Buy shares in social democracy
Monday 22nd July 2002
Put away your doubts and your grievances. Suppress your disappointment that this is not a more liberal government on immigration, a more egalitarian one on education, a more comradely one on trade unions or a more pacific one abroad. Ignore all that appeasement of the Mail, all those embarrassing love-ins with business, all those honeyed words for the middle classes. There has never been a better time to be a social democrat. Gordon Brown's spending review - giving public services 60bn more over the next three years - is exquisitely timed. First, it occurs when, with war threatened in the Middle East and the stock markets in turmoil, there is a danger of a global downturn. This is classic Keynesian economics, boosting demand when it threatens to weaken - and doing so with public sector debt at historically low levels. Second, it occurs when the failings of the market-driven private sector are more apparent than for nearly 30 years.

All the standard objections to social democratic spending, therefore, sound slightly comical, as though someone were reading the script from a long-forgotten radio show. Such recklessness will damage the economy, we hear. Hardly: public spending is planned to rise to just under 42 per cent of GDP in 2005-06. This proportion was exceeded in all but two of the 18 years of Tory government, and the current EU average is 46 per cent. Much of the money will go to public sector wage rises, we hear. So what? If Britain has a poverty problem, its biggest concentration is among council workers, thousands of whom (mostly women) earn less than 5 an hour. Besides, better pay to raise morale and to cure shortages (of both talent and numbers) is one of the public sector's more urgent needs: it's called investment in people.

That leaves us with the critics' most persistent objection: that public services cannot "deliver". This may prove true in the short term, because 30 years of underinvestment has left many services needing money just to prevent collapse. Ministers might do well to dampen down expectations, and simply assure people that things are not now going to get any worse. But after the past few weeks, nobody can find it plausible that there is some special public sector problem of "delivery" or "waste". What have private sector financial services delivered? Pension schemes that make many of their customers poorer, dud life assurance policies, endowments that don't pay off the mortgage. How much US and British wealth have the fund managers poured into over-hyped dotcom companies? How much has disappeared into the bonuses and commissions of financial advisers, analysts and brokers? How much has gone into the pockets of private company directors who smartly sold their shares and options at inflated prices before it turned out they had been cooking the books, with the assistance of private sector regulators (the auditors)? Does all this count as waste? Imagine the outcry if anything remotely similar had occurred in the public sector, or if any Labour minister had delivered as little as the financial services industry after such extravagant promises?

The public sector, to be sure, is apt to lack dynamism, adventure and risk-taking. But it is not clear that the Chancellor's targets and his armies of inspectors can change that culture (rather the contrary); or that many people actually want risk-takers to organise the removal of tumours or the teaching of arithmetic. Again, public servants often treat their customers arrogantly and inflexibly, paying attention to bureaucratic masters and vested interests, not to public needs. But we can see now that, in the private sector, the welfare of customers is not always paramount. Lack of accountability - to investors, customers and the broader public interest - has proved as big a problem there as in the public sector.

Command-and-control was said to be an inefficient way of allocating resources; the boom and crash in shares has shown that the market can be scarcely less so. The truth is that both public and private sectors have strengths and weaknesses; that is why social democrats favour a mixed economy, and why they reject the idea that either the state or the market is the answer at all times and in all places. New Labour is still dazzled by private sector solutions and by the business lobby; ministers will take time to cotton on to the idea that even in the heartland of capitalism (see Andrew Stephen, page 31), people now distrust corporate leaders more than they distrust civil servants and journalists. But the Chancellor's spending hike suggests that the government is moving in the right social democratic direction. It will find more public support than it expects. The gentleman in Whitehall may not always know best; but at least he is usually honest.

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