A Restatement Of Economic Liberalism Prologue: Capitalism and the permissive society Introduction :: The Historical Context :: Reasons For Suspicion :: The Rise Of The Word Man :: The Dilemma Of The Economic Liberal :: The New Left Attack :: Poverty And Equality :: 'Alienation' :: Student Dissent :: Contemporary Radicalism :: A turn of the tide?

Another common objection to competitive capitalism reflects a renewed outburst of egalitarian sentiment. It is certainly possible to go a long way towards 'levelling up' the conditions of the poorest section of the population under capitalism. A legitimate charge against modern industrial society, which applies to both the 'capitalist' and the Communist countries, is the amount of poverty that continues despite average levels of real income per head which are very high by all past standards. Poverty usually means an income below that required to maintain an adequate standard of living for the family or individual concerned. Although the notion of an adequate standard rises with average income levels, it is not meaningless to speak of a whole society being poor - for example, when the average standard of living, however defined, is insufficient to prevent starvation or gross malnutrition. But as society becomes richer, it becomes more and more reasonable to regard the poor as those with less than some given minimum proportion of average post-tax real income (adjusted for family size and other complications). The size of this minimum is necessarily arbitrary. But it is perfectly possible to set up as a goal that no household of average size should have an income of less than, say, a third of the national average. The best available estimate for 1972 is that there are 17 million households with, on average, disposable incomes approaching £2600. The proposed minimum would then be nearly £900 - more for families with several children, less for smaller households. (For comparison, the supplementary benefit rates amounted to nearly £660 for a married couple plus about £100-f 150 per child according to age.) This figure will rise in future years both with real income and inflation.^* By guaranteeing an income of this kind, there is a limited sense in which the poor need not always be with us. Poverty is partly an absolute and partly a relative phenomenon. A family, which earns a given and small proportion of the national average, is not poor in the same sense when this involves having only one car and having to share a swimming poo1 as when it involves infants dying of starvation.

In Chapter 3 a suggestion is made for a guaranteed income, to be provided at first in the form of a negative income tax, but eventually to be distributed as a social dividend to all, whether at work or not. It is presented there as a way in which those who did not wish to participate in a consumption-oriented, work-obsessed society could 'opt out' of it, without imposing an unwanted revolution on the rest of the population. The main object ofsuch a scheme would, however, be to provide guarantees against extreme poverty for everyone. Yet we would be wise not to expect too much from it, especially in the early years. As Professor Harry Johnson has pointed out,¹¹ there are limits to the degree of earnings transfer, whether in guaranteed incomes or other forms that the bulk of the population will tolerate; and there are many poor people who do not share the anti-consumption ethos and who would be glad of the opportunity to earn more than any feasible income guarantee is likely to provide.

The most promising, although most difficult, way of helping such people is to increase their opportunity to acquire the skills that are demanded in the market place. Lack of knowledge of technical trends and opportunities leads children to follow their parents' occupation into what Professor Johnson has called 'perpetual pockets of poverty'. While the provision of 'free' or subsidised information or training would help, the inclination of those who are hostile to market forces is to conserve the population of existing districts and industries by a variety of make-work devices, which hinder the geographical and occupational mobility which would, in the long run, provide the victims of change with their best opportunities.

Many kinds of discrimination make for poverty. Racial discrimination is a less important factor in Britain than in the USA, but there is plenty of discrimination against the old, by compulsory retiring ages, and against the young, by forcing children to stay on at school for longer and longer periods. It is worth noting that the more profit-seeking and less bureaucratic a firm, and the less hamstrung it is by unions or staff associations, the more incentive it will have to provide work for elderly people who may not be worth a normal wage but who may still be able to render some productive service.

In his discussion of the forces which could improve opportunities for the poor, ProfessorJohnson rightly gives pride of place to the general level of employment. A high demand for labour exercises a perennial effect to 'upgrade labour skills', and to find suitable opportunities for people of impaired mental or physical capacity. The scarcer that labour is in general, the more incentive there is 'to devise square holes in the economic system to accommodate the square pegs available'.

If anyone still believes that the pressure of demand for labour and the overall unemployment percentage can be fixed by the Treasury at any level it chooses by manipulating some financial levers, then the remedy is clear. But if, as becomes more and more obvious each year, the ability of the authorities to do this is limited by union exercise of monopoly power, the implication is rather different.

Apart from their overall economic effects, trade union monopolies - by raising relative wages in a few supposedly skilled or semi-skilled trades, such as the motor industry or printing - reduce the welfare of other workers. Trade unions on both sides of the Atlantic have also raised unemployment by insisting on above market wage rates and/or minimum wage laws for the less skilled occupations. Those particularly hard hit have been the untrained, or less easily employable, who could have found a niche at wages corresponding to their productivity, but have now been pushed out of the labour market and onto relief, to the applause of the bogus humanitarians.

To many critics, however, egalitarianism involves not only a 'levelling up' in the conditions of the poor, but also an elimination of all major disparities of income so that no one is much above some general average. How far it is either possible or desirable to go in this direction will be discussed in some detail in the next essay. It is certainly possible to modify the distribution of income and wealth without destroying a market economy, if appropriate methods of redistribution are used. But there are limits to the process. Despite the achievements of capitalism in breaking down class barriers, any viable capitalist system does involve the existence of individuals many times wealthier than average. The same applies to non-capitalist economies where market forces are allowed a role. This can be seen, for example, in the tendency in some Eastern European countries to pay bonuses out of profits to managers of state undertakings, which has obvious analogies to capitalist practices.

If all material differentials are intolerable, then the only alternative is centralised direction of labour. This is a lesson of Western economic theory and Communist economic practice which will not be refuted by any number of 'demos' or vituperative outbursts. There comes a point at which radicals of all hues have to choose between their commitment to freedom of choice of occupation and life-style, and extreme egalitarianism. With those to whom equality of material reward is the single absolute value to which everything else must be subordinated, no further argument is possible. But I doubt very much if this is the ultimate position of most of today's young radical. If they could understand that the single-minded pursuit of equality would lead to the sacrifice of other valued goals most of them would probably modify their attitude. Too much New Left writing seems to assume that it is necessarily the case that the wealth of some individuals is the cause of the poverty of others. As Lindbeck has put it, economic activity is seen as a zero-sum game, where what is gained by one person is lost by another. This ties in all too well with the distaste for patient analysis which is one of the less attractive features of 'the movement'.

The New Left has a much better case when it attacks the concentration of power in the hands of what President Eisenhower called the 'military-industrial complex', or the scandalous ability of interest and pressure groups of all kinds to obtain special favours ranging from import controls to tax exemptions, tariffs and subsidies. Although these influences may be specially noticeable in the USA, they are not exactly absent in Britain. Tempting though it may be to quote the stock example of the special tax depletion allowances, production and import quotas for American oil producers, I am not persuaded that the tax privileges for British home owners - which redistribute income from the poor to the better off - are on an altogether higher plane of virtue.

What the radical critics so frequently fail to realise is that many of these abuses are the result of the absence of competitive market pressures, not their presence; and this is, in turn, due in most cases to extensive paternalistic intervention of the kind for so long preached by a dominant section of the Old Left. It is too easy to persuade politicians and officials whose own money is not at stake that journeys to the moon, ever more advanced aircraft, or home-based computer industries, should be subsidised from the public purse. Governments find it notoriously difficult to separate genuine defence needs from the inevitable desire of the military- industrial complex for elaborate, ever more expensive forms of hardware. It is not an accident that the danger of the 'New Industrial State' is greatest in just the area where government involvement with business is at its closest and most specific. Professor Galbraith is so intent on ridiculing market-oriented economists (for the benefit of a mass readership that will accept on trust his account of their views) that he accepts a quite unnecessarily fatalistic attitude to the trends about which he is supposed to be worrying, and dismiss all remedies that do not involve even more frequent and personalised involvement between government and business.¹²

The remedy for these evils is the direction of more competition, more reliance on markets and more reliance on the price mechanism, adjusted to take into account 'social' costs and benefits at present unpriced. It does not lie in the 'suppression' of capitalism and greater concentration of power at the centre. To cite Lindbeck yet again: would Concorde be less likely to have been built if the British and French Governments not only co-operated with the aircraft producers but also entirely owned them (as they partially do already)? The valid elements in the New Left objection to the cult of technology and growth of measurable GNP arise from the intervention of governments to impose on the community more hardware of every sort, whether computers, satellite systems or common-or-garden machinery benefiting from 'investment incentives', than would be provided if firms interested in these areas had to compete unaided for the customer's purse.

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11. H. G. Johnson, The Economic Approach to Social Questions (Weidenfeld & Nicolson, 1968).{back to text}

12. For one of many instances, see Galbraith, The American Left and Some British Comparisons (Fabian Tract 406, 1971).{back to text}