19 JUNE 1964, Page 7

The Right Sort of Change?-2


`Affluence . . . is the indispensable objective'


`COME say that when the economy is growing, when the riches of the people are increasing, a kind of petty bourgeois transformation sets in. If so, we are proud of it.' No: it is not Macmillan in 1959—but Khrushchev in 1964. Both men merely echo Disraeli (when he con- sidered the 'condition of the people' almost a century ago): 'Increased means and increased leisure are the two civilisers of man.'

The purpose of Tory economic policy remains the same today—the most efficient production of as much wealth as possible. Efficiency, of course, is vital if we are to preserve the inter- national trading position on which all else de- pends. And wealth is the only possible basis for increased consumer goods, expanded capital in- vestment, greater aid for developing nations and improvement of our own social services. Affluence, without the pejorative overtones that spokesmen of the left contrive to give to the word, is thus the indispensable objective. `Goulash, schools, housing and ballet,' was Khrushchev's phrase.

But how to achieve affluence? It can be plausibly argued that one way is by complete and detailed State domination of the economy, on Soviet lines. The Russians can perhaps look forward to some kind of enlargement of choice when certain basic commodities—bread, houses, public transport—are eventually provided 'free.' For Britain, the nearest equivalent is that offered by Labour : a series of interventions by the State, each stopping short of its logical conclusion.

The economically evil consequences of State intervention of this kind can be convincingly demonstrated in academic terms. First (and most important), once the Government of the day has assumed responsibility for a sector of the eco- nomy, changes that are necessary for the nation's economic health become politically unacceptable. Would Britain have achieved such a flying start with the Industrial Revolution if stage-coach operators and posting innkeepers, threatened, by the railways, had been able to mobilise a phalanx of Transport Users' Consultative Committees to state their case? How far has experience of a publicly-owned coal industry fulfilled the forty- year-old forecast of the Samuel Commission, that 'the closing of uneconomic mines, always a matter of difficulty, would become far more difficult under nationalisation'?

The State tends as well to get committed, on too wide a front and for too long a period of time, to the maintenance of questionable de- cisionS—on programmes for the expansion of nuclear power, the electrification of railway lines, the missile-propulsion of warheads, and so on.

• Where would the tafpayer eventually be led by the 'purposeful' interventions of a Wilson Gov- ernment in 'science-based' industries? Is it any wonder that governments get led into making further costly, but misguided, interventions in order to 'prove' the accuracy of prestigious fore- casts, which are no more than projections of previous 'trends'? France's second Plan went badly astray like' this. Neddy's first forecast has been similarly confounded by the expansion of the motor industry at a rate that has far ex- ceeded the' prediction.

One wonders, however, whether all the dis- advantages of the State-directed economy are apparent to the electorate; sometimes they ap- pear to welcome the less defensible political decisions. Yet in certain sectors our experience of Socialism in action can make the case clear. The chaos of the Attlee era was more than a post- war fluke. It was, after all, Sir Stafford Cripps (in the Economic Survey for 1948) who con- cluded that many factors governing our economic development were 'quite beyond the influence of the planner' and that 'wide deviations from even the plans most recently drawn up are therefore unavoidable.'

Indeed, if Harold Wilson ever gets the chance to implement his policy for urban land, the lesson would again become crystal-clear. Once inter- vene, as is proposed, to lower the purchase price of certain land, you then have to control the price at which it may be resold. Once control a part of the market in this way, you then have to regulate the rest—unless you are prepared to tolerate a black market in uncontrolled land. At once you have said goodbye to rationing by the purse, and rationing by allocation (with con,. trols multiplying like rabbits) must take its place. The consequent nonsense would soon be plain enough to unseat a Wilson Government. But a comparable nonsense already exists in the field of rented housing, because of the existence of exceptionally cheap accommodation—subsidised or rent-controlled. The problem of achieving enough mobility to secure the economic use of our present housing stock is growing. How are we to move the present 'young marrieds' on to smaller homes, when their children have left the three-bedroomed nest? Either we direct them into smaller homes or we re-create the price mechanism, so that they can voluntarily decide, at times of their own choosing, to move to cheaper • (because smaller) accommodation. Indeed, much so-called Socialist thinking at the present time is devoted to the reconstruction of a Machine which will do what the traditional market mechanism of comparative prices and profits would have done best of all.

It was this argument, demonstrating the superior efficiency of free market mechanisms, that was the key to Tory victory in 1951. It underlay the success of Mr. Butler's 'dash for freedom' in the early 1950s. It has been Dr. Erhard's secret of the German 'economic miracle.' It should be at the heart of the Con- servative case today.

This is why the main points of the free enter- prise, competitive case must be rammed home at every opportunity. For Conservatives, there- fore, advertising is not just an evil to be tolerated, but an essential part of the marketing process on which the health of industry depends. In the same way the abolition of resale price main- tenance means more than a belated bid for the consumer vote; it is intended to foster the com- petitive revolution in retailing.

No Conservative, of course, would seek to argue that the State has no role to play. Enoch Powell, for instance, is very far from suggesting this, although he's sometimes thought to be doing so. But the State should, whenever possible, intervene only in strategic terms, leaving the market to fill out the details. In this sense, it must, for amenity reasons, have some control of land use. It should certainly act to relieve poverty; some will always exist. This is not the fault of markets; on the contrary, the market mechanism creates the wealth to relieve poverty.

'Planning for competition' must, therefore, be the Tory theme. The abolition of RPM must be seen to spearhead a general onslaught on restrictive practices and monopoly abuse. The Government's White Paper points the way. The Board of Trade should search more diligently for evidence of inadequate drive or industrial sloth; wherever there seems to be inadequate competition, reference should be made to the strengthened Monopolies Commission. Neddy can also help in identifying situations that call for investigation. Shareholders should be en- abled to play a more critical role by obliging companies to make more informative disclosures in their accounts. It might well be worth giving shareholders the right to require a Board of Trade investigation of a company that seemed inert.

The abuse by a company of its dominant posi- tion in the market must also be curbed—when that company is able to limit or destroy competi- tion, or to take steps (which would be impossible in competitive conditions) to increase its market share or to weaken its rivals. Tariff reductions can be a useful weapon here; the Monopolies Commission identified the wallpaper industry as one that called for such treatment. And the Government should stick to its declared intention of bringing the service industries under review.

It is, of course, comparatively easy to plan for competition among the industrial giants. More votes can be won than lost by an onslaught upon faceless corporations. But the determination to tackle the service trades moves one onto the same electorally treacherous ground as the abolition of RPM: dry-cleaners, motor-repairers and the like have plenty of votes. But this is no reason for turning back. On the contrary, similar scrutiny of restrictive practices should be extended to the professions—and to organised labour as well. The Bar Council are currently studying the lawyers' circuit system; the Law Society are undertaking a similar review of the costs and methods of conveyancing. Should tasks like these properly be left to the profession that is most affected? No one doubts that the pro- fessional reformers will have the public interest as much in mind as their own. But will they be able to judge the extent to which traditional res- trictions on freedom of (competition can be set aside without threat to their own standards of living? In an increasingly complex, house-buying community the law should be a growth industry.

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A similar approach to the attitudes of organised labour can also be justified. Trade unions need, of course, the sanction of expulsion (exercised according to law) to maintain their strength as bargaining organisations. But the policies and attitudes which they seek to uphold with penalties of this severity are matters of major public interest. There is thus every reason why the Minister of Labour's promised review of trade union law should consider topics of this kind: if the effect of the decision in the Rookes case is to be modified, this should be part of a package deal to bring labour relations up to date.

The nationalised industries should continue to be subjected to similar discipline. The consumer must have freedom of choice. Prices must reflect true costs. Resources must be distributed be- tween the public and private sectors according to their capacity to earn. The policy of requiring State-owned industries to find an increasing pro- portion of their own capital by earning greater surpluses should be continued. Monopoly trad- ing positions (such as that enjoyed by the NCB in respect of imported coal) should no longer be enjoyed. And socially desirable services should be subsidised to the extent that they are un- remunerative out of general taxation—at an ascertained cost. The Beeching plan is thus simply the beginning of a long road.•

Along this road there is, of course, room for 'integrated' transport policies of a limited kind. In urban areas particularly the State will have to balance the cost to itself of building roads to cope with commuter congestion, against the cost of maintaining suburban railroads in existence. But transport policy generally should aim to widen the area of competitive freedom of choice.

There are, of course, sectors in which this kind of policy would be difficult, but not im- possible, to evolve. Agriculture is the most obviously complex problem. It is not possible here to set about unravelling the tangle of self- confusing policies. But a Tory's general approach to the agricultural problem should be along the lines already discussed.

And finally, the tax system. Whatever the size of the Chancellor's bite at the nation's wealth, there should be three objectives for a Tory tax system: simplicity, equity and incentives. The moves already made to simplify purchase tax and betting taxation should be taken further; the wider the field embraced by each, the lower the rate can be—and the less it will distort the economy or provoke evasion. For companies, taxa- tion of payrolls rather than profits is most likely to foster efficiency. The distribution of profits is an essentially dynamic feature of a changing economy.

There remains, of course, the final question: how large a bite should the Chancellor take? It seems to be characteristic of modern de- mocracies that the demand for rising consumer expenditure is exceeded only by the clamour for the expansion of community-provided services, like education, hospitals and roads. Conservatives must make clear the nature of the choice, It will probably become more acceptable if individuals are given wider opportunities to make such choices for themselves. This way, too, the tax- gatherer's role could be reduced. But that was the subject of the first article in this series.