Roll on the Corporate State!

By JOHN

BRUNNER

ANDREW SHONFIELD has written a very con- siderable (in every sense of the word) book.* It has a fine sweep to it, ranging over many countries and several centuries, in the course of which be sees off one or two highly distinguished economic historians. He has certainly done his homework and written it up with all his customary 61an and feel for ideas. Whatever else may be said about Modern Capitalism, it will, I believe, cause more heart-searching in liberal breasts than any other book since Schumpeter's celebrated Capitalism, Socialism and Democracy.

Mr. Shonfield's thesis is quite simply that the economic power of the state has increased, is increasing, and ought so to increase. On the two questions of fact it is hard to quarrel with him, even allowing for his tendency to accen- tuate the positive where the role of government is concerned. Much more debatable is how far the trend ought to be encouraged.

Any expression of view on this necessarily implies some judgment on what has actually been achieved hitherto by the state's increasing inter- vention in economic matters. Strangely enough, Mr. Shonfield provides remarkably little evidence on this point. The manifestations of the expan- sion of public power are carefully documented; the gains froth it tend to be assumed rather than spelt out. To some extent, of course, the issue i3 by its very nature indeterminate. We cannot say with any certainty what would have hap- pened had the state's economic role not been enlarged, but Mr. Shonfield makes little effort to correlate achievement with degrees of inter- vention.

Undoubtedly the blue-eyed boy in his opinion is France, but France's post-war economic record has really not been all that exceptional. According to the NIESR, manufacturing output Per man-hour rose 29 per cent in France between 1958 and 1964. In the two most comparable countries, Germany and Italy, it increased_ 40 'per cent and 49 per cent respectively over the same Period. Nor, if the elimination of stop-go is the criterion of success, can France be regarded as very successful. Its economy has now been more or less static for eighteen months and this is not for the first time. Moreover, it is at least Plausible that what success the French have achieved has been due to the huge potential pro- vided by gross underemployment on the land and to the advantages conferred by successive devaluations. It is a mark of Mr. Shonfield's in- tellectual integrity that he rarely, if ever, sup- presses evidence inconvenient to his thesis, and certainly he is prepared to concede that de- valuation could have played a part in France's respectable growth'record. How great a part remains a matter of judgment. If we turn, from correlating degrees of inter- vention with national growth rates to consider- !hg the effect of particular policies as practised by several different countries, we find the evi- dence equally inconclusive. Take, for instance, Incomes policies. Mr. Shonfield makes no great !Urns for such policies as implemented by the two European countries regarded as leaders in this field, Sweden and Holland. In Sweden he concedes that earnings, as opposed to the cen- trally agreed minimum wage rate, have risen laster than in this country; in Holland he can hardly deny that restraint has had the effect only ,,*MoonaN 550 CAPITALISM. • (Chatham House and .U.p

of making the flood all the greater when the dykes eventually gave way. Last year Dutch wages rose by no less than a sixth. Nor is Mr.

Shonfield any more starry-eyed about British incomes policy up till now. He refers at another point to Mr. Enoch Powell's 'academic in- transigence,' but Mr. Powell's strictures on incomes policy are mild compared with Mr. Shonfield's.

The final test that might be applied to the case for expanding governmental influence over the economy is the performance of the economy of the western world as al whole since the war.

This has undoubtedly been impressive by his- torical standards and it is partly to understand why things went so surprisingly right that Mr.

Shonfield, brought up in the pessimistic climate of the 'thirties, undertook this inquiry. But again the causes are not at all obvious and, just as France's growth was made possible by a favourable exchange rate, it is at least arguable that growth generally was the result of a favourable international climate rather than due to the domestic policies of interventionist govern- ments. Wholesale tariff reductions (an abdication of public power?) certainly contributed to this favourable climate. No less helpful was ample international liquidity. Mr. Shonfield accepts this in recognising that a successful attempt by the .US to balance its overseas account could seriously undermine western prosperity.

The evidence therefore for the putative benefits to be derived from extending the range of public power is by no means cut and dried. Are they, then, worth the serious threats to individual liberty and incorruptible government that are almost inseparable from the sort of intervention Mr. Shbnfield applauds? He is not, let it be said, asking for anything like old-fashioned nationali- sation. Indeed, he recognises that public cor- porations can be more independent-minded than private firms looking for favours. But he does look forward to - a considerable extension of governmental influence over the private sector and welcomes the possibility of active dis- crimination by civil servants from among and between private concerns. 'Government officials would also be called upon to exercise their per- sonal judgment from day to day in meting out unequal treatment to people with theoretically equal rights: and the officials would not like it.' They would not be alone in objecting.

Mr. Shonfield is far from insensitive to the dangers here and devotes a concluding essay to various ways of ensuring that the planners do not exercise theft power irresponsibly. These in- clude measures for enabling Parliament to con- trol the planners' more effectively: ideas modelled on the Swedish system of public inspection of internal civil service memoranda: and our old friend .the Ombudsman. Again it is a matter of opinion how far such reforms are relevant to the problem of controlling the 'wheeling-and-

dealing type of public authority' so esteemed by Mr. 'Shonfield. Once discrimination is accepted as a matter of policy, it becomes extremely difficult to vet the activities of civil servants, since by definition there are no standards by which to judge the propriety of the decision taken—unless one believes it is the contribution the decision makes to' the furtherance of the national' economic plan.-. • if Mi. 'Shonfield is somewhat uncritical of statism generally, he will forgive almost any-

thing if it conforms to a national plan. Thus, a propos Holland, 'price control on so broad a front clearly involves an overall view of eco- nomic strategy. Without the guidance of a national plan, such intervention could easily deform and impede the process of economic growth.'

This passion for coherence is one of the great intellectual fads of our age. (Cf. Mr. Shonfield's remark that 'the common element in all" the varieties of post-war capitalist planning is the large role given to the independent intellectual.') It not only betrays a certain hubris towards the future; it also shows an inadequate appreciation of the working of a market economy and of how ex ante gaps between domestic supply and de- mand will often be resolved either by price adjustments or by exports and imports. Indeed, Mr. Shonfield offends here against his own canon of - consistency, since he has earlier discussed with approval the equilibrating role of foreign trade when domestic output and demand get out of phase.

Having said all this, however, it would be foolish to deny that several of the trends Mr. Shonfield detects are inevitable. The trend to bigness in industry is an example. Indeed, if one might draw a metaphor from another part of the anatomy, economies of scale are the Achilles heel of economic liberalism. Where in- creasing returns to scale exist, the very pro- cesses of competition serve to hasten monopoly. And Mr. Shonfield is 'surely right in thinking that the typical nation-state can no longer pro- vide domestic markets capable of exhausting the potential economies of scale of many of its industries. The lesson, however, is not to frag- ment economic units of production or to en- courage back-scratching with the bureaucracy, but to enlarge the size of the home market. But this only underlines a point that the French planners have already realised, that common markets make life almost impossible for national planners.