UK Edition
Germany with its engineering brilliance, and consensual labour relations. Singapore with its efficient state and low taxes. The United States with its formidable culture of innovation and entrepreneurship, or even Japan with its huge conglomerates.
There are plenty of countries the UK has tried to learn from over the years as we struggle to improve the performance of our economy. But Argentina has not usually been on the list. With 100 years of bankruptcy and inflation it has hardly been a role model for anyone.
However, that is about to change. Its libertarian, small state new president, Javier Milei, is taking a “chainsaw” to its bloated state. And at a time when Britain’s public sector is growing uncontrollably, while its productivity is plunging, we should watch closely – if Argentina can get it right, so can we.
With his wild hair and shambolic appearance, Milei may well appear odd. But Argentina’s new Hayek-quoting president has made a bold start on reducing the size of government.
As he took office this week, he pushed through a 50pc devaluation of the peso against the dollar, neutralising an attack on his new government from the currency markets. It was his reforms to the state, however, that will be more significant over the medium term.
In one swift move he abolished the Ministry of Culture, the Department of Education (or Indoctrination as he likes to call it) along with the ministries of labour and health. He has fired everyone on the government payroll who has been employed for less than a year.
All public works will be stopped, partly on the grounds that rampant corruption meant much of the money was syphoned off anyway, energy subsidies will be reduced, and overall the government will aim to shave 4.2pc from state spending as a percentage of GDP.
Whether it works or not remains to be seen. Investors so far seem pleased enough, with the IMF, which is owed more than $40bn (£31bn) by Argentina, approving of the reform package, and the key stock market index, the Merval, continuing its rally and up by more than 30pc since Milei was elected last month.
We will find out what happens over the next few years. Looked at from this side of the Atlantic, however, the more interesting question is this: is Milei providing a template that other countries may soon follow?
In the UK, the public sector staffing levels are clearly out of control. According to figures released by the Office for National Statistics (ONS) this week, the Government now employs 5.9 million people. That was an extra 35,000 people compared with June, the last time the figures were calculated, and 135,000 more than at the same time last year.
The main contributors to that were the NHS, with an extra 84,000 people over the last year, taking the total to just a shade under two million, and the Civil Service with 16,000 extra people compared with 12 months ago.
With total payroll employees in the UK now standing at 30 million, the state directly employs one to six salaried employees, and that ratio is rising with every year that passes.
An extra 135,000 people over a single year? Seriously? The number of people the state employs is now so huge that it is hard to get a grip on the sheer numbers. And yet, that is despite the fact that productivity is clearly falling.
Indeed, again according to ONS statistics, the output per state employee fell by 0.6pc in the lastest quarter for which figures are available, and overall productivity is still stuck below its pre-pandemic level.
Working from home, which everyone apart from a handful of fanatics now accepts is bad for output, is still rampant within the public sector. The Government has told civil servants that they have to be back in the office at least 60pc of the time, but there is little sign of that rule being stuck to.
In effect, the Government is simply hiring more people to make up for the declining output of the staff it already has. In the private sector that would be a recipe for bankruptcy.
That poses two huge challenges for the British economy. When one in six people work in a sector with declining productivity it is very hard to improve the output of the economy overall. It takes a heroic effort by the other five people to lift the overall average, especially when there is so much deadweight to carry.
In effect, it condemns the country to stagnant output per person, and so long as that is true it is virtually impossible for there to be any meaningful growth. Even worse, it means that taxes have to keep rising to fund that burden of state employment.
Five private sector workers are now supporting every state employee. Soon it will be four. At some point it becomes unaffordable. The economy is getting crushed by the sheer weight of paying for a bloated public sector payroll.
Governments continually tinker with the problem. They announce reviews and initiatives.
Indeed, the Chancellor, Jeremy Hunt, launched yet another one in his Autumn Statement. It never makes any difference. Over the last five years it has become worse and worse.
It remains to be seen whether Javier Milei can succeed in Argentina. But it may well be the right approach. It has proved impossible to slim down many departments, nor is the Civil Service capable of reform, or able to manage itself effectively so that it delivers acceptable levels of performance and value for money.
Instead, simply close departments down wholesale, and let employees who have joined in the last year go. It is brutal, but it is far more likely to work.
And if it does, Milei may well have provided a template for other governments around the world to follow – and preferably before they are in as much of a mess as Argentina.
Milei is doing what Britain should have done a long time ago
Argentina’s new direction could provide a blueprint for other governments around the world