Leviathan’s tentacles: How the true size of the state is hidden from the electorate

Graeme Leach
The real reach of the regulatory state is impossible to quantify (Source: Getty)

The Institute of Economic Affairs published a “Nanny State” Index last week, showing the UK was the third most meddling country in the EU for intervening in lifestyle choices around cigarettes, tobacco, food and alcohol. This reminds us yet again that the Total Intervention Index (TII) for the state includes both tax and spend and nanny state regulation. The true size of the state, reaching out from all of Leviathan’s tentacles, is hidden from the electorate.

The regulatory impact of the state is vast and any measure of scale needs to acknowledge this. If the government reduces transfer payments or benefits and simply mandates such responsibilities onto the private sector (for example through the National Living Wage), standard measures of tax and spend will say that the state has shrunk, when in reality it hasn’t.

But TII measures are almost impossible to construct. Fairly dated measures (from the 1990s) for the US show a regulatory burden of around 9 per cent of GDP. Common sense suggests that this measure will have risen subsequently and that, if it’s that high in the US, it will be even higher in the EU. But that is about all we can say.

Such measures are notoriously misleading. Some regulations have benefits as well as costs. If the recent sin tax on sugar reduces obesity and future costs to the NHS, for instance, this benefit will need to be netted against the cost of taxation or regulation. In other areas of regulation, the benefits might be zero but the costs significant.

Extrapolating such influences across tens of thousands of regulations is impossible, and the bureaucrats know it. The end result is ever-expanding red tape, because of the lack of accountability. Imagine we could never obtain a total figure for public spending. It would then be impossible to hold the government to account.

So why does this matter? In my view there are four reasons:

First, the nanny state reveals we don’t have a “thick” enough concept of economic liberty. Economic freedom should be seen as on a par with natural rights, but the extension of the nanny state shows the concept of economic freedom is getting thinner not thicker.

Second, even where there is a state prerogative due to market failure, the consequences of state failure need to be considered alongside. State failure can make the solution worse than the problem. Politicians and bureaucracies will seek political not economic equilibrium, and this threat must be minimised. But the nanny state sees itself as the solution not the problem – its advocates often portraying an image of moral superiority over the vagaries of the market.

Third, the encroachment of the nanny state reveals layer on layer effects – for example where a new policy intervention such as Help to Buy is introduced to deal with a problem which is itself ultimately caused by government intervention elsewhere, like in the planning system.

Finally, the extension of the nanny state also reveals something much more fundamental about ourselves. If the world were full of perfect people, with perfect behaviour (i.e. internal control), there wouldn’t be a need for any coercion (i.e. external regulation). Irving Kristol wrote that, to the extent that the West lost its Judeo-Christian ethos, the uglier capitalism would become. I think he had a point.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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