Political commentary

A tight little island

Ferdinand Mount

Acold, thin, jarring year, especially for politicians. They talked incessantly, as modern politicians do, about the economy — or rather, as so many of them have caught Mr Foot's habit of stressing the definite article while pausing for breath, about the economy', as though referring to an especially desirable and exclusive brand of economy to be delivered in a silent green van from Harrods. Yet these pronounce- ments seem to have had remarkably little ef- fect upon identifiable economic events.

The political world was all drama and movement: Norman's farewell, Foot's agony, up Jenkins, the purge of Gilmour, Shirley's return. The economic world is ice- bound. Both sides of the argument more and more concede, not always intentional- ly, that their set of answers might not make all that much difference to what would otherwise happen. Nor are those answers all that fresh.

'It is not an accident that the Conser- vative government have landed us in the mess where we find ourselves. It is the natural outcome of their philosophy.

`You must not press on with telephones or electricity, because this will raise the rate of interest.

`You must not try to employ everyone because this will cause inflation.

`You must not invest, because how can you know that it will pay?

`You must not do anything, because this will only mean that you can't do something else.'

Good stuff. Peter Shore? Ian Gilmour? No, John Maynard Keynes in 1929 on Lloyd George's election programme to reduce unemployment by a programme of public spending. How brilliantly Keynes ridiculed the 'timidity' and 'lack of im- agination' of 'the old gentlemen tightly but- toned up in their frock coats'.

And yet under the rule of the old gentlemen in frock coats the British economy grew by 2 or 3 per cent a year throughout the Thirties, despite the lack of public works. That does not necessarily prove the old gentlemen were right. Other countries pursued other policies; some did worse, some, like Sweden which did follow a rather Keynesian line, as well as or better than Britain. Is it possible that, after ten years of obsessive debate, we may have to conclude that macroeconomics does not make as much difference as we thought?

On and on go the same stale old arguments. The orthodoxies congeal, fossilise and then crack. Right-thinking people now take it for granted that Chur- chill was wrong to go back on the Gold Standard at the 1914 parity. That was not what people thought at the time. Even at a lower parity, we would still have had the

slump. R. S. Sayers, the economic historian who was on the Radcliffe Committee on the monetary system, concluded that 'it was basically the American trade policy and not British monetary policy that made life so wretched for us'.

The orthodoxy of the 1980s is that Geof- frey Howe let sterling stay on the North Sea Oil Standard at the wrong parity. It was this that caused that sharp initial depression in output and employment from which we are only now beginning to recover. How easy would it have been to drive down the parity by a margin significant enough to maintain the competitiveness of British exports, without causing such an uncontrollable acceleration of inflation that the advantage would be cancelled out? Layman does not begin to know. Does expert? With our economy so much weaker than that of France or West Germany, could we really have come through the slump less scathed?

Layman begins to suspect that trade cycles are far more self-propelling than ex- pert likes to admit. To limit the damage caused by downswings may be far more dif- ficult than we were taught. To improve on the benefits brought by upswings may be far more risky.

What Keynes spread was not so much a set of economic nostrums which were later vulgarised into 'Keynesianism'. It was the illusion that in any economic situation there is always a single answer, attractive, relatively simple, painless, and acting quickly enough to show results by polling day.

So here we all are, Waiting for The Recovery. This reduction of politics to a single, simple question is reflected in the usage of 'the economy' as a portmanteau term to embrace the whole material state of Britain. As Mr John Biffen, the Trade Secretary, complains, people don't talk about 'trade' any more; trade is what Vic- torian parvenus were in. People don't talk much about 'finance' either; that is held to be a narrow, unimaginative 'Treasury view' of the richly interfaced, multilateral world we live in. Or rather not ' world' but 'na- tion', for the curious, almost wholly unintentional effect of the vogue for macroeconomics is to nationalise the argu- ment.

It is ironic that Keynes who, like many of his helpers and supporters, was a quintessential liberal, much interested in schemess for international co-operation, should have midwived economic insularity.

Yet so it is. Instead of seeing the material world as a vast jumble of economic ac- tivities, some tiny in scale, some extending to national boundaries, some global, modern British politicians talk as if we all lived inside a neatly parcelled-off national economic enterprise.

This leads to two further illusions: the illusion that, because we are separate, we can somehow insulate ourselves from the storms and blizzards that affect the rest of the world, and, less often remarked, the il- lusion that the way to insulate ourselves is to 'pull together'. The secret of improved economic performance, we are told, is to fashion laws and institutions which bind us together more tightly. We must become more national, less sectional.

The mysterious process by which deci- sions emerge by consensus in the giant Japanese corporations, the symbiotic closeness between industry and government .in Sweden and West Germany, the predom- inance of co-operative single unions in most West German industries, the fierce com- mercial patriotism of the American Con- gress — these are the virtues said to be lack- ing in the British system.

Other qualities, equally prominent, are less often held up for our inspection: the small size of the public sector in Sweden and Japan, the high degree of independence enjoyed by the West German Lander and the American and Australian States, the multiplicity of private health insurance schemes in the Federal Republic, the much larger proportion of children attending in- dependent schools in most of our rivals, the low and declining proportion of American workers in trade unions, the multiplicity of banks in the United States. These and hun- dreds of other ways in which our rivals do not pull together, in which they positively glory in pulling apart, tend to be taken for granted as unalterable and not especially significant aspects of foreignness.

One of Whitehall's most conspicuous forms of laziness and dishonesty is the reluctance to compare British practice with abroad — except in cases where the com- parison is likely to suggest an increased role for the British civil service in monitoring, co-ordinating, sponsoring or advising.

This tendency is manifest everywhere in British public life. It is not confined to government or the welfare state, or industry or the trade unions. It is certainly not con- fined to the Labour Party. Indeed, the belief that nationalisation is the same as socialism has helped to conceal from us the degree of our corporatist saturation .

The tendency cannot be traced from the thin stream of Socialism; the legacy of 19th- century philosophies of nationalism and the 20th-century experience of war have left far richer deposits. Nor is it confined to the peculiarly blatant lust for bigness which af- fected us during the 1960s. The present shape of so much that now seems pro- blematic first began to emerge in the 1920s and 1930s, if not earlier still.

If we keep our institutions and structures in their present form, our future will merely be a succession of involuntary reverses, stalls and starts. Without piecemeal but drastic structural change, we can never hope to insulate ourselves from the trade cycle with the relative success of West Ger- many in the 1974 slump or of Japan in this one. We must switch from macro to micro, from the coarse to the fine.