On both sides of the political spectrum there’s a widespread belief that the Covid 19 crisis should fundamentally change the way we’re governed. But in the Conservative Party the debate about the way ahead has become polarized between two profoundly opposing views. Those on the right have a fear of ‘big’ government which is matched by a blind faith in ‘small’ government, free markets and low taxes. To others, like me, a lifelong conservative Conservative – and at 86 now a very old one – true Conservatism means taking the middle way, doing what works, using judgement rather than dogma.
The small government enthusiasts are trying to make everyone believe that their theories are core tenets of Conservatism, but to my mind they are a relatively recent aberration driven by the theories of the Austrian-British economist Friedrich Hayek (1899-1992) which were to some extent espoused by Margaret Thatcher.
Hayek’s basic belief was that markets are a means of discovering and transmitting information that is dispersed throughout society, will never become available to a central planner and should be allowed to flourish without interference.
He also believed that pretty well any kind of intervention by a central government to regulate an economy such as the manipulation of interest rates or the money supply was bound to unbalance that economy and lead to disasters of one sort or another, the economy itself being a kind of free market which would sort itself out if left alone. In fact he thought that governments should do as little as possible and offer only minimal levels of welfare support.
Like many bullshit ‘isms’ – including Marxism – Hayek’s ideas were very much a child of their time – in his case the 1930s when they were formed in reaction to Soviet-style state planning which some European intellectuals considered attractive. Unlike most bullshit ‘isms’ there is a least a core of wisdom in his view of free markets. No central planner can anticipate the demand for aeroplanes or zip fasteners. No central planner could have predicted the demand for mobile phones, the invention of the internet or the propensity of middle-class parents to drive their children to school in boxy, high-sided four-wheel drive vehicles in cities where snow rarely falls.
But an idea of limited application can become a folly when turned into an unqualified doctrine. The modern followers of Hayek came to believe that markets were so perfect a way of distributing good and services that not merely should they be largely unfettered but also that they were essentially self-correcting.
These false concepts ignore a whole raft of necessary constraints. Markets can be distorted by gamblers – especially in areas like banking – they can be rigged by crooks and governed by monopolies. For thousands of years, therefore, governments all over the world have recognised that all trades and professions need to be regulated: shopkeepers must give good measure; lawyers must avoid conflicts of interest.
All this has been abundantly made clear not merely by the banking crisis of 2008, but by the present cladding catastrophe, a Dickensian tale of corruption and incompetence which would never have occurred if regulation of the building industry had been properly maintained. And now we’re learning about the widespread pollution of our rivers by greedy and crooked water companies.
Regulation can be intelligent. It needn’t mean 1000-page rulebooks or an army of officious civil servants. But firm and fair regulation is essential.
It’s abundantly clear that the Hayek ‘free markets’ concept is so vacuously simplistic that it’s astonishing that anyone could have taken it seriously. You’d think those frightfully clever treasury mandarins, with their IQs of 400, would have spotted the obvious flaws in the reasoning. You’d hope those Eton-and-Oxford cabinet ministers, supposedly trained in debate, would have exposed the shallow thinking.
But no, they didn’t. Instead their thinking went far beyond enthusiasm for ‘light touch’ regulation to embracing a string of pernicious practices. One of the oldest of these.
is what Harold MacMillan described as ‘selling off the family silver’. As a result of this we have allowed major parts of of our core infrastructure to fall into foreign hands. At Hinkley Point a French company is building a nuclear power station using Chinese money; Heathrow is owned by a Spanish firm and a number of our water companies and railway franchises are also in foreign ownership. Then there is the madness of allowing a German company to buy a controlling interest in a firm making British military tanks. What happens if we engage in a war of which the Germans disapprove?
Yet another malign consequence of the free markets concept is gormless globalisation, the idea that you buy from the cheapest seller wherever in the world it is located, and was the cause of the panic attempt to procure PPE equipment at the beginning of the Covid 19 crisis.
Its corollary is the abandonment of manufacturing. People in high places became so obsessed with free trade that they were blinded to the idea that we should manufacture things ourselves, an idea that brings employment and prosperity to the country- and in no way is incompatible with free trade.
So much for free markets. But when the laissez faire attitude is applied to the central purpose of government the result can be even more dire than a descent into a major recession or the loss of 72 lives at the Grenfell Tower. Many of our most important institutions are disintegrating from a lack of resources. Our judicial system is in disarray, our prison service is a disgrace and the NHS is struggling to cope under normal circumstances, let alone those imposed by the coronavirus.
Yet there are still those who seem to long for a far-off time when it was the duty of the state to do little more than deliver the mail, guard our shores – and wage war, when necessary.
But long before Lloyd George’s People’s Budget of 1910 and his National Insurance Act of 1911, caring people realised that, if only out of enlightened self-interest, it made sense to tear down slums, to build low-cost housing for the poor and to improve conditions in factories. These ideas were, of course, consolidated by the Beveridge Report of 1942 which led to the establishment of the NHS in 1948 by Attlee’s Labour administration. Remember that the following Conservative government made no attempt to reverse any of its major provisions. And all the other major European countries have adopted the same levels of welfare.
More than 70 years have elapsed since the Welfare State was established and during that time society has become vastly more humane and vastly more complex than it was. Today it is absolutely impossible for government to be ‘small’. Does anyone seriously believe that we should abandon the NHS or some insurance-based alternative? Should we emulate the US where, if you survive a heart attack, you can be bankrupted by the medical bills? Should we stop paying benefits to the sick and unemployed?
The real question, then, is just how big or small government should be. The ‘if it moves, privatise it’ concept is just as silly as the ‘if it moves nationalise it’ idea. What is needed is something in between.
According to the IMF, the amount of money spent by governments as a proportion of GDP in 2020 varied quite widely. Finland lies at the top of the list with 53.5%, closely followed by Belgium at 52% and Denmark at 51% . The US sits at the bottom of the scale with 33%, close to Saudi Arabia and Australia at 37% The UK is a bit higher at 38%.
Until quite recently I would have suggested that for a sensible level of government expenditure we need look no further than the Germans, but their reputation for Teutonic efficiency has been severely compromised by their vaccine fumblings and by their inadequate response to flooding. Nevertheless, despite the giant stain of Nazism which lies on their history – or perhaps because of it – they generally seem to run their internal affairs efficiently, with generous welfare provisions and an excellent health service, while remaining a bastion of capitalism with a flourishing manufacturing industry. It cost them 45% of their GDP in 2020. But the Germans are (understandably) weak on defence expenditure, so perhaps a bit more – say 47%. – would be appropriate for a Britain of the future.
If that means higher taxes, then so be it.
Grumpy Greybeard 