Hattersley’s Specifics

Tony Crosland’s epoch-making book The Future of Socialism was published in 1956. That Roy Hattersley’s aim is to don the master’s mantle in the late 1980s is evident not only from his book’s subtitle, but also from his brief account of a conversation he had with Tony Crosland a week before the latter’s fatal stroke. ‘Give me,’ said Crosland, ‘a simple definition of socialism’. Hattersley obligingly failing to do this, Tony Crosland did it himself. ‘Socialism,’ he said, ‘is about the pursuit of equality and the protection of freedom – in the knowledge that until we are truly equal we will not be truly free’. It is that self-evident truth, says Hattersley, that his book seeks to demonstrate. (Subtle politician that he is, Hattersley refers us to Susan Crosland’s biography of her husband ‘for a full account of the conversation’ between him and Crosland. In fact, Mrs Crosland’s book contains hardly any fuller an account: but it does contain ample evidence of the fact that Tony Crosland liked Roy Hattersley. Ah well, that’s showbiz.)

Hattersley’s main concern is to rescue ‘socialism’ from the charge that it is the antithesis of liberty or freedom. Arthur Lewis’s famous axiom that ‘socialism is about equality,’ he says is true, but only partly true. Equality is a means, not an end in itself. Without much more equality than we have at the moment, a large proportion of the population cannot enjoy freedom or liberty in any deep or meaningful sense. ‘The immediate intention of socialist policies,’ says Mr Hattersley, ‘is the creation of a more equal society within which power and wealth are more evenly distributed. But socialism’s fundamental purpose – indeed, the purpose of the equality we seek – is the extension of liberty’. Hattersley goes on to quote Tawney’s view that a socialist society sees liberty ‘not as a possession to be defended but as a goal to be achieved’. This achievement depends upon the creation of rights – social and economic, as well as political – which, according to Tawney, ‘must be such that wherever the occasion for their exercise arises, they can in fact be exercised’. And Mr Hattersley goes on to state that ‘as we evangelised for equality, we should have made clear that without it, for a majority of the population, the promise of liberty is a cruel hoax. Liberty is our aim. Equality is the way in which it can truly be achieved.’

This point of view is, of course, the exact opposite of that of the libertarian New Right, which, basing itself on the writings of F.A. Hayek and Milton Friedman, holds that most intervention by the state, and particularly any intervention designed to promote greater equality, represents an unacceptable infringement of personal liberty. In what is the best part of his book, Hattersley, with a certain amount of assistance from Tawney, Rawls and others, gives the New Right a good drubbing – Hayek’s work, in particular, being demolished with skill and gusto. But Hattersley is careful not to overdo it. While too little equality results in too little freedom, the active promotion of total equality may, he acknowledges, actually inhibit the freedom that greater equality is intended to make possible. The relationship of the two conditions can be envisaged as a curve, with freedom increasing with the promotion of equality up to a point, but then starting to decline. The problem is to decide when the top of the curve has been reached; in Britain, Hattersley thinks, we are clearly well below it. And that certainly seems an accurate judgment.

Having, in the first half of the book, established that socialism is about freedom as much as about equality, Mr Hattersley goes on, in the second half, to address himself to the implications of this insight for various areas of policy. In much of this, one feels, his aim is to wean some of his less enlightened colleagues on the left of the Labour Party away from their fixation on state ownership, centralised direction of the economy, indiscriminate subsidies, and the like. The idea that markets and socialism are mutually exclusive, he points out, is nonsense: for large parts of the economy the market mechanism is the best way of allocating resources, and is indeed essential to any definition of socialism which includes the encouragement of diversity and individual liberty. Similarly, the limitations of old-style nationalisation are discussed, and an enthusiastic welcome is given to ideas like the Swedish wage-fund proposal (under which workers as a whole would steadily acquire an ever-increasing ownership and control of industry), and to genuine and viable worker co-operatives (a swift kick on the shins here for a former comrade-in-arms, Tony Benn, whose support for hopelessly uneconomic worker co-ops when he was Labour’s Secretary of State for Industry Hattersley rightly says did incalculable damage to the whole co-operative concept). So far, in spite of all the talk of socialism and what socialists think (meaning, in fact, what Mr Hattersley thinks they ought to think), and in spite of a few ritual swipes at the SDP and David Owen, there is nothing in the book to preclude the idea of a Labour-Alliance coalition after the next election.

But there is, in fact, one troublesome matter. Mr Hattersley denounces with passion and eloquence the appalling way that – despite the abolition of the 11-plus examination – children from poor homes are discriminated against by the educational system. From this analysis he is drawn to the conclusion that private education (and private medicine) should be banned, partly on the grounds that ‘they absorb a disproportionate share of scarce resources’. But do they? In what sense are school-teachers or nurses ‘scarce’? Is it not a matter of relative pay levels? This is well-trodden territory, and will not be traversed again here, except to say that some of those who have so far followed Mr Hattersley in his argument that socialism is about freedom may at this point come to a disconcerted halt. Perhaps, though, they will be reassured by his promise that ‘after the state has done its best, an individual who wants to buy violin lessons for a son ought to be free to do so’. (What about a daughter?) The violin, they may take comfort in believing, could be shaped like a very thick wedge.

The main flaw in the book, however, lies elsewhere. There is very little discussion of how a future Labour government would actually go about promoting the greater degree of equality needed in order to bring about a greater degree of freedom. Mr Hattersley may reasonably retort that the purpose of his book, like that of Tony Crosland’s book thirty years ago, is to re-state and re-define what socialism is all about, not to discuss in detail how it can be achieved: to point the direction to the promised land, not to anticipate how to surmount the particular obstacles that may prove to be lying in the path. For two reasons it can be argued that such a retort will not really do.

The first is that when Crosland published his book he was entitled to take a fairly detached view of the difficulties of putting principles into practice. He was not a Member of Parliament (though he had been in the House from 1950 to 1955); he had never held ministerial office, and had no means of knowing when, or whether, he would ever get back into the House of Commons, let alone achieve cabinet rank. Hattersley, by contrast, is a former cabinet minister, and currently Deputy Leader of the Labour Party and Shadow Chancellor of the Exchequer. He could, within a matter of months, find himself the most powerful voice in a government pledged to set out on the road to socialism. And Choose freedom is not going to be much of a guidebook on the early stages of that journey.

This might not be of great consequence – there are, after all, such things as election manifestos, not to mention Mr Hattersley’s own numerous speeches – but for the second factor which distinguishes the era of Crosland from the era of Hattersley. This is the revolutionary change which has occurred in the interdependence of the world economy over the past twenty-five or thirty years. When Crosland was writing, Britain was far from immune to balance-of-payments crises – as Keith Middlemas’s book amply documents. Nevertheless, manufactured imports were equivalent to a much smaller proportion of the GDP than they are today, and were subject to greater restrictions; exchange controls were still extensive; and Euro-markets were not even a gleam in the arbitrageur’s eye. Things are very different now. Membership of the EEC means that Britain has few effective ways of restraining imports, at any rate from its main trading partners. Exchange controls were abolished by Mrs Thatcher in 1979. And – thanks to satellites and computers – currencies and securities are now traded around the globe 24 hours a day, so that hundreds of billions of dollars’ worth of financial assets can be moved from one account to another between the time a finance minister or central banker goes to bed and the time he gets up in the morning. What all this adds up to is that a British Chancellor of the Exchequer has even less freedom of manoeuvre than he had thirty years ago. Chancellors may propose; the financial markets will dispose.

This would not matter if the kind of measures Mr Hattersley talks of as being needed to move Britain along the road to socialism were likely to elicit a favourable response in the financial markets. But that does not seem very probable. For example, Mr Hattersley said earlier this year that a Labour government would reverse any cuts in income tax made in the 1987 Budget. This pledge (subsequently much modified by an alarmed Mr Kinnock, who presumably remembers what happened to Walter Mondale after he said during the 1984 US Presidential Election campaign that he would increase taxes if elected) is entirely honourable, and entirely consistent with Mr Hattersley’s version of the road to socialism. But it is unlikely, if redeemed by a future Labour government, to get much of a vote of confidence from the City.

Consider two specific proposals designed to increase equality, and therefore freedom. One, put forward in this book, is to introduce a statutory minimum wage; the other – a crucial part of Hattersley’s and Labour’s election strategy – is to reduce unemployment by a million within two years, mainly by increasing public expenditure. A statutory minimum wage would probably increase equality – though it is a complex and contentious issue; reducing unemployment by a million would definitely do so. But both policies would almost certainly increase the inflation rate; and even if they didn’t, you can bet on it that the financial markets would assume they would. At best, sterling would fall, making the prophecy of higher inflation to some extent self-fulfilling; and interest rates would rise, making the expansionary measures designed to reduce unemployment more difficult to achieve. At worst, the government would find itself facing a full-blown crisis of confidence, and concentrating all its attention simply on keeping the show on the road.

It is not clear how Mr Hattersley thinks the British people, as they proceed enthusiastically along the road to socialism, are going to be protected from being ambushed by these forces along the way. He has long accepted that the re-imposition of exchange control is, quite simply, impossible, and consequently he is going to rely on discriminatory tax policies to make it worth the while of pension funds and insurance companies to repatriate voluntarily some of the huge amount of capital they have invested overseas since 1979. In normal times, this would put upward pressure on the exchange rate, perhaps offsetting any tendency for holders of sterling to react to a Labour government’s policies by getting into yen or deutschmarks. But it is bound to be a desperately uncertain business, and the institutions may well take the view that the advantages of being in foreign currencies outweigh the loss of tax relief.

Such problems might be avoided, of course, if Mr Hattersley could give holders of sterling a convincing assurance that Labour’s expansionary and egalitarian policies threatened no significant rise in the inflation rate. This he is unable or unwilling to do. Towards the end of the book he ventures a very cautious criticism of unfettered collective bargaining, and offers a very cautious word of support for something he calls ‘income planning’. But the Alliance’s idea of using the tax system to discourage inflationary wage increases is dismissed in half a paragraph. Mr Hattersley, as Chancellor of the Exchequer, is apparently going to rely entirely on exhortation in order to achieve ‘the sort of wage levels which are consistent both with accepted economic aims and with acceptable social priorities ... In short, we have to persuade trade unions and trade-unionists that they have a vested interest in socialism and they should conduct themselves in a way that socialism requires’. Alas, the horse-laughs from the City are already audible.

Mr Hattersley ends his book with a few references to the spirit of ’45. While the circumstances of the Attlee victory can never be recreated, he says, the special achievement of the Labour Party Mr Attlee led ‘was its persuasion – of people who had never voted Labour in their lives – that socialism was the one relevant remedy for the problems of 1945’. Once again, he suggests, the time has come, and ‘the principles of democratic socialism are particularly appropriate’. If Labour can make unequivocally clear the ethical framework on which its policy is built – we must choose equality in order to choose freedom – then victory can be won, as in 1945.

This is not a conclusion which sits easily with the analysis in Dr Middlemas’s book, which emphasises the uniqueness of the wartime corporate state and its smothering effect on the normal processes of party politics and parliamentary democracy: and, by extension, the wholly exceptional circumstances of the 1945 Election. Middlemas, unfortunately, entirely lacks Hattersley’s fluent and agreeable prose style. Far too many of his lengthy, awkward sentences are unintelligible at first reading – and sometimes at second reading, too. The book cries out for rigorous editing and pruning: its length could have been cut by a third without much loss. Nevertheless, out of all the massive archive research which lies behind it, and through all the clumsiness and clutter which beset the reader at every turn of the page, emerges the depressing story of Britain’s post-war decline. (And this volume only takes us up to 1961: as President Reagan used to be in the habit of saying, ‘you ain’t seen nothing yet.’)

Middlemas’s central thesis (I think) is that the ‘post-war settlement’ – a product of the tripartism of the war years, epitomised by the 1944 White Paper on Employment Policy – heavily influenced developments for a decade or so, but then began to break down; and that the course of events was bedevilled, but not fundamentally altered, by Britain’s insistence on trying to play a role it could no longer afford – feeding the British Zone of Germany, maintaining sterling as a reserve currency, and re-arming at the time of the Korean War. Periodic attempts to resuscitate a consensus approach to the country’s economic problems – as in Macmillan’s establishment of the National Economic Development Council in 1961 – were doomed to failure once the enemy was no longer at the gates, as in 1940. The untrammelled pursuit of self-interest again became the overwhelming preoccupation of the shop stewards in the car factories and of the individual employers out in the industrial heartland – a long way from TUC headquarters, and a long way from the corporatist London hobnobbing between the leaders of the Federation of British Industries, the British Employers’ Confederation and the Westminster-Whitehall establishment. In short, we pull together in wartime, but in peacetime we look after number one.

Attlee had the strong conviction – conveyed briskly to backsliders – that unions and employers had obligations as well as rights. The benefits of the ‘high and stable level of employment’ promised in the 1944 White Paper, and of the emerging Welfare State, required employers to reciprocate by abandoning restrictive practices and raising investment and productivity, and unions to reciprocate by exercising wage restraint. For quite a long time it worked, or seemed to: but the seeds of trouble were already there. As early as April 1946 an official working party had proposed the establishment of a National Incomes Commission, where government, employers and unions would sit round a table and agree on the wage and price increases the nation could afford – a forerunner of the kind of machinery operated on and off, and in one form or another, for the next thirty years or more. But, as Bevin put it, this working party had opened a Pandora’s box and found it full of Trojan horses. So far, at least, Britain has found no convincing answer to the question which economists in Whitehall were posing even at the time the 1944 White Paper was being drafted: how can one combine full employment with stable prices? Until 1979 every post-war British government, sooner or later, was forced to answer: an incomes policy. Mrs Thatcher (and by no means only Mrs Thatcher) has said: there is no answer; and since stable prices (or at any rate a low and stable inflation rate) are the more important objective, full employment must be abandoned.

One fascinating point that emerges from Middlemas’s account is that the 3 per cent unemployment target, talked about by Beveridge and the unions during the war, and finally enshrined in a speech by Hugh Gaitskell to the UN in 1950 (and in practice over-achieved during the twenty years after 1945, when unemployment averaged less than 2 per cent) was never accepted by the official Treasury. As early as June 1944 – the month after the publication of the White Paper – the Treasury’s working assumption was that ‘full employment’ meant an unemployment rate of 8½ per cent. This is not far off the kind of figure those contemporary economists have in mind who believe in the natural or non-accelerating inflation rate of unemployment: i.e. the rate of unemployment needed to prevent any rise in the rate of inflation. Such a figure is clearly quite tolerable now politically, but was equally clearly politically impossible then: indeed nearly thirty years later, in 1972, Mr Heath’s famous U-turn was prompted by the fear that unemployment might go above a million, or 4 per cent. Dr Middlemas’s account of this episode is still to come.

Perhaps, by the time it appears, Mr Hattersley will have had a chance to demonstrate that the greater equality and freedom which a big fall in unemployment would promote is more susceptible of attainment than the pessimists believe.