1 week Ago By Pravina-rudra
This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here. Elon Musk has transformed the global motor industry.
He has transformed space exploration. Will he now do the same for public sector services worldwide? Donald Trump has appointed Musk , along with tech entrepreneur and former candidate for the Republican presidential nomination Vivek Ramaswamy , to head a new Department of Government Efficiency . “Together, these two wonderful Americans will pave the way for my Administration to dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies,” the president-elect said in a statement.
Elon Musk put the point more bluntly: “This will send shockwaves through the system, and anyone involved in government waste, which is a lot of people!” To many people this will be another example of classic Musk hyperbole, and of the slash and burn approach he took to X, formerly Twitter. That story has not turned out well for him, in that X is now estimated by one financial institution to be worth less than a quarter of the price he paid for it. Given the huge recent shift of users to the rival app Bluesky, the value may plunge further .
Tension There is the further complication that having two high-profile personalities as joint heads of a project is likely to lead to tension between them. It is certainly the case that Ramaswamy has been just as robust as Musk in his hostility to public sector bureaucracy. When he was campaigning for the nomination, Ramaswamy proposed eliminating the FBI , the Department of Education and the Nuclear Regulatory Commission.
But the two may well have different ideas as to how to carry out their mission. Still, the plain truth remains that Elon Musk became the world’s richest person by being a hugely successful disrupter. What he and Vivek Ramaswamy do will be watched everywhere.
If they are even half-successful in their endeavours, that will change attitudes to the size and role of government across the developed world, including – and perhaps especially – here in the UK. There is already concern as to whether the public sector is too big. Some work by the National Institute for Economic and Social Research in 2023 examined whether the public sector was holding back the country’s growth.
The ONS has calculated that overall UK public sector productivity is actually lower now than it was nearly 30 years ago. It fell under the Blair/Brown years from 1997 until 2010, rose a little by 2019 before the pandemic, but then plunged. Productivity did start to recover in 2021, but that improvement has now stalled.
NHS This criticism of the public sector is not an opinion. It is simply what the ONS data shows. But of course it has political implications, as Kemi Badenoch has noted with her call for smaller but better government.
The need for one huge part of the public sector, the NHS, to improve its performance has just been acknowledged by Wes Streeting, the health secretary. League tables of the best and worst performing NHS trusts will be published from 2025. But if there is some common acceptance of the poor performance of the public sector, instincts as to how to get it to up its game differ sharply.
One of Rachel Reeves’s key aims is to stop the planning system holding up development, and she announced plans to spend £46m on hiring 300 new planning officers . The alternative approach would be to streamline the planning system so that you need fewer planning staff, not more, to run it. Learning from the US That will be the message that the world will get from the new Department of Government Efficiency in Washington DC.
Indeed it is more than that. It is not simply: “How can we do this more efficiently?” It is: “Do we need to do this at all? Read Next Trump has already turbocharged the US economy So should the UK’s Civil Service be looking nervously over its shoulder at what will happen to federal employees in the US? Well, yes and no. Yes, in the sense that the maths of public finances are such that there will be very little additional funding, under any government, over the next decade.
In political terms, this is a government that is particularly favourable to public-sector workers, but if the tension between the two parts of the labour force were to mount, they won’t have the voting clout. There were 5.8 million people working in the public sector at the end of 2023, compared with 25.
6 million in the private sector . Public-sector workers will be better placed to cope with job losses than their counterparts in the private sector, but any change in working practices is painful. There is, however, a silver lining to the clouds billowing across the Atlantic.
It is that we will see what America is doing and learn from it. Slash and burn There is already a good example of new thinking in US military spending. I was at a conference in Washington earlier this year and heard General Mark Milley, who had recently retired as Chairman of the Joint Chiefs of Staff, talk about the costs of US defence.
His gist was that it would be more effective, safer, and probably cheaper, to focus less on its 11 huge aircraft carrier strike groups and more on intelligence, cyber-warfare and drones. If Elon Musk and Vivek Ramaswamy succeed in rethinking how to make the US government both more effective and cheaper right across the board, they will be doing a service for us all. They will make mistakes, but we can learn from those to avoid slash and burn, and help our government lift its game.
Need to know Clearly something has to happen to government across the developed world as a result of changing age structures and, in many countries, declining populations. Here in the UK, and indeed in the US, it looks as though population will continue to increase for another 30 years or so, probably more. But they are already falling in Japan and Italy, and across much of Eastern Europe.
This year’s revision of the UN’s excellent World Population Prospects shows some dramatic changes from the outlook even a decade ago. For example, its middle estimate for China’s population in 2100 has fallen from about a billion to around 650 million. It looks as though the EU’s population has started to decline.
The obvious point here is that governments will have to downsize. For many, it is not just a question of having to deliver more to cope with the needs of an ageing population, with less tax revenue from a smaller workforce. It is that they will have become much smaller, employ far fewer people, do much less altogether.
For some countries it will be the equivalent to the downsizing of manufacturing that has taken place in the UK over the past half-century. There is a further twist. It is quite possible that the population projections of the UN are too high.
Or rather, since they give a range with various degrees of confidence, that the outcomes will be at the very bottom end of the range. It is even possible, depending on how quickly fertility rates in the Indian sub-continent and sub-Saharan Africa continue to decline, that the total world population will start to fall within 15 years. That will change the roles of government even more radically.
Of course what Messrs Musk and Ramaswamy are seeking to do is much narrower. Their project is also politically driven, rather than a response to falling populations and falling tax revenues. They are advisers to the President and his Administration, rather than an integral part of government itself.
The hostility to government employees is at best unpleasant, and in many cases will be deeply unfair. But the notion that governments should think not only about how to do things better but whether to do them at all is now an idea on the table. So it is quite possible that Elon Musk will end up having an even bigger impact in this new task than he has had in his other roles to date.
This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here..
