Tuesday, January 09, 2007

Monsters Of Waste- The DTI

Labour productivity disaster

The Department of Trade and Industry has long been a Monster of Waste, and it's high time BOM took a closer look.

From the latest annual Departmental Report we can see:

  • Annual cost- £6.5bn (2006-07)
  • Cost increase- doubled since 1997-98, an extra £3.2bn pa
  • Employees- c 10,000 (including agencies)

£6.5bn pa is getting on for 2p on the standard rate of income tax, so what on earth are we actually buying with it all? Predictably, the 264 page report is opaque on exactly how it all gets spent, but here are a couple of the Big Ticket items:

  • Regional Development Agencies- £2bn
  • Research Councils- £2.5bn

Now we all know the RDAs- they're those appalling quangos like Yorkshire Forward and OneNorthEast that spend the dosh on puffing up their areas though expensive ads in the Economist and elsewhere.

And the Research Councils spend it on academic researchers and those big radioactive doughnut things that will one day lay waste to Oxfordshire.

And of course the DTI's cost doesn't end with public spending. It imposes all kinds of regulatory burdens on business which, on its own admission, cost us another £5.3bn pa .

So is there the remotest chance any of it achieves anything useful? Let's judge against the Department's own stated major objective:

“To demonstrate further progress by 2008 on the Government long term objective of raising the rate of UK productivity growth over the economic cycle, improving competitiveness and narrowing the gap with our major industrial competitors”

Yeah. Well, we all know the productivity story- how Gordo promised to boost it, how he told us it was the key test of his policies, and how in reality it nosedived (see here for definitive and damning verdict from the OECD). We all know that.

Hmm. Well, evidently the DTI doesn't. Here's the chart they use in the Report to show how things are going on this key test:

Spot anything odd? Wonder WTF a chart puporting to show an international comparison of output per worker actually shows Green House Gas emissions? Quite simply, it's because the DTI literally can't tell its productivity growth arse from its Kyoto greenhouse elbow.

Which neatly highlights one of DTI's fundamental problems- it's such a ragbag of different bits and pieces of stuff, that even the bureaucrats can't keep track of it. Here's a taster of its wildly non-joined-up remit:

  • National Minimum Wage enforcement
  • Nuclear Decommissioning Authority
  • Arts and Humanities Research Council
  • UK fuel poverty
  • Patents Office
  • Resolving the bra war
  • Commission for Equality and Human Rights (CEHR)
  • Synchrotron Radiation Facility (stand well back gentlemen)
  • National Consumer Council

Get the idea? Is it any wonder the department gets confused?

It's reported that one of Gordo's first acts as PM will be to abolish the whole shebang.

An entire government department? The man responsible for even more directives and state bureaucracy than the legendary Nikolai Baibakov? Abolish a department and save us all £6.5bn pa?

Ah... well... hmm... not quite. What he's reportedly planning is to split its functions across other departments. The Science brief may ricochet back to the Department of Education (where it resided when Tyler worked at the Department of Education and Science in the 70s), and other bits will be divied up across Whitehall.

The main outstanding issue is apparently whether he will give energy policy to Defra (ie consign it to the total muddle and inaction of possibly Whitehall's worst department), or whether he will recognise the renewed urgency of energy security and establish a new Energy Department (er... like we had in the 70s).

So we shouldn't expect him to follow the Lib Dem policy of complete DTI abolition, or even the watered down Tory James Report Election pledge of a 4000 job cut (and £750m pa savings).

Savings: nul points. Yet another spinning deckchairs exercise: dix points.

In reality of course, the DTI needs a lot more than a catchy new name. As you may recall, they tried that in 2005, when they spent £30 grand temporarily renaming themselves the Department of Penis (see here).

State intervention in industry almost always destroys value, and as that abysmal record on productivity growth amply demonstrates, the DTI's activities are no exception.

So how much could we realistically save? Following James and Gershon, £1bn pa could come from central costs. And since there has never been any convincing evidence that regional aid creates value (any jobs created in the weaker regions are almost certainly less economically valuable than those taxed out of existence in the stronger regions) the RDA's should be axed, saving another £2bn pa. And following the London Business School's Tim Ambler, we'd save at least another £1bn pa by abolishing the Research Councils (see Tim's excellent paper here).

So while we may not be able to live without the whole of its £6.5bn cost and £5bn plus regulatory burden, most of it should go tomorrow.

Now, see if you can guess how much of that Gordo will do.

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