How do governments add value to society?

Recent elections (and referenda) in the US, UK, France and Italy, as well as many other parts of the world, underpin increasing concerns about the low levels of trust and confidence that individuals have with their politicians and political systems. Dr Bruce Lloyd FRSA argues that these concerns are essentially about power and how it is being used.

Are political leaders using their power responsibly? Is power being used in the wider long-term interests of society, or too often to deliver to the short-term individual political interests of politicians? These questions about the role, effectiveness and efficiency of governments at all levels, lead us to one central concern: How do governments add value to society? This is rarely discussed and certainly not within a non-partisan political environment.

In practice, there are two fundamentally different – and potentially conflicting – activities that governments and policy makers need to reconcile one way or another. The first is concerned with resource redistribution.  Unfortunately in the UK the two main political parties generally approach redistribution from very different perspectives. Both seem unable, and/or unwilling, to recognise the core challenge they face of attempting to get the best of both worlds: practical distributional policies for the income (and capital) extremes through progressive tax policies, at the same time as attempting to maximise the scope for self-management with minimal state intervention around the middle income/capital groupings. Politically, this dilemma is particularly problematic because, while most of the votes now come from the ‘middle’, it is usually those at the extreme ends of the political spectrum that tend to shape the policy debate.

The second core function of government is the need to effectively exploit potential economies of scale. Basic examples would include activities such as the military and police but would also include major long-term investments that any decentralised system is unlikely to be able to undertake on its own. For example, major power stations, railway networks and airport developments.

But even here, it is important that these activities do not generate their own self-serving interests; their role should not be seen as primarily attempting to preserve the status quo, and/or primarily reflect the vested interests of the ‘haves’, rather than focusing on the wider interests of society as a whole. Talk about these ‘wider interests’ is too often simply expedient ‘window dressing’, driven by a combination of a desire to preserve particular interests, at the same time as recognising the need for the votes from this wider ‘middle’ grouping.

In theory, there is a strong case for an active role for government in these areas, but the key question is at what level (local, regional, national or international) should decisions be taken? And even when decisions are taken primarily at one level, what are the implications at other levels that need to be considered? In addressing this question, we need to also focus on the third core function of government, which needs to be recognised and integrated into all policy initiatives: the need to develop structures that are favourable to effective, positive innovation.

Generally, the more decentralised the system the greater the scope for innovation, essentially because it doesn’t have to challenge those that have a vested interest in the status quo. Decision-making levels should be moved down wherever possible, especially if there are not explicit economies of scale benefits from moving it further up the hierarchy. But any policy in this area also needs to recognise that, in certain situations, the need to benefit from economies of scale is also relevant, particularly where long time horizons are involved. Given that political time horizons are often very short, this can create an additional challenge (for example, decisions about nuclear power stations and space programmes have to think decades ahead, if not longer). Overall, a decentralised innovation approach also needs to develop structures that encourage the transfer of learning, and best practice, across the various decentralised (and even centralised) groups.

In thinking about what government is for, it may be useful to explore how and why governments don't ‘add-value’ to society. There are two main reasons. First, it is almost inevitable that the political elite become self-serving to a greater or lesser extent. Secondly, governments are rarely effective operational managers and the resulting excess of managerial layers creates additional, and possibly unnecessary, complexity. Several decades ago Gould and Campbell (Strategies & Styles) argued that in any hierarchy, it is important to understand how each additional layer adds value to the organisation as a whole. If this cannot be reasonably defined, the layer will probably destroy value, largely because it will be surrendering to the ‘natural’ tendency to generate its own self-serving agendas.

The underlying challenge is to recognise that there is a need for intervention to be focused on helping to manage the re-distributional resource dimension more effectively, while reconciling this with a minimalist (‘enabling’) role that focuses on managing the relationships and interactions between those in the ‘middle’. The answer to this dilemma is a combination of both an enabling framework and an appropriately focused re-distributional interventionist strategy combined with an awareness of the need for structures that enable the effective exploitation of potential economies of scale. Operating policies that reflect these two strategies at the same time can be done but they will only have any chance of success if the conflicting issues outlined are recognised and understood.

In addition, policies need to be undertaken in such a way that both the media, and the public at large, understand what is going on, and why. Unfortunately, in many situations, the media tends to polarize issues, reflecting prejudices/vested interests, which are often far from helpful to improving the quality of our discussion over the role and size of government and the role of decision-making within it. In general, the role of the media (as the vehicle for information intermediation) cannot be ignored, as it is perceptions that influence feelings, attitudes, behaviours and decision-making. Hence the importance of transparency, accountability as the way to increase trust, cannot be over emphasised

The core questions of what governments are for, and how they add value to society, need to be widely and deeply discussed in all parts of the world and at all levels of decision-making in government. It is only then that we will find credible answers that do not simply focus on government’s size and its expenditure and make useful progress on the important future challenges that we face today and in the years ahead.

Dr Bruce Lloyd spent 20 years in industry and finance before joining the academic world in 1989. He is Emeritus Professor of Strategic Management, London South Bank University.