the state we're still in

Will Hutton is the Matt Le Tissier of British economic policy, the possible future that everyone was too gutless to harness properly. How he is able to read about Germany's record growth, while Britain languishes with an economy still serving the whimsical demands of lazy speculative capital, without screaming "I told you so" from the top of Big Ben, god only knows. In 1995, The State We're In argued that you cannot achieve an inclusive social democratic society without addressing the oligarchy represented by the City of London. Not only that, it argued that wealth creation is something that requires patience, technological insight and careful protection from the greedy egotism of capital markets.

For six months following the publication of that book, Tony Blair described's New Labour project as the promotion of 'stake-holding'. But this rapidly disintegrated, as Robert Skidelsky wrote here:

A decisive moment in the evolution of Labour’s third way was its rejection of Will Hutton’s Germanic stakeholder capitalism, underpinned by Keynesian demand-management. Blair and Brown accepted that they had to play with the grain of Britain’s relatively open and flexible markets. The path followed has been closer to a liberal American ideal-a free market, with a generous welfare state-than a corporatist European one where the market is more controlled and heavier obligations fall upon companies. This choice may yet prove a serious obstacle to much further European integration. But in the mid-1990s, it had become apparent that the deregulation of the Thatcher governments had reduced the “natural rate” of unemployment-the rate needed to keep inflation stable. The promise of full employment and stable prices was too tempting for a prospective Labour government to ignore.

In retrospect, this appears generous to New Labour. For sure, they wanted work to be at the centre of their social vision, so wanted as much of it to be available as possible. But there is also a parochial part of every politician's brain that wants to defend the 'national champions' of their economy - and in Britain, this meant internationally-oriented financial services. (Question for any economists reading: does the metaphor of 'crowding out' not apply in this context? We constantly here from tories that the state has 'crowded out' the private sector; might a less over-bearing financial services sector and capital city have created space for alternative modes of wealth creation in the UK?).

Much of the reason why Hutton was not listened to is to do with a failure of historical imagination. The difference between the 'short term' and the 'long term' is not to do with the business cycle. It is to do with the evolutionary nature of capitalist institutions, in which the state is also a party. Altering a national 'variety of capialism' is not a policy ambition as such, and certainly isn't a platform on which win an election as it happens far too slowly.

If there is a logic for doing so at all, it must be - strange as it may sound - a conservative one, in the spirit of Edmund Burke. Burke famously described society as more than a contract between its members, but also a contract between its members and the deceased and the not-yet-born. The past must be defended as a fragile inheritance, while society must be governed with the interests of future generations in mind. Quite what the hell Burke would have made of a Conservative Party - to paraphrase Kinnock, a conservative party! - unveiling this particular offence is anyone's guess.

Who would have benefitted from Hutton's 1995 manifesto for Britain? Not Blair or Brown, and not the British economy of the day, or the next day. Perhaps, as Skidelsky is implying, it may even have impacted negatively on some of those New Labour wanted to help. But David Harvey's depiction of neo-liberalism, as the mobilisation of the state to to ensure that financial speculation is a one-way bet, now looks downright obvious, as public services cuts over the next decade are used to pay for the private swimming pools and private school fees of the last one. Clearly wealth concentration has taken precedence over wealth maximisation, but this is only apparent if viewed across multiple decades or even generations.

This wasn't an outcome that could have been foreseen using orthodox economics. Perhaps it wasn't even an outcome that could have been foreseen using any variety of expert academic theory, other than Harvey's Marxism. One reason Will Hutton can get things right is that he's prepared to trust journalistic and moral instinct, even when expert empiricists are telling him he's wrong. But anyway, it's too late now. Lets just hope the Germans occasionally buy whatever crap we're still making in the coming years.

Comments

[Naadir Jeewa]

The UK's financial sector is definitely a case of crowding out in my (non-economist) books.

[www.facebook.com/profile.php?id=1333366645]

Harvey is more substantive in analytical terms, but Hutton does at least offer policy proposals despite his credulity as regards the possibility of changing the variety of capitalism - it's not only that short-term thinking defines political cycles, it is also that it is easier to concede to concentrated wealth in order to do good in the short-term.

[James]

(Question for any economists reading: does the metaphor of 'crowding out' not apply in this context? We constantly here from tories that the state has 'crowded out' the private sector; might a less over-bearing financial services sector and capital city have created space for alternative modes of wealth creation in the UK?)

Basically, yes. The City, aided and abetted by government and the Bank of England, proved very adept at producing short-term credit for property; but very bad at producing cheap long-term credit for business investment - which is more-or-less Hutton's argument. It consistently picked one over the other. We've ended up with a ludicrously mis-shapen economy partly as a result.

Mind you, I'd disagree that the current German boom has much to do with the innate superiority of Rhenish capitalism - or else how do you explain the last few years' feeble performance? It's got much more to do with the more contingent factors of stagnant (or falling) real wages, the relative undervaluation of German exports within the Euro system, and continuing demand from China than anything really fundamental. It is, after all, these high-minded German banks that have turned out to be up to their necks in all manner of dubious financial shennanigans over the last few years.

[Chris Williams]

There's probably a case for arguing that such a long-term reorientation of the British economy was exactly what Wilson was trying with Minitech. I'm not competent to argue it, mind - although David Edgerton is.

[Will Davies]

What was minitech, if you don't mind me asking?

[Chris Williams]

Ministry of Technology - the operational bit of Wilson's 'White Heat' plan.

Hope you had a good time at your conference. Was our Fran on good form?