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How to mend a broken economy

The laissez-faire era is over, says Will Hutton – the next Labour government must find growth through intervention.

By Ed Conway

In 2005 the late American author David Foster Wallace gave a commencement speech to the graduating class at Kenyon College in Ohio. It began with one of those cute little stories you often hear in speeches to new graduates.

There are these two young fish swimming along and they happen to meet an older fish swimming the other way, who nods at them and says, “Morning, boys. How’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, “What the hell is water?”

The point behind this “parable-ish story”, as Wallace called it, was that invariably the most important factors influencing our lives are the things we rarely spot and seldom discuss; they are almost too obvious. The analogy was supposed to underline the merits of a liberal arts education but you might just as well apply it to our economic environment.

Until a few years ago the conventional wisdom was that the German economic model was the one to be admired and, if possible, emulated. Only when Vladimir Putin invaded Ukraine did everyone realise what should long have been staring them in the face: the German industrial “miracle” was predicated in large part on cheap gas piped in from Russia, to fuel car factories and feed chemical plants. What the hell is water? As German industrial production has crashed over the past two years, all of a sudden everyone knows.

For all that we like to fixate on the latest economic storm, the success or otherwise of our nations is just as likely to be determined by invisible, longer-term factors. Energy, institutions, culture. These seismic forces operate so far in the background that they are rarely incorporated into economic models, or for that matter the conventional wisdom. How does the American economy manage to outperform Europe year after year? There are plenty of interesting theories but you might just as well say: it’s something in the water.

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Something similar goes for Britain and its disappointing productivity performance in recent years. The conventional explanations – be they Brexit, the planning system or the vicissitudes of one chancellor or another – are all quite compelling. But what, in this case, is the “water”? What is that underlying dynamic we’re not paying enough attention to?

At least part of the answer is to be found in Will Hutton’s latest book, This Time No Mistakes. Hutton, the former Observer editor who is now president of the Academy of Social Sciences, became a household name – in intellectual centre-left households at least – with The State We’re In, his 1995 book that critiqued Conservative economic and social policy and attempted to forge an alternative, progressive set of reforms.

The State We’re In wasn’t the only progressive critique and manifesto knocking around in Britain in the 1990s – there were the reports produced by David Miliband’s Commission on Social Justice, Anthony Giddens’ The Third Way: The Renewal of Social Democracy and the waves of thinking coming from across the Atlantic – but Hutton’s book caught the public mood in a way no other did. To a generation who came of age under Conservative governments, here at last was a compelling glimpse of what a centre-left economic strategy might actually look like. It was a phenomenon.

This Time No Mistakes is not exactly a sequel, but it is hard to ignore the echoes. In 2024, a ragged Conservative government once again nears its end. A hungry Labour opposition stands ready to take its place, desperate not to put a foot wrong by divulging any concrete policies. The country is beset by economic problems: high inequality, neglected regions, the dominance of London. But while most economic analyses of Britain’s problems begin a few years or maybe a few decades ago, in his new book Hutton does what he did in The State We’re In: by casting his eye back centuries and across continents in search of the root causes of our current strife.

At first this is a little jarring. The preface and first chapter lay out many of the problems facing the UK: weak productivity and income growth, the slow-burn impact of Brexit and poor health outcomes (Britain now has the shortest five-year-olds in Europe). But just when the book begins to hit its stride, the reader is catapulted somewhere else entirely. Off we go on a tour of American and then British political history, taking in the rise and fall of the New Deal in the US, of monetarism and Friedrich Hayek’s Mont Pelerin Society, all the way through to the 2008 financial crisis. Then, as we get tantalisingly close to the present day, we are whizzed back to the era of Adam Smith and taken on another four-chapter journey through British progressive economic and political history. There is the Poor Law, the rise of the labour movement, and the uneasy relationship between social liberalism (the heart of the Lloyd George-era Liberal Party) and the labour movement.

In one respect it feels a bit odd that roughly half of this book about the plight of 21st century Britain is set neither in this country nor this century. But now recall the parable about the fish and the water. Only when you comprehend the intellectual history, both of the right and the left, do you begin to fathom the obstacles in reforming the country, argues Hutton. Only when you realise that many of Britain’s seeming successes in recent decades were either illusory or inflated by hidden and little-understood forces do you realise the scale of the challenge we face today.

From the windfalls of empire to the ballooning of the financial sector and the fruits of privatisation, Hutton contends that in era after era British administrators surfed a seeming wave of prosperity that often had less to do with their brilliance than with the waters they were swimming. High profit margins created by imperial tariffs allowed businesses to convince themselves that they were so profitable that there was little need to invest in the machinery their overseas competitors were buying. Bountiful revenues from North Sea oil gave the impression that the public finances were far healthier throughout the Eighties and Nineties than they actually were. The same thing happened with financial sector revenues, at least until the crash of 2008.

Hutton depicts a nation that swam in balmy waters for decades until, all of a sudden, it was swept into more turbulent seas. Don’t take from this that there’s no one in particular to blame. Hutton finds many culprits: Hayek and Ayn Rand; Herbert Asquith and Ramsay MacDonald (for failing to follow through with plans put forward in 1910 to reform the electoral system); pretty much every Tory in the past two centuries, except perhaps for Harold Macmillan.

But Hutton’s real bogeyman is something else: the “iron grip of laissez-faire”, which grasped Britain in the 19th and 20th centuries and continues to have a hold on us today. He writes: “It became an unthinking part of British economic officials’ culture: the rationale for non-intervention in an ever-more-obviously dysfunctional British economy. It has a lot to answer for.” Hutton argues that these days the institution most captured by that laissez-faire mindset – that one should never intervene if at all possible, keeping the state small and leaving markets to their own devices – is the Treasury. Among his suggestions for the next Labour government is to break the department up into an Office of the Budget (for counting the pennies) and an economic strategy ministry that focuses on growth-friendly policies. Labour’s shadow chancellor Rachel Reeves has already indicated her preference: keep the Treasury intact but strengthen its Enterprise and Growth Unit, the section of the department devoted to boosting Britain’s economic growth.

But this is only the start: Hutton has 11 other policy prescriptions, some familiar (proportional representation; replacing the House of Lords with an elected assembly of nations, regions and cities, similar to Gordon Brown’s proposals) others less so (establishing a department to mend EU relations, implementing the Leveson reforms, including proper independent regulation of the press). Some seem a tad optimistic: I am not sure a public social media corporation would really have much hope against Meta and TikTok (ask the French, who have tried to take on Silicon Valley repeatedly in recent years, with little to show for it).

One could quibble with a few of the arguments. The waters that Britain is swimming in aren’t so different to those of our developed world counterparts: most countries in Europe (and, to some extent, many American states) have experienced falls in productivity growth in recent years, increasing their economic bang-for-buck far less quickly than they did in previous decades.

Even so, what is most stimulating about this book is that, much like The State We’re In, it represents the beginning of a new, urgent debate. The era that defined economics since the end of the Cold War is now giving way to more activist governments and a very different kind of globalisation, necessitating new economic strategies. At last we are beginning to discuss what they might look like.

This Time No Mistakes: How to Remake Britain
Will Hutton
Apollo, 448pp, £25

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[See also: The Nordic parenting myth]

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This article appears in the 10 Apr 2024 issue of the New Statesman, The Trauma Ward