When should a government intervene in the market? It is not clear what New Labour thinks is the answer.
So what does New Labour mean for business? There is no shortage of material. The left-leaning Institute for Public Policy Research has produced a report from its Commission on Public Policy and British Business. One of its members, Richard Layard, has a book of his own. (Another of its members is the author of this article). Labour has its own business manifesto. And now Will Hutton has followed The State we’re In with the hopefully titled The State to Come.
What is most remarkable, of course, about all these documents is what is not in them. (Labour’s business manifesto makes this point particularly clearly since it contains as much blank space as text). All of them emphasise that the operation of market forces must be tempered by consideration for fairness. But none of them propose that this fairness will be achieved by government telling business what to do. The business manifesto to is almost as far from that as it is possible to go. ‘To bring about the fair and prosperous society that Labour seeks, we need successful and enterprising businesses making strong profits’, says Gordon Brown in his introduction. A far cry from Labour’s former promise to secure for workers by hand and brain the full fruits of their labours.
But it is not easy to establish from any of these sources what criteria justify government interference with the functioning of the market. Sometimes, especially in the Business Manifesto (BM) and the report of the Commission on Public Policy and British Business (CPPB), it seems that the only intervention which is appropriate happens when market forces are not competitive enough. Everyone is emphatic about that.
“Competitiveness abroad begins with competition at home” (BM)
“British policy has not been tough enough on competition” (Layard)
“The primary responsibility of government in this area is to ensure that markets are and remain highly competitive” (CPPB).
And Hutton wants “a much tougher approach by the competition authorities to the monopoly implications of takeovers”.
There are some people who believe that the outcome of competitive markets is itself fair. But clearly none of the authors of these programmes are among them. BM contains, interestingly enough, no reference to fairness – you have to go to the main Labour manifesto for that. But the others do. Hutton claims to offer ‘a new vision of how to combine a successful market economy with a fair society’. For Layard, ‘a good society provides prosperity, fairness, full employment and security’. The CPPB is more restrained: “we cannot ignore the distribution of economic activity,” although the paragraph that follows gives the impression that it is the cost of policing, rather than a sense of justice, that makes it necessary to reduce inequality.
So when is there a rationale for intervention? How is fairness to be brought in? At this point, there is a real difference between the different programmes. BM – the official Labour party document – outflanks all others in insisting that the government should stand aloof “Business has the best idea of where its own interests lie”. True, of course. But do its own interests always, align with those of the public? That issue BM evades.
At the other end of the spectrum, Hutton is continually struggling to control his dirigiste instincts. “The balance sheet of gains and losses is much wider than a simple calculus of one firm’s profitability”. A whole chapter is entitled “Why Markets go Wrong” The CPPB is more guarded “While market liberalisation and some deregulation were appropriate, even the strongest devotees of these policies do not claim that they alone were, or are, sufficient to resolve Britain’s economic problems”. Layard, firmly in the middle of the pack, is the most explicit and in some ways the most radical. “The weakness of our economy stems from the same sources as the divisions in our society. But this does not get much beyond the confident assertion that economic inequality is not a necessary consequence of economic growth.
BM and CPPB, both fearful of offending a business constituency, shy away from any overt critique of unconstrained market forces. Hutton is ready to undertake that critique but bases it on a bizarre combination of the missings of George Soros, and Anthony Giddens. Soros – the man who cleared up from Britain’s ignominious exit from EMU – and Giddens – the sociologist who now heads the London School of Economics – are each outstanding in their fields; but neither has much to say about the strengths and weaknesses of market economies.
In the end none of these programmes provides a single coherent account of the role, and the limitations, of market forces in modern economies – the defining issue of the New Labour project. For the best statement of these issues, it is better to cross the Atlantic and turn to “Wither Socialism?”, the considered reflections of Joe Stiglitz, former Chairman of President Clinton’s Council of Economic Advisers.
Stiglitz gives a precise account of the virtues of markets. He identifies the benefits of the process of decentralisation and comparison, of search and discovery, of rewarding successful innovation and penalising failure to respond to consumer needs – all those things which were so disastrously suppressed when East European markets were subordinated to political control. But Stiglitz also explains how markets fail when confronted with the need to pool certain kinds of risk, and he identifies their weakness in generating and processing information, and how they can give rise to too many financial services and too few public goods. That analysis defines the proper boundaries of public and private action. It lays out the middle ground between the Old Labour’s denounciations of the tyranny and anarchy of the market, and the Panglossian New Right claim that whatever emerges from the outcome of market processes is for the best of all possible worlds. And it is on that middle ground that this, and future, elections will need to be fought.
R Layard – What Labour Can Do (Warner Books 1997
Commission on Public Policy and British Business – Promoting Prosperity – A Business Agenda for Brittain (Vintage 1997)
W Hutton – The State to Come (Vintage 1997)
Equipping Britain for the Future – Labour’s Business Manifesto
J Stiglitz – Wither Socialism? – (MIT Press 1995)