Ill Fares the Land (6 page)

Even in the United States, where Republicans were in power throughout the ’50s and aging New Dealers found themselves in the wilderness for the first time in a generation, the transition to conservative administrations—while it had significant consequences for foreign affairs and even free speech—made little difference to domestic policy. Taxation was not a contentious issue and it was a Republican president, Dwight Eisenhower, who authorized the massive, federally-overseen project of the interstate highway system. For all the lip service paid to competition and free markets, the American economy in those years depended heavily upon protection from foreign competition, as well as standardization, regulation, subsidies, price supports, and government guarantees.

The natural inequities of capitalism were softened by the assurance of present well-being and future prosperity. In the mid’ 60s, Lyndon Johnson pushed through a series of path-breaking social and cultural changes; he was able to do so in part because of the residual consensus favoring New Deal-style investments, all-inclusive programs and government initiatives. Significantly, it was civil rights and race relation legislation that divided the country, not social policy.

The years 1945—1975 were widely acknowledged as something of a miracle, giving birth to the ‘American way of life’. Two generations of Americans—the men and women who went through WWII and their children who were to celebrate the ’60s—experienced job security and upward social mobility on an unprecedented (and never to be repeated) scale. In Germany, the
Wirtschaftswunder
(economic miracle) lifted the country in a single generation from humiliating, rubble-strewn defeat into the wealthiest state in Europe. For France, those years were to become famous (with no hint of irony) as “Les Trente Glorieuses”. In England, at the height of the “age of affluence”, the Conservative Prime Minister Harold Macmillan assured his compatriots that “you have never had it so good”. He was right.

In some countries (Scandinavia being the best-known case) the postwar welfare states were the work of social democrats; elsewhere—in Great Britain, for example—the “social security state” amounted in practice to little more than a series of pragmatic policies aimed at alleviating disadvantage and reducing extremes of wealth and indigence. Their common accomplishment was a remarkable success in curbing inequality. If we compare the gap separating rich and poor, whether measured by overall assets or annual income, we find that in every continental European country as well as in Great Britain and the US, the gap shrank dramatically in the generation following 1945.

With greater equality there came other benefits. Over time, the fear of a return to extremist politics abated. The ‘West’ entered a halcyon era of prosperous security: a bubble, perhaps, but a comforting bubble in which most people did far better than they could ever have hoped in the past and had good reason to anticipate the future with confidence.

Moreover, it was social democracy and the welfare state that bound the professional and commercial middle classes to liberal institutions in the wake of World War II. This was a matter of some consequence: it was the fear and disaffection of the middle class which had given rise to fascism. Bonding the middle classes back to the democracies was by far the most important task facing postwar politicians—and by no means an easy one.

In most cases it was achieved by the magic of “universal-ism”. Instead of having their benefits keyed to income—in which case well-paid professionals or thriving shopkeepers might have complained bitterly at being taxed for social services from which
they
did not derive much advantage—the educated “middling sort” were offered the same social assistance and public services as the working population and the poor: free education, cheap or free medical treatment, public pensions and unemployment insurance. As a consequence, now that so many of life’s necessities were covered by their taxes, the European middle class found itself by the 1960s with far greater disposable incomes than at any time since 1914.

Interestingly, these decades were characterized by a uniquely successful blend of social innovation and cultural conservatism. Keynes himself exemplifies the point. A man of impeccably elitist tastes and upbringing—though unusually open to new artistic work—he nonetheless grasped the importance of bringing first-class art, performance and writing to the broadest possible audience if British society were to overcome its paralyzing divisions. It was Keynes whose initiatives led to the creation of the Royal Ballet, the Arts Council and much else besides. These were innovative public provisions of uncompromisingly “high” art—much like Lord Reith’s BBC, with its self-assigned obligation to raise popular standards rather than condescend to them.

For Reith or Keynes or the French Culture Minister André Malraux, there was nothing patronizing about this new approach—any more than there was for the young Americans who worked with LBJ on the establishment of a Corporation for Public Broadcasting or the National Endowment for the Humanities. This was “meritocracy”: the opening up of elite institutions to mass applicants at public expense—or at least underwritten by public assistance. It began the process of replacing selection by inheritance or wealth with upward mobility through education. And it produced a few years later a generation for whom all of this seemed self-evident and who thus took it for granted.

There was nothing inevitable about these developments. Wars were typically followed by economic downturns—and the bigger the war the worse the dip. Those who did not fear a resurgence of fascism looked instead anxiously eastwards at the hundreds of divisions of the Red Army and the powerful, popular Communist parties and trade unions of Italy, France and Belgium. When US Secretary of State George Marshall visited Europe in the spring of 1947 he was appalled by what he saw: the Marshall Plan was born of the anxiety that the aftermath of World War II might end up even worse than that of its predecessor.

As for the US, it was deeply divided in those early postwar years by a renascent suspicion of foreigners, radicals and above all communists. McCarthyism may have posed no threat to the Republic, but it was a reminder of just how easily a mediocre demagogue could exploit fear and exaggerate threats. What might he not have done had the economy reverted to its low point of twenty years before? In short, and despite the consensus that was to emerge, it was all more than a little unexpected. So why did it work so well?

—JOHN STUART MILL

 

 

 

 

T
he short answer is that by 1945 few people believed any longer in the magic of the market. This was an intellectual revolution. Classical economics mandated a tiny role for the state in economic policymaking, and the prevailing liberal ethos of 19th century Europe and North America favored hands-off social legislation, confined for the most part to regulating only the more egregious inequities and dangers of competitive industrialism and financial speculation.

But two world wars had habituated almost everyone to the inevitability of government intervention in daily life. In the First World War most of the participant states had increased their control (hitherto negligible) of production: not just of military
matériel
but clothing, transport, communications and almost anything relevant to the conduct of an expensive and desperate war. In most places after 1918 these controls were lifted, but there remained a significant residue of government involvement in the regulation of economic life.

Following a short, illusory era of retreat (marked symptomatically by the ascendancy of Calvin Coolidge in the United States and by comparably negligent types in much of western Europe), the utter devastation of the 1929 slump and the ensuing depression forced all governments to choose between ineffectual reticence and overt intervention. Sooner or later, all would opt for the latter.

Whatever remained of the laissez-faire state was then erased by the experience of total war. With no exception, winners and losers in World War II committed not just the country, the economy and every citizen to the pursuit of war; they also mobilized the state for this purpose in ways which would have been inconceivable just thirty years earlier. Whatever their political colour, the combatant states mobilized, regulated, directed, planned and administered every aspect of life.

Even in the United States, the job you held, the wage you were paid, the things you could buy and the places you might go were all constrained in ways that would have horrified Americans a few short years before. The New Deal, whose agencies and institutions had seemed so shockingly innovatory, could now be seen as a mere prelude to the business of mobilizing the whole country around a collective project.

War, in short, concentrated the mind. It had proven possible to convert a whole country into a war machine around a war economy; why then, people asked, could something similar not be accomplished in pursuit of peace? There was no convincing answer. Without anyone quite intending it, western Europe and North America entered upon a new era.

The most obvious symptom of the change came in the form of ‘planning’. Rather than letting things just happen, economists and bureaucrats concluded, it was better to think them out in advance. Unsurprisingly, planning was most admired and advocated at the political extremes. On the Left it was thought that planning was what the Soviets did so well; on the Right it was (correctly) believed that Hitler, Mussolini and their fascist acolytes were committed to top-down planning and that this accounted for their appeal.

The intellectual case for planning was never very strong. Keynes, as we have seen, regarded economic planning much as he did pure market theory: in order to succeed, both required impossibly perfect data. But he accepted, at least in wartime, the necessity of short-term planning and controls. For the postwar peace, he preferred to minimize direct government intervention and manipulate the economy through fiscal and other incentives. But for this to work, governments needed to know what they wished to achieve and this, in the eyes of its advocates, was what ‘planning’ was all about.

Curiously, the enthusiasm for planning was especially marked in the United States. The Tennessee Valley Authority was nothing if not an exercise in confident economic design: not just of a vital resource but of the economy of a whole region. Observers like Louis Mumford declared themselves “entitled to a little collective strutting and crowing”: the TVA and similar projects showed that democracies could match the dictatorships when it came to large-scale, long-term, forward-looking schemes. A few years earlier, Rexford Tugwell had gone so far as to eulogize the idea: “I see the great plan already/And the keen joy of the work will be mine . . . /I shall roll up my sleeves—make/America over.”
⁶

The difference between a planned economy and a state-owned economy was still unclear to many. Liberals like Keynes, William Beveridge or Jean Monnet, the founding spirit behind French planning, had no time for nationalization as an objective in its own right, though they were flexible as to its practical advantages in particular cases. The same was true of the Social Democrats of Scandinavia: far more interested in progressive taxation and the provision of all-embracing social services than in state control of major industries—car manufacturing, for example.

Conversely, Britain’s Labourites doted on the idea of public ownership. If the state represented the working population, then surely a state-owned operation was henceforth in the hands and at the disposal of the workers? Whether or not this was true in practice—the history of British Steel suggests that the state can be just as incompetent and inefficient as the worst private entrepreneur—it diverted attention from any sort of planning at all, with detrimental consequences in decades to come. At the other extreme, Communist planning—which amounted to little more than the establishment of fictional targets to be met by fictional output data—would in due course discredit the whole exercise.

In continental Europe, centralized administrations had traditionally played a more active role in the provision of social services and continued to do so on a greatly expanded scale. The market, it was widely held, was inadequate to the task of defining collective ends: the state would have to step in and fill the breach. Even in the USA, where the state—the “Administration”—was always wary of overstepping traditional bounds, everything from the GI Bill to the scientific education of the coming generation was initiated and paid for from Washington.

Here, too, it was simply assumed that there were public goods and goals for which the market was just not suited. In the words of T.H. Marshall, a leading commentator on the British welfare state, the whole point of ‘welfare’ is to “supersede the market by taking goods and services out of it, or in some way to control and modify its operations so as to produce a result it could not have produced itself.”
⁷

Even in West Germany, where there was an understandable reluctance to pursue Nazi-style centralized controls, ‘social market theorists’ compromised. They insisted that the free market was compatible with social goals and welfare legislation: it would actually function best if encouraged to perform with these objectives in mind. Hence the legislation, much of it still in force, requiring banks and public companies to take the long view, listen to the interests of their employees and maintain an awareness of the social consequences of their business even while pursuing profits.

That the state might exceed its remit and damage the market by distorting its operations was not taken very seriously in these years. From the institution of an International Monetary Fund and a World Bank (later a World Trade Organization as well) to international clearing houses, currency controls, wage restrictions and indicative price limits, the emphasis lay rather in the need to compensate for the palpable shortcomings of markets.