Reining in the State

There was a wonderful letter to the editor in this week’s Economist magazine that used a powerful metaphor of an orchestra to highlight the untenable future of state social spending as currently provided.  The letter was in response to Taming Leviathon – a special report on the future of the state.

“Sir, you twice mentioned – and then went on to ignore – The Baumol cost effect: the same number of musicians are needed now to play a Beethoven symphony as in the 19th century, even though real wages for musicians have since risen.

But William Baumol was an optimist. A better analogy would be an orchestra whose musical instruments steadily increase in size, so that they are soon too large to manipulate without motors and computers. Eventually a larger concert hall is required to accommodate them. The new hall is, of course, equipped with “dynamic acoustics”, which can be tailored in real time to the music being played. This in turn, requires teams of engineers and computer technicians, as well as mechanical hoists and their operators, to move the instruments.

This works until the instruments reach a size that their (aging) players can no longer maneuver them single-handedly and more musicians must be employed. And another hall built. Such is the nature of the pressure on health care and pension costs imposed by accelerating developments in medicine. It is a structural problem, which cannot be solved by pretending it doesn’t exist, or that it’s just a matter of “catching up” with private sector productivity.” Monty MacLean, Stockholm.

The western world has a big problem.  We have mortgaged our future requiring large debt repayment costs to be added into the costs of doing business…  but we are now competing on a global scale with economies which do not have that additional cost, or high costs of living and therefore high wage bills.

I do not think the answer is widespread cuts and reduction of all social provision to nothing.  I do know that sitting back and waiting to see is not the answer.  Any good ideas?

Standard of Living is Directly Proportional to Labour Productivity
I think a few areas are key: ensuring world class digital infrastructures, ensuring world class education for all, developing leadership and communication skills that allow for unparalleled collaboration and creation of new products, services, ways of living.  In the long run, the standard of living of a country is directly proportional to the productivity of labour – which is a factor of quality of infrastructures, quality of leadership and systems of work, and efficiency of labour.  My brother has some great thoughts on conquering procrastination.

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