When I moved to the United Kingdom a year and a half ago, I thought that I was moving to a free market experiment. Margaret Thatcher and her followers – from Blair to Cameron – had crushed the unions, liberalized labour and financial markets, privatized public services, reformed the state following business principles and reduced its interference in the economy. They had freed us from the threat of socialism, its bloated Kafkaesque bureaucracies and its mountains of red tape. I was aware of the massive social inequalities which had emerged as a result, but this was perhaps the price to pay for more freedom and a smaller state, for everything being faster, more fluid, agile and efficient.
The Kafka Bank
I kept this illusion for about three days after moving here, until I tried to open a British bank account. I chose a bank because of its declared “ethical” and responsible approach – it turned out that it was in fact severely mismanaged and its chairman was an avid user of Crystal meth and male prostitutes, but this is irrelevant here. To open a bank account, you need to prove that you live at a particular address. However, there is no government authority where you can go to register and prove that you live somewhere. Because of its concern for the freedom of individuals, Britain also doesn’t have ID cards. A plan to introduce them was axed by the current government in 2010. You have to pay council tax where you live, but it can be in the name of your flatmates or your landlord. The bank in question would not accept a private tenancy agreement as a proof of address, because the private tenancy market is a dodgy business full of rapacious landlords and greedy estate agents. What they accept to prove your address are letters from a bank, but this implies that you already have a bank. The only option for me to prove my address were utility bills, for which of course I needed to wait until the end of the month. As I didn’t have a British bank account and my employer wouldn’t pay my salary on a foreign bank account, I received my first salary in the form of a cheque that I could not cash (or only at these dodgy pawnbroker shops where they charge you a 15% fee).
After a month, I received my energy bill, or more precisely an internet link to an online energy bill. Energy companies strongly encourage or force you to opt for e-billing and direct debit, and they are unwilling to send you actual paper bills, in order to save costs. The friendly Scottish person from the call centre made it clear that it was much better for trees and my wallet to go paperless. I brought the prints to the bank. They didn’t accept them as a valid proof of address because they hadn’t been sent to my physical address. I also tried with a TV license, which I had also bought paperless after I had arrived. I called the TV licensing authority asking them to send me an actual paper license. After a number of requests, what they sent me was a certificate certifying that my TV license existed online. The bank said no again because it wasn’t the actual TV license. Eventually, I managed to have utility bills sent to my address (energy companies charge you a fee for that). Once again, the bank refused because the street number on the bill was “22C”, while the address that had been entered in their “processing facility” was “22”. The lady at the bank said that the computer system in their division in charge of regulatory compliance with money laundering regulations probably wouldn’t accept it if it wasn’t exactly identical. Since the financial crisis, banks had become very careful. If I wanted the “22” to be changed into “22C”, I needed to reapply.
I gave up and went to another bank that had an agreement with my university. Supposedly, you could open a bank account with them easily online. Again because of money laundering regulations, you have to indicate where you’ve lived for the last three years. For some reason, it wasn’t possible to enter a foreign postcode, so online didn’t work. I had an employee sent to my office, who didn’t know either why foreign postcodes couldn’t be introduced online. “It’s out of the ordinary” he said. Of course, nobody that has lived abroad ever moves to London, except perhaps for a few millions a year. In total, it took 7 weeks to open a bank account, right on time to receive my second salary. I am told that it would be tricky to get a British credit card because I have no “credit history” in Britain, so I didn’t even try.
Before moving to the UK, I lived for a year in Germany, the country of rules everywhere and rigid old-style bureaucracies. To open my German account, I took my tenancy agreement to the local authority (Bezirksamt), they stamped a certificate that I brought to the bank, and my account was open within a few days. Now I assume that one of the reasons why British banks are so absurdly picky, it’s because you can apparently do a lot more with a British bank account than with a German bank account: fee-free overdraft, special conditions for loans, etc. Actually, you have access to a lot of things that can go wrong, and with which you can get yourself and the bank in trouble if you default. In Germany, as everybody knows, you are not supposed to spend more than what you have, so you simply can’t go in the red. For British banks willing to take advantage of deregulated financial markets, having customers is almost a liability, which is why they need a lot more guarantees to make sure that they are reliable. However, banks cannot obtain these guarantees from the state because the state doesn’t want to interfere in your freedom, and they don’t want them from other private companies because they know that they are as greedy and untrustworthy as they are themselves, notably because they have all engaged in never-ending chains of subcontracting which dilute responsibility. The only way they found to get this insurance is by requiring endless piles of paperwork from you. More economic freedom, more paperwork, more soul-sucking bureaucracy.
Freer Markets, More Rules
Think of the following analogy: one day, you decide to no longer accompany your small son or daughter to school to leave them more freedom. However, to make sure that they won’t talk to strangers (which they might do) you make them fill in a 50-page questionnaire every day asking them if they understand all the different kinds of risks they may be exposed to, you call them every 30 seconds to check that they’re alright, you hire a private eye to check on them along the way, and another to monitor the first private eye. My understanding is that the British political economy works a bit along these lines. Governments have privatized, liberalized and outsourced, but every time they’ve done so, they’ve had to set up giant bureaucracies to monitor, control and repair the blunders of the market, and so do private companies to enforce and take advantage of competition. When you have freer markets, you need more rules. Britain and the United States have the most liberal labour and financial markets in advanced countries. Since there is so much freedom, why is there one CCTV for every eleven people living in Britain, and the United States have the largest rates of incarceration in the world? Since the UK doesn’t have ID cards and nobody is required to carry a document of identification to preserve individual freedom, it is actually easier for the police to take you to the policy station to identify who you are. While you seek to free market and individuals, you eventually end up establishing systems of control that are even more intrusive and alienating.
The problem is that when you don’t set up bureaucracies to monitor and control private markets, things usually go wrong, and the state has to step in to repair the damages with new bureaucracies, new commissions of enquiry and new regulatory authorities. Recently, Britain has privatized its probation services, or the monitoring of offenders on parole. It turned out that the company in charge of this had massively overcharged for this service, leading its chairman to step down. Now, you need more bureaucrats to check that the private service providers actually do their job, and more judges to sue them when they commit abuses, sometime dramatic ones. Security services are outsourced, but the army and police had to step in when G4S totally mismanaged the security of the 2012 London Olympics. Railways were privatized, but the company which managed the British Railway tracks had to be partly re-nationalised after a major crash. The British minimum wage is low not to outprice low-skilled workers, but the Treasury pays 3.2 billion a year in tax credits for low wages. It seems to be the same story time and again. The more market you have, the more state and bureaucracy you need after all.
Bureaucratization in British Universities
British universities are a particularly dramatic example of market-induced bureaucratisation. Since I have arrived, I discover the existence of a new rule, a new subcommittee or a new fancy job title (usually with word “strategic” in it) more or less everyday. If I go to a conference, I should fill in a risk assessment form listing 68 types of risks that I may face abroad, including whether I could be bitten by venomous snakes. I should also indicate the address of the closest hospital to the conference venue. The interesting thing about a large part of this bureaucracy is that it seems to have been created to respond to the needs of competition, while competition was supposed to make everything more efficient. Universities are in competition in the domain of teaching to attract students – and therefore income from fees – and in the domain of research, as government money is attributed on the basis of their research performance. As to teaching, as universities are desperate to attract as many students as they can, they have invested massively in marketing, recruitment and advertising services. In the US, for-profit universities are already spending more on marketing than in teaching (20% vs 17%, a report showed). Estimates for the UK are about 4 to 5% in marketing, but most experts predict a massive increase in future years. The consequence, in a context where resources do not increase because the total number of students is capped, is less money for what students actually want, teaching, and more to hire administrators and consultants in-house or – more often – hire private marketing firms. In short, the cost of selling the product to customers has gone up, and there is less money to actually produce it; then you need to rely on low pay to produce it with casual labour.
As for research, the major instrument to allocate funding is the Research Excellence Framework, whose goal is to rank and assess the research output of universities. My understanding of the achievements of the REF is that it has primarily created a giant time-consuming bureaucratic machine. Here’s how it works: departments are asked to select the “best” research outputs of their staff, and for that they set up reading committees who read all the publications to rank them. These rankings are then transmitted to higher levels within the university where the ranking is assessed, and decides whether it is reliable (Universities want to predict their REF score, perhaps for future budgeting). If it is not considered reliable, it is sent to external experts who can re-rank and re-assess the publications. At my university, heads of department have had to attend workshops to explain them how to tell their staff if they had been submitted for the ref or not. So what you have is thousands of people spending thousands of hours ranking and marking their colleagues’ work instead of doing more and better research, which was the first goal of the REF. And I don’t even mention the requirement of writing “impact case studies”: University College London advertised three “editorial consultant” positions to write them. Salaries were roughly equivalent to those of a lecturer.
In all these examples, the logic is similar. You try to enforce economic freedom, competition and free markets, but you end up creating exactly what you oppose because, as Polanyi argued, self-regulating markets simply cannot exist. Margaret Thatcher is often credited for the downfall of Communism, but she may have paved the way for a system that displays disturbing similarities.
5 responses to “How Margaret Thatcher Made Britain a Soviet State”
Good description of bureaucracy and all its consequences.
Some thoughts on implications or assumptions made in this post: bureaucracy is neither favored, nor promoted by free markets. It is also not true that state run enterprises or projects run any better than private ones. In Germany we have a long list of state run, or state controlled projects which failed miserably: Toll Collect, Hamburg Elbphilharmonie, Berlin airport, just to name a few in the latest past.
All these failures, and out of hand bureaucracy are a sign of either incompetence, or abuse of power. Incompetence and abuse of power is seen everywhere, be it free markets, or state authorities.
In general large organizations have a tendency to acquire and require more and more bureaucracy, again, independently whether they are operating in a free or regulated environment.
Thanks for posting this thought provoking and interesting article in this blog.
I’m from Canada, which managed to ride out the banking crisis due in part to our conservative approach to banking de-regulation. Iceland I think was the first to de-regulate their banks, who experienced a massive boom and bust, in advance of the US crisis, I believe. Another great example is Health Care here as compared to the USA, where our health system is government managed, vs a private system in the US. The system is much more efficient due to simplicity, tho it is not without its problems, of course.
I’ll assume you are a german just as i am.
Do you really pretend not to have heard anything about the “ReGe” in Hamburg or the byzantine contracts regarding TollCollect?
If so you must really be a market-based taliban.
You’re wrong about the reason for the identification maze. That’s actually due to money laundering regulations. Banks are legally required to know their customer, whatever that might mean.
Now granted money laundering regulations probably don’t work, and make ordinary people’s lives far more complicated and expensive. But it’s a product of the global law enforcement bureaucracy (and in part the insane war on drugs).
You’re right in the general case, though. Particularly RAE (see also the modern NHS). There’s a historian of the Soviet Union who’s explicitly made the connection between that and the USSR.
I do agree with a lot of it.
However, your description of the problems of trying to open a bank account, monitors my own when moving from the UK to France 30 years ago.
Only resolved when my boss took me to his own bank to introduce me.
.So, nothing new.
.It should have been easier because both countries were EU members.
Have things changed?
My son moved to London last year. same problem…… 30 years on.
He was advised (unofficially) by his French State Bank, that the only real International Bank was HSBC.
SO, he transferred and the problems were resolved within a week.
Go speak to HSBC.
On the wider issue, Private companies versus Nationalized companies, I hesitate.
I’ve lived in France for 30 years. During that time the High Speed train network has transformed the country.
Today, Parisians travel to Marseilles for the Weekend 480 Miles in three hours
London to Edinburgh 340 Miles nearly 5 hours
Basically, travel on trains in the UK is Twice as Expensive and Half as Fast compared to France.
I’m a liberal by persuasion, but I really cannot say that all privatizations in the UK have been a success.
I’m sitting on the fence.
I need to be convinced that privatized companies are more efficient