Ill Fares the Land Page 3

  Although uncritical admiration for the Anglo-Saxon model of “free enterprise”, “the private sector”, “efficiency”, “profits” and “growth” has been widespread in recent years, the model itself has only been applied in all its self-congratulatory rigor in Ireland, the UK and the USA. Of Ireland there is little to say. The so-called “economic miracle” of the ‘plucky little Celtic tiger’ consisted of an unregulated, low-tax regime which predictably attracted inward investment and hot money. The inevitable shortfall in public income was compensated by subsidies from the much-maligned European Union, funded for the most part by the supposedly inept ‘old European’ economies of Germany, France and the Netherlands. When Wall Street’s party crashed, the Irish bubble burst along with it. It will not soon reflate.

  The British case is more interesting: it mimics the very worst features of America while failing to open the UK to the social and educational mobility which characterized American progress at its best. On the whole, the British economy since 1979 tracked the decline of its American confrère not only in a cavalier unconcern for its victims but also in a reckless enthusiasm for financial services at the expense of the country’s industrial base. Whereas bank assets as a share of GDP had remained steady at around 70% from the 1880s through the early 1970s, by 2005 they exceeded 500%. As aggregate national wealth grew, so did the poverty of most of the regions outside London and north of the river Trent.

  To be sure, even Margaret Thatcher could not altogether dismantle the welfare state, popular with the same lower middle class that so enthusiastically brought her to power. And thus, in contrast to the United States, the growing number of people at the bottom of the British heap still have access to free or cheap medical services, exiguous but guaranteed pensions, residual unemployment relief and a vestigial system of public education. If Britain is “broken”, as some observers have concluded in recent years, at least the constituent fragments get caught in a safety net. For a society trapped in delusions of prosperity and good prospects, with the losers left to fend for themselves, we must—regretfully—look to the USA.

  AMERICAN PECULIARITIES

  “As one digs deeper into the national character of the Americans, one sees that they have sought the value of everything in this world only in the answer to this single question: how much money will it bring in?”

  —ALEXIS DE TOCQUEVILLE

  Without knowing anything about OECD charts or unfavorable comparisons with other nations, many Americans are well aware that something is seriously amiss. They do not live as well as they once did. Everyone would like their child to have improved life chances at birth: better education and better job prospects. They would prefer it if their wife or daughter had the same odds of surviving maternity as women in other advanced countries. They would appreciate full medical coverage at lower cost, longer life expectancy, better public services, and less crime. However, when advised that such benefits are available in Western Europe, many Americans respond: “But they have socialism! We do not want the state interfering in our affairs. And above all, we do not wish to pay more taxes.”

  This curious cognitive dissonance is an old story. A century ago, the German sociologist Werner Sombart famously asked: Why is there no socialism in America? There are many answers to this question. Some have to do with the sheer size of the country: shared purposes are difficult to organize and sustain on an imperial scale and the US is, for all practical purposes, an inland empire.

  Then there are cultural factors, notorious among them the distinctively American suspicion of central government. Whereas certain very large and diverse territorial units—China, for example, or Brazil—depend upon the powers and initiatives of a distant state, the US, in this respect unmistakably a child of 18th century Anglo-Scottish thought, was built on the premise that the power of central authority should be hemmed in on all sides. The presumption in the American Bill of Rights—that whatever is not explicitly accorded to the national government is by default the prerogative of the separate states—has been internalized over the course of the centuries by generations of settlers and immigrants as a license to keep Washington “out of our lives”.

  This suspicion of the public authorities, periodically elevated to a cult by Know Nothings, States’ Rightists, anti-tax campaigners and—most recently—the radio talk show demagogues of the Republican Right, is uniquely American. It translates an already distinctive suspicion of taxation (with or without representation) into patriotic dogma. Here in the US, taxes are typically regarded as uncompensated income loss. The idea that they might (also) be a contribution to the provision of collective goods that individuals could never afford in isolation (roads, firemen, policemen, schools, lamp posts, post offices, not to mention soldiers, warships, and weapons) is rarely considered.

  In continental Europe as in much of the developed world, the idea that any one person could be completely ‘self-made’ evaporated with the illusions of 19th century individualism. We are all the beneficiaries of those who went before us, as well as those who will care for us in old age or ill health. We all depend upon services whose costs we share with our fellow citizens, however selfishly we conduct our economic lives. But in America, the ideal of the autonomous entrepreneurial individual remains as appealing as ever.

  And yet, the United States has not always been at odds with the rest of the modern world. Even if that were the case for the America of Andrew Jackson or Ronald Reagan, it hardly does justice to the far-reaching social reforms of the New Deal or Lyndon Johnson’s Great Society in the 1960s. After visiting Washington in 1934, Maynard Keynes wrote to Felix Frankfurter: “Here, not in Moscow, is the economic laboratory of the world. The young men who are running it are splendid. I am astonished at their competence, intelligence and wisdom. One meets a classical economist here and there who ought to be thrown out of [the] window—but they mostly have been.”

  Much the same might have been said of the remarkable ambitions and achievements of the Democratic-led Congresses of the ’60s that created food stamps, Medicare, the Civil Rights Act, Medicaid, Headstart, the National Endowment for the Humanities, the National Endowment for the Arts and the Corporation for Public Broadcasting. If this was America, it bore a curious resemblance to ‘old Europe’.

  Moreover, the ‘public sector’ in American life is in some respects more articulated, developed and respected than its European counterparts. The best instance of this is the public provision of first-class institutions of higher education—something that the US has done for longer and better than most European countries. The land grant colleges that became the University of California, the University of Indiana, the University of Michigan and other internationally renowned institutions have no peers outside the US, and the often underestimated community college system is similarly unique.

  Moreover, for all their inability to sustain a national railway system, Americans not only networked their country with taxpayer-financed freeways; today, they support in some of their major cities well-functioning systems of public transport at the very moment that their English counterparts can think of nothing better to do than dump the latter on the private sector at fire-sale prices. To be sure, the citizens of the US remain unable to furnish themselves with even the minimal decencies of a public health system; but ‘public’ as such was not always a term of opprobrium in the national lexicon.

  ECONOMISM AND ITS DISCONTENTS

  “Once we allow ourselves to be disobedient to the test of an accountant’s profit, we have begun to change our civilization.”

  —JOHN MAYNARD KEYNES

  Why do we experience such difficulty even imagining a different sort of society? Why is it beyond us to conceive of a different set of arrangements to our common advantage? Are we doomed indefinitely to lurch between a dysfunctional ‘free market’ and the much-advertised horrors of ‘socialism’?

  Our disability is discursive: we simply do not know how to talk about these things any more. For the last thirty years, wh
en asking ourselves whether we support a policy, a proposal or an initiative, we have restricted ourselves to issues of profit and loss—economic questions in the narrowest sense. But this is not an instinctive human condition: it is an acquired taste.

  We have been here before. In 1905, the young William Beveridge—whose 1942 report would lay the foundations of the British welfare state—delivered a lecture at Oxford, asking why political philosophy had been obscured in public debates by classical economics. Beveridge’s question applies with equal force today. However, this eclipse of political thought bears no relation to the writings of the great classical economists themselves.

  Indeed, the thought that we might restrict public policy considerations to a mere economic calculus was already a source of concern two centuries ago. The Marquis de Condorcet, one of the most perceptive writers on commercial capitalism in its early years, anticipated with distaste the prospect that “liberty will be no more, in the eyes of an avid nation, than the necessary condition for the security of financial operations.” The revolutions of the age risked fostering confusion between the freedom to make money . . . and freedom itself.

  We too are confused. Conventional economic reasoning today—ostensibly bloodied but apparently quite unbowed by its inability either to foresee or prevent the banking collapse—describes human behavior in terms of ‘rational choice’. We are all, it asserts, economic beings. We pursue our self-interest (defined as maximized economic advantage) with minimal reference to extraneous criteria such as altruism, self-denial, taste, cultural habit or collective purpose. Supplied with sufficient and correct information about ‘markets’—whether real ones or institutions for the sale and purchase of stocks and bonds—we shall make the best possible choices to our separate and common advantage.

  Whether or not these propositions hold any truth is not my concern here. No one today could claim with a straight face that anything remains of the so-called ‘efficient market hypothesis’. An older generation of free market economists used to point out that what is wrong with socialist planning is that it requires the sort of perfect knowledge (of present and future alike) that is never vouchsafed to ordinary mortals. They were right. But it transpires that the same is true for market theorists: they don’t know everything and as a result it turns out that they don’t really know anything.

  The ‘false precision’ of which Maynard Keynes accused his economist critics is with us still. Worse: we have smuggled in a misleadingly ‘ethical’ vocabulary to bolster our economic arguments, furnishing us with a self-satisfied gloss upon crassly utilitarian calculations. When imposing welfare cuts on the poor, for example, legislators in the UK and US alike have taken a singular pride in the ‘hard choices’ they have had to make.

  The poor vote in much smaller numbers than anyone else. So there is little political risk in penalizing them: just how ‘hard’ are such choices? These days, we take pride in being tough enough to inflict pain on others. If an older usage were still in force, whereby being tough consisted of enduring pain rather than imposing it on others, we should perhaps think twice before so callously valuing efficiency over compassion.3

  In that case, how should we talk about the way we choose to run our societies? In the first place, we cannot continue to evaluate our world and the choices we make in a moral vacuum. Even if we could be sure that a sufficiently well-informed and self-aware rational individual would always opt for his own best interests, we would still need to ask just what those interests are. They cannot be inferred from his economic behavior, for in that case the argument would be circular. We need to ask what men and women want for themselves and under what conditions those wants may be addressed.

  Clearly we cannot do without trust. If we truly did not trust one another, we would not pay taxes for our mutual support. Nor would we venture very far outdoors for fear of violence or chicanery at the hands of our untrustworthy fellow citizens. Moreover, trust is no abstract virtue. One of the reasons that capitalism today is under siege from so many critics, by no means all of them on the Left, is that markets and free competition also require trust and cooperation. If we cannot trust bankers to behave honestly, or mortgage brokers to tell the truth about their loans, or public regulators to blow the whistle on dishonest traders, then capitalism itself will grind to a halt.

  Markets do not automatically generate trust, cooperation or collective action for the common good. Quite the contrary: it is in the nature of economic competition that a participant who breaks the rules will triumph—at least in the short run—over more ethically sensitive competitors. But capitalism could not survive such cynical behavior for very long. So why has this potentially self-destructive system of economic arrangements lasted? Probably because of habits of restraint, honesty and moderation which accompanied its emergence.

  However, far from inhering in the nature of capitalism itself, values such as these derived from longstanding religious or communitarian practices. Sustained by traditional restraints and the continuing authority of secular and ecclesiastical elites, capitalism’s ‘invisible hand’ benefited from the flattering illusion that it unerringly corrected for the moral shortcomings of its practitioners.

  These happy inaugural conditions no longer obtain. A contract-based market economy cannot generate them from within, which is why both socialist critics and religious commentators (notably the early 20th century reforming Pope Leo XIII) drew attention to the corrosive threat posed to society by unregulated economic markets and immoderate extremes of wealth and poverty.

  As recently as the 1970s, the idea that the point of life was to get rich and that governments existed to facilitate this would have been ridiculed: not only by capitalism’s traditional critics but also by many of its staunchest defenders. Relative indifference to wealth for its own sake was widespread in the postwar decades. In a survey of English schoolboys taken in 1949, it was discovered that the more intelligent the boy the more likely he was to choose an interesting career at a reasonable wage over a job that would merely pay well.4 Today’s schoolchildren and college students can imagine little else but the search for a lucrative job.

  How should we begin to make amends for raising a generation obsessed with the pursuit of material wealth and indifferent to so much else? Perhaps we might start by reminding ourselves and our children that it wasn’t always thus. Thinking ‘economistically’, as we have done now for thirty years, is not intrinsic to humans. There was a time when we ordered our lives differently.

  CHAPTER TWO

  The World We Have Lost

  “All of us know by now that from this war there is no way back to a laissez-faire order of society, that war as such is the maker of a silent revolution by preparing the road to a new type of planned order.”

  —KARL MANNHEIM, 1943

  The past was neither as good nor as bad as we suppose: it was just different. If we tell ourselves nostalgic stories, we shall never engage the problems that face us in the present—and the same is true if we fondly suppose that our own world is better in every way. The past really is another country: we cannot go back. However, there is something worse than idealizing the past—or presenting it to ourselves and our children as a chamber of horrors: forgetting it.

  Between the two world wars Americans, Europeans and much of the rest of the world faced a series of unprecedented man-made disasters. The First World War, already the worst and most intensely destructive in recorded memory, was followed in short order by epidemics, revolutions, the failure and breakup of states, currency collapses and unemployment on a scale never conceived by the traditional economists whose policies were still in vogue.

  These developments in turn precipitated the fall of most of the world’s democracies into autocratic dictatorships or totalitarian party states of various kinds and tipped the globe into a second World War even more destructive than the first. In Europe, in the Middle East, in east and southeast Asia, the years between 1931 and 1945 saw occupation, destruction, ethnic cleansi
ng, torture, wars of extermination and deliberate genocide on a scale that would have been unimaginable even 30 years earlier.

  As late as 1942, it seemed reasonable to fear for freedom. Outside of the English-speaking lands of the north Atlantic and Australasia, democracy was thin on the ground. The only democracies left in continental Europe were the tiny neutral states of Sweden and Switzerland, both dependent on German goodwill. The US had just joined the war. Everything that we take for granted today was not only in jeopardy, but seriously questioned even by its defenders.

  Surely, it seemed, the future lay with the dictatorships? Even after the Allies emerged triumphant in 1945, these concerns were not forgotten: depression and fascism remained ever-present in men’s minds. The urgent question was not how to celebrate a magnificent victory and get back to business as usual, but how on earth to ensure that the experience of the years 1914-1945 would never be repeated. More than anyone else, it was Maynard Keynes who devoted himself to addressing this challenge.

  THE KEYNESIAN CONSENSUS

  “In those years each one of us derived strength from the common upswing of the time and increased his individual confidence out of the collective confidence. Perhaps, thankless as we human beings are, we did not realize then how firmly and surely the wave bore us. But whoever experienced that epoch of world confidence knows that all since has been retrogression and gloom.”

  —STEFAN ZWEIG

  The great English economist (born in 1883) grew up in a stable, prosperous and powerful Britain: a confident world whose collapse he was privileged to observe—first from an influential perch at the wartime Treasury and then as a participant in the Versailles peace negotiations of 1919. The world of yesterday unraveled, taking with it not just countries, lives and material wealth but all the reassuring certainties of Keynes’s culture and class. How had this happened? Why had no one foreseen it? Why was no one in authority doing anything effective to ensure that it would not happen again?