency’ led to a drift where crimes that were difficult to solve or deemed ‘minor’ by the producer (the police), such as phone snatching or bike theft, were essentially de-prioritised. While this made the data look efficient (high resolution rates for processed crimes), it created a disconnect with the consumer (the public), who felt that low-level lawlessness was being ignored. The lesson for future micropolitics is clear: efficiency is vital, but if your TOM optimises for the producer's convenience rather than the consumer's priority, you risk losing the public consent that underpins the service.
Nudge Theory: The Subtle Lever
While traditional micropolitics relies on structural reforms like privatization or competition, Nudge Theory offers a softer, psychological tool for aligning individual behaviour with policy goals. Popularised by Richard Thaler and Cass Sunstein, and embraced enthusiastically by the Cameron government through the ‘Nudge Unit’ (Behavioural Insights Team), it focuses on altering the choice architecture surrounding a decision.
The core insight is that humans are not perfectly rational actors; we are lazy, habitual, and influenced by how options are presented. Therefore, small changes in the ‘micro’ environment can lead to massive ‘macro’ shifts without needing to ban anything or spend vast sums.
The classic example is Pension Auto-Enrolment. In the old model, Employees had to actively choose to join a pension scheme (Opt-in). Inertia led to low savings rates. The Nudge is for employees to be automatically enrolled but can choose to leave (Opt-out). Freedom of choice remains, but inertia now works for the saver rather than against them. The potential impact is millions more people saving for retirement, reducing future state liability, with no coercion involved. Other examples include changing the default on organ donation or simplifying tax letters to highlight that ‘most people pay on time’ (social proof).
However, Nudge Theory carries a distinct micropolitical risk. While it claims to be ‘libertarian paternalism’, preserving liberty while guiding people towards better outcomes, it can easily slide into state manipulation again.
If the state creates the ‘choice architecture’, it controls the path of least resistance. This can be used not just to help people save money, but to steer lifestyle choices (diet, drinking, energy usage) in a way that expands the state’s moral authority without the scrutiny of legislation. Nudge units risk becoming a tool for covert ‘nanny statism’, undermining the very agency and responsibility that micropolitics seeks to foster.
‘We can just do things’
Given the sense of paralysed government and managed decline that characterised the mid-2020s, a new breed of ‘comms-led’ politics emerged. This approach bypasses the slow grind of legislative reform in favour of direct, visible action. It is not micropolitical policy engineering, it does not tweak tax rates or restructure incentives. But it acts as a powerful micropolitical accelerant by making failure undeniable.
Two prominent examples illustrate this shift. In June 2025 Looking For Growth (LFG), a campaign group, launched their ‘Looking for Graffiti’ campaign. Frustrated by the degraded state of the capital, volunteers in hi-vis vests descended on the London Underground to scrub graffiti off trains themselves. The message was explicit: ‘We can just do things’. By doing the job the state was failing to do, they shamed institutions like TfL into action, proving that the paralysis was a choice, not an inevitability.
Similarly, Roberty Jenrick as Shadow Justice Secretary in May 2025, adopted a similar tactic by filming himself confronting fare dodgers at ticket barriers. Instead of issuing a white paper on crime, he physically intervened to stop it. The viral stunt (‘He's not acting. So, I did’) bypassed the abstract debate on policing and confronted the public with the immediate reality of lawlessness.
These actions echo the logic of the Citizen’s Charter but adapted for the viral age. Just as the Charter forced public services to publish their failures (waiting times), these campaigns force the public to see the failure and the solution simultaneously. They break the psychological conditioning of decline by demonstrating that authority can be asserted and problems can be fixed, if you are willing to ‘just do things’.
20 Twenty Lessons from More Recent Micropolitics
The period since Micropolitics was first published reveals that success is rarely about winning an intellectual argument. It is about restructuring the ‘micro’ incentives that drive human behaviour. Here are the twenty lessons that emerge:
Micropolitics is not the Battle of Ideas: Winning the intellectual argument is not the same as winning the policy. You can prove that free markets are more efficient, but if the bureaucracy and interest groups remain unchanged, the ‘ratchet effect’ will eventually reverse your progress. Privatisation is a powerful tool, but it is not enough; government can still stifle the private sector through regulation (as seen in the planning system) unless the underlying political incentives are permanently shifted.
The Market is a Stakeholder: You cannot beat the market. As the Truss experiment proved, the bond market is a powerful veto player in any political system. Ideology cannot override arithmetic; if you lose fiscal credibility, the market will punish you with immediate and brutal consequences. Rising mortgage rates and a collapsing currency alienate your own base. You must satisfy the accountant before you can satisfy the philosopher.
Create Owners, Not Tenants: People care more about assets they own than services they receive. Whether it is shares in privatized industries, the title deeds to a council house, or a personal pension pot, ownership creates a constituency for stability and growth that will fight to protect those assets from future political interference.
Align Incentives: Systems fail when the person making the decision does not bear the cost or reap the reward. Successful reform connects effort to outcome. It could be a GP keeping the savings from efficient prescribing, a street benefiting from the uplift in their land value, or a local community accepting fracking or nuclear energy because they receive ‘concentric ring’ compensation in the form of cheaper bills.
Discover the Hidden Bargain: Micropolitics isn’t just about guessing the right incentives; it is about empirically discovering them. Traditional polling asks what people think, but micropolitical polling asks what it would take to change their minds. As seen in the housing crisis, a ‘no’ to Green Belt development can be flipped to a ‘yes’ not by winning an intellectual argument, but by identifying the specific transactional condition, a ‘community dividend’, that unlocks consent. Data is the tool that turns an ideological deadlock into a negotiable trade.
Exit beats Voice: While committees and consultation documents (‘Voice’) rarely improve public services, the ability to take your money elsewhere (‘Exit’) is transformative. Choosing a different school, hospital, or train operator applies the only pressure that forces bureaucracies to improve.
Design in the absence of competition: For the core of the state (e.g. military), the primary micropolitical lever of ‘exit’ is unavailable. You cannot shop around for a different law enforcement agency. In these monopolies, the pressure of the market must be replaced by the rigorous pressure of design. A Target Operating Model (TOM) substitutes the ‘invisible hand’ with a ‘visible blueprint’, re-engineering the internal machinery of the state (ratios, processes, flows) to force efficiency that competition cannot drive from the outside.
Build from the Bottom Up: Imposition breeds resistance; local choice breeds support. The Citizen’s Charter worked because standards were negotiated with the services, not dictated by the centre. Street Votes work because residents themselves propose the development. When people feel they are in control of the change, they are more likely to support it.
Weaponise Precedent: Radical change is frightening, so successful micropolitics often frames revolution as evolution. It is easier to expand an existing mechanism (like using Labour's existing ‘Academy’ model to break local authority control) than to invent a new one.
Make it Easy to Opt-Out: Don't force change on everyone instantly. Create a ‘coalition of the willing’ by allowing people to opt-out of the old system (like Grant Maintained Schools or Foundation Trusts). If the new model works, others will naturally follow.
Alter the Architecture: Humans and bureaucracies alike follow the path of least resistance. Micropolitics can exploit this by changing the context in which decisions are made rather than the laws that govern them. Nudge Theory does this by setting the default option (e.g., auto-enrolment) to make the desired behaviour automatic. Similarly, Direct Action (‘We can just do things’) changes the physical environment (cleaning a train or stopping a fare dodger) to make administrative failure undeniable. Whether psychological or physical, altering the ‘choice architecture’ is often faster and more effective than legislative command.
Speed Creates Irreversibility: In politics, speed is a defensive weapon. If you transfer assets, sign contracts, and create new legal entities quickly, it becomes administratively challenging for a future government to reverse the reform.
Quality requires Measurement: You cannot improve what you cannot measure. The sheer act of publishing data (e.g. school league tables, hospital waiting times, or train punctuality), changes behaviour because it makes failure visible and success undeniable.
Sponsorship determines Success: Bureaucracies have an innate immune system that rejects reform. Policies like the Citizen’s Charter only succeeded because they had personal sponsorship from the very top (Prime Minister John Major), forcing producer interests to yield to the consumer interest.
The Detail is the Trap: The best concept will fail if the mechanism is flawed. Private Finance Initiatives (PFI) was conceptually sound but many suffered from poorly designed contracts. It also was exploited as an accounting trick by the Treasury. The micropolitical mechanism must be technically robust, not just ideologically correct.
Compromise to Conquer: Perfection is the enemy of the good. The Gove education reforms accepted significant compromises (no profit-making schools, no parental top-ups) to secure the core objective: breaking the local authority monopoly. You can always revisit the details later, but you must first secure the structural break.
Sequencing is Destiny: The order of operations is fatal. The Truss government failed because it announced the ‘sugar’ of tax cuts before securing the ‘medicine’ of spending reductions and supply-side reform. Markets and voters know that giving money away is easy, but taking it back is hard; if you announce the former without the latter, you lose credibility. Successful radicalism requires ‘rolling the pitch’. One needs to build alliances and bank fiscal trust, before it is spent. You cannot buy the result before you have paid the price.
Grandfather the Incumbents: Radical reform often dies because it threatens those currently relying on the system. One micropolitical solution is to guarantee terms for current users while changing the rules for new entrants. This creates a (arguably unfair) two-tier transition that neutralises the most powerful opposition block, the present-day beneficiary, by ensuring they lose nothing, allowing you to reshape the long-term future without an immediate revolt (pragmatic progress).
Buy Out the Obstacle: Force is expensive; transactions are efficient. If a trade union practice, a legacy contract, or a status quo is blocking progress, it is often cheaper to pay a ‘good deal’ for a voluntary exit than to pay the political cost of a standoff. Converting a political conflict into a rational financial calculation removes the emotion and speeds up the reform.
Target the Weakest Link: The ‘Grand Designs’ fallacy assumes you should attack every regulation simultaneously. This is a mistake; it unites every vested interest into a single coalition of resistance. Instead, strike where the opposition is weak. Target specific, indefensible regulations first. Winning small, visible battles builds the momentum required to eventually topple the monolith.
21 ‘When we win’
The mantra among disillusioned free marketeers today is, ‘when we win’. It is spoken wistfully, a speculation on what could be done if one finally held the reins of power with a mandate to be radical.
The danger of this mindset is that it drifts back towards ‘Grand Designs’, holistic sweeping plans that attempt to fix everything at once. When people plan for the day of victory, they must not just plan the policy; they must plan the micropolitics. They must apply the discipline of incentives and the art of the possible to the most radical issues of our time.
Examining some of the emerging ideas from opposition parties allows us to consider the Micropolitical opportunities and challenges a future government may face. This is not intended to provide a manifesto, nor is it an endorsement of the ideas – instead, it is a chance to consider micropolitics in a few areas where it could be particularly important soon.
Great Repeal Act
There is a temptation to sweep away all the regulatory accumulation of the last thirty years in one ‘Great Repeal Act’. This risks being too holistic; by threatening every vested interest simultaneously, it creates a coalition of resistance that will cause the entire project to crumble.
It forgets the hard-won lesson of the 1980s: if you attack on every front, you unite every enemy. As Sun Tzu warned in The Art of War: ‘So in war, the way is to avoid what is strong and to strike at what is weak’. The micropolitical approach is to break the monolith, targeting specific, weak regulations where the public benefit of removal is immediate and visible.
Remigration
The issue which has perhaps most captured public attention recently is immigration. As the debate shifts towards ‘remigration’, the practical mechanism is often ignored in favour of rhetoric. To address this effectively requires a dual approach, carrot and a stick, grounded in economic reality.
The necessity for such a policy stems from the perceived failure of the points-based system; originally sold as a mechanism to ‘raise the bar’, it appears instead to have been gamed to lower it. The result is a significant intake of low-skilled entrants who are net consumers of state benefits rather than net contributors. Consequently, the public objective is for these specific groups to leave, rather than to remain.
The ‘carrot’ in this scenario is micropolitical: replacing force with a transaction. A pragmatic solution is to offer a ‘good deal’ to leave. Much like the historic buying-out of restrictive trade union practices, a generous, voluntary package turns a potential conflict into a choice, making it far easier to incentivise individuals to depart voluntarily than to enforce removal.
This, however, would need to be matched by the ‘stick’ of structural reform. Rules require amendment to sever the automatic link between entry and Indefinite Leave to Remain. By restricting access to benefits and citizenship, the state ensures it is correcting an economic imbalance rather than importing new, state-dependent voting constituencies.
Low and Flat Taxes
When it comes to taxation, the ideal is lower, flatter incomes taxes, but the transition is perilous. The micropolitical challenge is to cut spending to enable tax cuts, and to restructure the taxes, without triggering a revolt.
This means the benefits of the tax cuts must be felt broadly and quickly. If the pivot towards consumption taxes creates instant big losers, the reform will die. The package must be designed so that the ‘winners’ (most working people) see the benefit in their first pay packet, creating a shield against political backlash.
Pension Reform
The Triple Lock on pensions has become a ‘holy cow’ of British politics, perhaps even holier than the NHS, because its constituency (the elderly) turns out to vote. To attack it directly is suicide.
A micropolitical solution is grandfathering: guarantee the lock for all current pensioners but adjust the deal for those retiring in 20 years. It creates a two-tier system, intellectually ‘unfair’, but politically identical to the tenant reforms that allowed the housing market to change without threatening existing residents.
Planning Reform
The ambition to rebuild the physical economy is currently strangled by a planning system designed to say ‘no’. Whether the goal is achieving energy superabundance through Small Modular Reactors (SMRs) and fracking, or finally hitting housing targets, the obstacle is identical: the NIMBY’s local veto.
The micropolitical solution is not to override these objections with top-down mandates, but to dissolve them with direct incentives. We must ensure that communities share immediately in the economic uplift.
For controversial infrastructure like fracking sites or power stations, this requires a compensation model based on concentric rings: those living closest to the development receive the most significant direct payouts or energy discounts, with the benefits radiating outwards.
By aligning local self-interest with national necessity, development shifts from being a burden to be fought into an asset to be courted.
The Korean Option
Addressing the energy crisis requires resisting the tendency toward ‘bespoke’ solutions. British energy costs are among the most expensive in the developed world and this cripples heavy industry. This stems not from a lack of technology but from a failure of procurement strategy. Infrastructure projects are invariably treated as unique artistic commissions rather than manufacturing processes.
The micropolitical solution is the importation of success. South Korea’s KEPCO builds nuclear reactors for a fraction of the cost of Hinkley Point C by constructing ‘fleets’ of identical stations. This relies on learning by doing rather than redesigning the wheel. The objective is not to act as the architect of a new British nuclear standard but to certify the South Korean standard. By adopting ‘regulatory mimeticism,’ or automatically approving designs already operating safely in allied jurisdictions, the domestic ‘blob’ is bypassed entirely.
Defeating the Consultant Tax
While local opposition is often blamed for blocking infrastructure, a significant obstacle is the ‘Consultant Tax.’ The planning application for the Lower Thames Crossing ran to 360,000 pages and cost nearly £300 million to produce. This is more than the cost of actually building a tunnel in Norway. This mountain of paperwork serves not as a safety mechanism but as a defensive weapon used by the bureaucracy to delay action and extract rent.
The remedy lies in the micropolitics of design constraint. Legislation should impose strict page limits and timeline caps for environmental impact assessments. If a tunnel in Norway can be approved with a fraction of the paperwork, demands for more in Britain should be treated as a failure of the regulator rather than the applicant. Excessive consultation must be reframed not as democratic rigour but as an economic sanction on the poor who ultimately pay the price in higher bills and lost growth.
The Ratepayer’s Return
A critical historical shift occurred regarding local government incentives. Before 1947, local councils actively encouraged development because the tax system allowed them to keep the ‘uplift’ in rates to fund local services. Today, a council that approves a data centre or a new logistics hub absorbs the political pain of traffic or noise complaints while the Treasury absorbs the financial gain through Corporation Tax and centralised Business Rates.
A potential micropolitical fix is to realign the survival instinct of the institution. Legislation could introduce a ‘Keep Your Receipts’ rule. For any new commercial infrastructure, the local authority should retain 100 per cent of the Business Rates for the first twenty years. This transforms the Council Treasurer from an opponent of growth into its lobbyist. It is unnecessary to force councils to build. It is only necessary to make it expensive for them to refuse.
The Nature Transaction
Infrastructure projects are currently constrained by an ‘environmental veto’ where a major development can be halted by the discovery of a protected species. This creates a deadlock where nature serves as a proxy to stop growth. The micropolitical solution is to replace the veto with a transaction.
A ‘Biodiversity Auction’ could allow developers to pay a premium to fund high-quality nature restoration elsewhere rather than preserving low-value habitats in situ at massive cost. This monetises the obstruction. It ensures that infrastructure is built and the environment is improved. This replaces lengthy scientific disputes with efficient financial transfers.
Conclusion
Ultimately, when the mandate is finally secured, it will require more than grand designs. Reformers must not merely be the architects of a new Britain; they must be its engineers. The lessons of micropolitics must be employed again.
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