A couple of weeks ago in the offices of the Adam Smith Institute, I addressed more than twenty of China’s most senior economic thinkers while they visited London. All were members of China’s Development Research Centre (DRC) – the leading think tank of Communist Party’s Central Committee and the State Council.
At their request, I touched on the history of the UK’s free market think tanks, the importance of maintaining independence and how, in the Anglo-sphere, such organisations are often funded by a diverse array of non-governmental sources including individuals, foundations and enterprises.
I also talked about money, banking, accountancy rules, the sovereign debt crisis and I even briefly managed to touch on the issue of gold. Everyone smiled when we mused over the fact that the Chinese state represents 32 percent of GDP while the UK government is heading towards 52 percent.
However, the real fun started when we moved to the questions and answers section. Very quickly, a hand went up in the front row and through the translator a gentleman on my right asked “have you ever heard of the Austrian School of Economics?” I smiled, paused, said “yes”, explained why, and we all moved forward.
Later, the leader of the delegation said that while Adam Smith had been translated in to high Chinese at the beginning of the twentieth century, the Communist Party had had it more accessibly translated thirty years ago – in the early 1980s.
Now, reflecting on all of this after the event, I was reminded of something a friend at Liberty Fund had said to me concerning the launch of The Online Library of Liberty in the middle of the last decade. Within two days of the library going live its South East Asian server out of Australia crashed. Under investigation it turned that it had been due to the number of students in China trying to download J.S. Mill’s On Liberty.
I have no idea how many people in China are reading the classical liberal ideas of Adam Smith and J.S. Mill or are in any way familiar with the greats of the Austrian School of Economics. But this is a question to which I wish I had an answer.
I do not doubt that the Government is sincere in its wish to make Britain “open for business” and to deliver greater life chances through reform of the welfare state. I gave some time to the Centre for Social Justice and now I see many of their ideas filtering through to public policy. I support those reforms from both a practical perspective and in view of their moral necessity.
The Prime Minister is correct to talk of the culture we have lost, particularly in respect of private shame. I am put in mind of C S Lewis’ book The Abolition of Man: there is, after all, such a thing as right and wrong. Lewis predicted humanity’s ultimate destiny on the path which embraces subjective morality: a dystopian society in which “we find the whole human race subjected to some individual men, and those individuals subjected to that in themselves which is purely ‘natural’ — to their irrational impulses.”
Some readers will recognise the problem and the dangers but reject the state’s role in finding a solution. However, we do not live in that world where the state is comprehensively rejected. There is a welfare state and it needs reform. The Government is getting on with it, and in the right direction too.
However, what the Government is not addressing is the de-civilising effects of inflation, that is, increasing the money supply.
What is commonly called “inflation” – a rise in the general price level – is an automatic consequence of debasing the currency. And currency debasement has been fierce in our lifetimes: the consequences have been and remain profound.
There is a presentation which, in one form or another, I have given many times. It shows, in a few charts:
How the state has grown inexorably since 1900,
How taxation reached an apparent limit at rather less than the scale of state spending, remaining there since 1971 or thereabouts.
Where our debt projections are heading,
How our money has been debased, particularly since 1971.
By the end of the presentation, I have explained our banking, fiscal and economic crisis. Given that what it shows is a monetary and fiscal catastrophe, people receive it surprisingly well. As far as I can tell, people can handle the truth and they want it.
One of the key slides is a price index from 1750-2003:
The grotesque debasement since 1971 – when Bretton Woods finally collapsed – hides the detail of the nineteenth century on a linear scale, so I include the same chart on a log scale. The log chart shows that, despite a number of crises and fluctuations, a pound in 1900 bought about the same basket of goods as a pound in 1800.
In contrast, money has lost almost all its value since the Second World War.
To appreciate the disruptive nature of inflation in its full extent we must keep in mind that it springs from a violation of the fundamental rules of society. Inflation is what happens when people increase the money supply by fraud, imposition, and breach of contract. Invariably it produces three characteristic consequences: (1) it benefits the perpetrators at the expense of all other money users; (2) it allows the accumulation of debt beyond the level debts could reach on the free market; and (3) it reduces the [purchasing power of money] below the level it would have reached on the free market.
While these three consequences are bad enough, things get much worse once inflation is encouraged and promoted by the state. The government’s fiat makes inflation perennial, and as a result we observe the formation of inflation-specific institutions and habits. Thus fiat inflation leaves a characteristic cultural and spiritual stain on human society
He goes on to write of inflation’s tendency to centralise government, to extend the length of wars, to enable the arbitrary confiscation of property, to institutionalise moral hazard and irresponsibility, to produce a race to the bottom in monetary organisation, to encourage excess credit in corporations and to yoke the population to debt. He explains how “The consequence [of inflation] is despair and the eradication of moral and social standards.”
That all sounds familiar.
Hülsmann’s work is not scripture of course, but neither are his ideas isolated. Consider Ayn Rand:
Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence.
It is my firm view that inflation – the debasement of money – was the primary cause of the banking crisis. That inflation was a deliberate policy choice of welfare states. You may recall Eddie George’s remarks in 2007 and now Mervyn King has said, “Of all the many ways of organising banking, the worst is the one we have today.”
Moreover, if Hülsmann, Rand and other scholars including Mises and Hayek are to be believed, then inflation is also a major contributor to the moral and spiritual decline of our country. No amount of welfare reform alone will solve that.
All is not lost however. To return to that log-scale price index, money’s value was substantially more volatile in the first half of the nineteenth century than in the second. In 1844, the Bank Charter Act, Peel’s Act, took from the banks the privilege of extending bank notes in excess of specie (coins of inherent worth). It was recognized that this extension of candy-floss credit un-backed by prior production of real value was a systemic cause of economic and banking crises.
Unfortunately, that Act left the banks unmolested in their ability to create deposits. As our system of money and bank credit has evolved, that loophole, combined with central banking and the socialisation of risk, has delivered us into our present predicament.
It falls to our generation to solve this problem and that is why we established The Cobden Centre.
As Martin Wolf wrote in the Financial Times on 9th November 2010, “The essence of the contemporary monetary system is creation of money, out of nothing, by private banks’ often foolish lending.” And then we wonder why house prices have raced out of reach. We wonder why the basement garages in Canary Wharf are full of supercars while what was once our industrial heartland languishes in state dependency.
I admire the Prime Minister and the coming welfare reforms. I will back them gladly. But, until we end inflation as a way to fund the promises of the welfare state, we shall not have done the decent thing. We shall not have established objective morality in banking and in that lifeblood of society: money. Honest money is a prerequisite for social progress and it must be delivered if reform is to succeed.
One of the great discoveries of the 20th century concerns the origins of economic science in the late middle ages in Spain and Italy. Long before Adam Smith wrote, many scholastics from the 14th through the 17th centuries were writing systematic economic theory.
No spot on the planet was as fruitful as the School of Salamanca in Spain. Here was the world center of economic research. The writings by the intellectuals gathered here explained price, value, money and its function, saving, entrepreneurship, inflation, contract and exchange, and so much more – and they closely engaged the modern world that was being born at that time, providing at theory and a rationale for the rise of prosperity.
For me, it was a particularly memorable and moving trip. I took the call informing me that I had been shortlisted for the Wycombe Parliamentary selection procedure, against all expectations, while sitting in the departure lounge at Girona after a week’s skydiving in Empuriabrava. I arrived at the Summit, knowing it was suddenly possible I would be an elected politician within the year.
Moreover, it’s no secret that I am a Christian, so it was reaffirming to discover that classical liberalism can be traced to men of God who developed their theory on the basis of morality, jurisprudence, theology and reason. An early speaker at the Summit was a contemporary Spanish friar whose passion for the poor and whose commitment to liberalism transcended the barriers of language. He knew as I know that the proper formula for widespread prosperity and the improvement of mankind is the doctrine of liberty: peace, equality before the law, freedom from arbitrary government, property and the family. In Cobdenite language, we might call for honest money, free markets, free trade, peace and the classical rule of law.
The Archbishop of Westminster, Vincent Nichols, criticised the Prime Minister’s flagship policy as lacking “teeth”. The archbishop has been one of the most prominent supporters of the Big Society, but he told The Sunday Telegraph that he feared communities hit by the economic downturn would suffer if they did not get support.
The head of the Catholic Church in England and Wales said Catholics were afraid the Coalition was “washing its hands” of its responsibilities to communities and expecting volunteers to fill the gap.
“It is all very well to deliver speeches about the need for greater voluntary activity, but there needs to be some practical solutions,” he said.
The Archbishop asks,
“Has the Conservative part of the Coalition simply seized the economic crisis as an opportunity to push through the unfinished neoliberal agenda of the last Conservative administration? We should not forget the enormous social division that was entailed in this. It signalled the end of a humanist and humane consensus in British society.”
How far the Archbishop has come from the scholastics of Salamanca. Yet the Archbishop is on to something:
“The poorest are taking the biggest hit while at the same time you see huge bank bonuses and profits and this is not right,” he said.
Now we have a point of agreement. We know we have the worst of all possible banking systems – the Governor of the Bank of England has told us so – and one of its effects is to distort the economy into unsustainable patterns thereby unjustly widening wealth inequality, driving the business cycle and precipitating banking crises, such as the one from which we are apparently recovering and at enormous cost to society. It is a statist banking system characterised by government monopoly, central planning, legal privilege and the socialisation of risk.
That very statism is the origin of the injustice the banking system is meting out to the rest of us.
The various doctrines of statism have failed. For those of us who wish to live in an ethical society which benefits all its members, it is time to rediscover that moral tradition of social thinking which began formally in Salamanca. It is time to refine and apply the doctrine of justice, peace, prosperity and fulfilment which is humble about the uses of coercive power and optimistic about the potential of individuals cooperating in society.
It may be true that those who wear the badges of ethical authority reach often for the coercive power of the state, but those of us with an intellectual, moral and practical basis for another way would do well to remember both the origins of our school of thought and the motto of one of our inspirations, Ludwig von Mises:
Do not give in to evil but proceed ever more boldly against it.
One of the most important questions about politics we must ask ourselves is: How should we live in a state we don’t approve of?
I’m a classical liberal, as I expect most of the Cobden Centre readership are. I have yet to hear of a classical liberal or libertarian who isn’t irritated by modern western states – particularly their petty regulations and high taxation – and I’m no exception. What should we do about that though? One thing we should do is to change opinion and that’s one of the things the Cobden Centre is about. But what about at a personal level? Should our political view affect how we do our jobs, for example, or our tax arrangements?
It could be argued that we should be more diligent in our own work for the sake of the generations after us. Since the state in it’s current size will cause many problems in the future, we can offset them by creating more capital now. The problem with this view is that it considers long-run economics without considering long-run politics. Suppose a government increases redistribution by taxing and spending more and a large proportion of citizens decide to work harder or just as hard as they were before. If that happened the case could be made that redistribution doesn’t affect economic output, or at least it doesn’t affect it as much as was thought. This sort of behaviour aids the political case for socialism. It’s also unsustainable, it’s likely that future generations will not understand the rationale behind it, or for various reasons won’t continue acting this way. That means the negative consequences of government policies will be delayed rather than prevented, and may be worse when they occur. During major wars governments have encouraged citizens through propaganda to work their hardest, and in some cases citizens have worked harder. Certainly this has been positive in justifiable wars. But for the more historically common unjustifiable wars it has been counter-productive and has only funnelled greater power to some of the worst states.
At the opposite extreme is the view that it’s legitimate to cheat the state or anybody else. From an ordinary moral point of view, it’s unacceptable to cheat the state and clearly unacceptable to cheat other citizens. But a large part of economic thought and libertarian thought is focused on challenging traditional ideas of morality (Walter Block’s “Defending the Undefendable” for example). Is this an indefensible idea that should be defended? I don’t think so. Firstly we must remember that laws protect us all and that society couldn’t exist without them. If others see us flouting laws because of our political ideas then they will be encouraged to do the same to aid their political ideas. In this case it’s worth remembering that we’re a minority. This point is made very well in Robert Bolt’s play “A Man for all Seasons”. Another good reason comes from Hayek and is easiest to explain with an example. Suppose a property developer bribes local politicians to grant him planning permission for new buildings. He reasons that the government is unfairly standing in his way with it’s labyrinthine planning laws and denying him profit. He may be correct about those planning laws, but he isn’t correct to think that he’s compensating himself for what the state have denied him. In the absence of planning laws it’s not clear that he would make more profit. Other property developers may out-compete him. What the developer is doing here isn’t to get compensation for his business being damaged, rather he is guessing what compensation he is entitled to and awarding it to himself (and enriching a politician to boot).
A further problem occurs when redistribution is involved. Suppose instead a businessman persuades the state to subsidise his industry. Can this just be compensation for the high taxation he must pay? No, because the state are providing the subsidy by taxing others. Notice this argument is also wrong for the first and second reasons above. If the subsidy is wide, to a whole industrial sector, that means the businessman in question must still compete against others in his industry, but the subsidy still betters the whole sector at the expense of other sectors.
It could be argued that all wealth today is irretrievably muddled. That is, in the past various groups benefited from redistribution by the government or from preferential treatment. Those groups then passed some of their ill-gotten wealth to their family and spent the rest. That wealth has been passed around to others, often unknowingly. So, all wealth is tainted and nothing that is earned can be certainly “honest”. This is true and also beside the point. If we were all to refrain from trading because all wealth is tainted in this way then mankind would be sent back into the state of primitive autarchy. That would clearly be a worse outcome than the world economy continuing to function and everyone receiving “unjust” incomes. The first error in this argument is requiring perfect retrospective justice, something that can never be achieved in practice. Like everything else, justice has diminishing returns: after some point the costs of it outweigh the benefits. Some critics accuse supporters of Capitalism of being the exclusive defenders of this idea. This is confused. All social theories and proposals to change society (whether in a small way or a radical way) don’t offer any of us a just recompense for how we have acted in the past. What they claim to offer is what their proponents believe is a better future. Even Marx was reluctant to ethically approve of his revolution of the proletariat. Instead he framed it as an inevitable development of the human race.
More importantly, the argument for free markets is that they provide incremental improvement for all classes of society. When markets first become more free that will unjustly impoverish some and enrich others. But, the long term growth that they generate serves the common good. In time, wealth generated in the market era comes to dominate that inherited from before. Of course during this time state actions will continue to unjustly redistribute wealth, I’m not denying that. We must compare free markets to other economic systems. Is there any other system that can justly apportion wealth and also ensure progress? I don’t think there is. So, we should limit our concern about long-run wealth redistribution. We should only be concerned in situations where the issue is direct and recent. For example, suppose a man takes gifts from someone he knows is benefiting from government privileges or someone who has in the recent past. In that case there’s a good case to criticise him.
In my opinion we have quite a lot of latitude to act against statism on a personal basis. If taxes are set high enough to discourage me from working as many hours as I would otherwise, then I accept that. I don’t plot violent revolution, but I do work less and enjoy more free time. I don’t see anything wrong with avoiding taxation by legal means. Modern states are currently taxing almost every working person much more than the cost of basic services. Today “tax planning” is mostly a matter of preventing income from being redistributed. There’s a lot we can do to oppose the current state of the world, but we should be careful not to go too far.
Lord Adonis was one of the original founders of New Labour. He helped make that political party electable. He created the modern Academy program for schools and in his last role as Secretary of State for Transport, he pioneered the establishment of High Speed Rail. Recently he made a speech in Birmingham setting out a new vision for our cities that would have chimed well with the great entrepreneurial builders of our great cities in the Victorian era. Our past is inspiring but so too can our future be. When he sent me a copy of this speech I noted the following and commented back.
The civic spirit that these pioneering social orientated capitalistic entrepreneurs in the Victorian era needs to be revived.
State action will never achieve what you aspire to, only these truly remarkable individuals. The State can provide a mechanism like the Academy architecture that you set up and the Mayoral Office legislation (if it is assumed that we need State structured education, and that people are not responsible enough to provide for themselves), but never the entrepreneur, the doer, the undertaker of tasks. Technicians can’t perform this regeneration.
The focus should now be on energising the individual to think he is empowered to really make a difference in Birmingham.
It is incumbent on the political class to call out for these inspiring individuals and tell them they are emancipated to revitalise our cities.
No corporation tax, no NI for business under £5m of revenue, and no capital gains tax on the sale of business will soon revolutionise this area. The quicker the State can remove itself from being a key income provider in the area, and the quicker it will get off the back of enterprise, the quicker will be the recovery of this great Victorian city of thousands of flourishing business.
If the government gave a commitment for 10 years to hold this tax advantageous structure, then tapered over 5 years up to national tax rates, transformation would happen.
I am now against HS2. Not because high speed rail is not a good thing; it 100% is. But it can’t be funded by the taxpayer. It needs to be funded as all prior great railways were funded: via the private sector. Railway bonds paying a 7.5% coupon need to be offered. With the government sucking the life out of the private sector with its debt issues to plug the gap in the deficit, it is the biggest competitor for funds. The more we give the recipients of welfare, squander in the form of bombs on Libya, and subsidise crony capitalism within the banking system, the less we have for on-going sustainable growth in the private sector.
A great speech, well made, and I hope it gets some traction.
Birmingham Unleashed
An Elected Mayor, High-Speed Rail and Academies
Andrew Adonis
Lunar Society Annual Lecture
Birmingham, 15 March 2011
As an Arsenal supporter, I know never to underestimate Birmingham City. Not only because of the Carling Cup, but also because, living in Highbury, I am conscious that when Joseph Chamberlain – in many ways the creator of modern Birmingham – was sent from London to Birmingham at the age of 18 in 1854 to work in his uncle’s screwmaking business, it was No. 25 Highbury Place that he left; a house he loved so much that when he built a mansion in Birmingham he called it Highbury. Our loss was your transformation.
My only excuse for offering gratuitous advice this evening is that you asked me for it, and I could hardly decline a request from an institution of such prestige as the Lunar Society. But there is another reason I am here. I care passionately about the future of our cities. Nearly half of Britain’s population live in conurbations. Birmingham dominates the second largest. There was hardly a month as a minister when I was not in Birmingham on some business or other, and I am convinced that there is no bright future for Britain unless there is a bright future for Birmingham. You have imposed on me the obligation to consider how the city’s future can be secured, so here goes.
Birmingham 2011
In my view, Birmingham faces something of a crisis.
The city has great strengths. Natural strengths of location in the heart of England. Strength and pride in ethnic diversity and an instinctive internationalism. Great cultural institutions.
It has built on these strengths in recent years. The city centre is rejuvenated: Symphony Hall, the canal district, the International Convention Centre, the National Indoor Arena. New Street Station, one of the worst eyesores in Britain, is being rebuilt, thanks to creative leadership by Mike Whitby – just as Dick Knowles and Albert Bore before him deserve great credit for the ICC and NIA. There are three popular universities. The city’s schools have improved. The NHS is in good shape – new and rebuilt hospitals; a strong and growing health sector.
But while all this and more is positive, the big picture for Birmingham looks bleak to me unless there is big change. Not more incremental change, but radical transformation under strong, purposeful civic leadership.
Birmingham’s population is still 100,000 down on its peak fifty years ago. Despite this – or partly because of it, urban economists tell me – the city’s unemployment rate is more than twice the national average, now at over 11 per cent, whereas London and Leeds are only marginally above the national average. Birmingham also has one of the lowest employment rates in the country, 61 pc against 70 pc nationally. London and Leeds, again, are at about the national average.
This relates to two further stark facts: Birmingham has very low productivity and is excessively dependent on public sector jobs. In Birmingham’s shift from manufacturing to services over the last 35 years, public services have predominated. One in three jobs in the city are now in public
services, compared to one in five in financial and business services. Only one in ten jobs are now in manufacturing.
Type “Made in Birmingham” into Google Search, and the first item listed is: “Birmingham’s Industrial History Website” – together with a tag: “Please note: this website is currently being rewritten.” It doesn’t need to be rewritten; it needs to be replaced, and urgently, by “Birmingham’s Industrial Future Website.”
But that future is at the moment is hard to see with any clarity. According to economic projections prepared for the city council, Birmingham’s employment is forecast to be 4 pc lower in 2020 than in 2008.
In the five years to 2008 the city gained 10,000 public sector jobs but lost 3,000 private sector jobs. Now the losses in the public sector are starting too. A month ago the city council announced 2,000 job cuts, with many more to come. Stephen Hughes, the council’s chief executive, was quoted as saying: “The scale of cuts is likely to be of a magnitude that no one has seen. My life in local government goes back to 1979 and there has never been anything as bad as this.” I’m not sure this will console the city’s army of future unemployed.
Underpinning all this is the most worrying statistic of all. Birmingham almost tops the league of Britain’s low skill cities. More than two in ten of the city’s residents have low skills, compared to just over one in ten nationally. Greater London, by contrast, is now better than the national average in skills. Of Britain’s major cities, only Leicester is worse placed than Birmingham in skills. Birmingham is behind even Liverpool, which has lost nearly half its population in the last 50 years.
Given Birmingham’s poor employment and skills base, the deep deprivation which afflicts so much of the city is not hard to explain. Nearly two-thirds of children in the city live in households with low income. Infant mortality – incredibly – is almost twice the national average, worse than in Cuba and on a par with Bulgaria and Chile.
Using international income per head data for cities worldwide, Birmingham ranks below seven German cities: Munich, Frankfurt, Nuremberg, Hannover, Hamburg, Cologne and Stuttgart. I was in Stuttgart last week – a city with a similar industrial pedigree to Birmingham. The city centre is dominated by a giant Mercedes logo, and it doesn’t mark an industrial history museum. Type “Stuttgart, famous, why?” into Google, and this is what you get in the first result: “The area is known for its high-tech industry; some of its most prominent companies include DaimlerChrysler, Porsche, Bosch, Celesio, Neoplan, Hewlett-Packard and IBM, all of whom located their world or German headquarters here …. The region currently has Germany’s highest density of scientific, academic and research organisations, and tops the national league for patent applications.”
By contrast, the equivalent search result for Birmingham is, again, mostly a history essay on the city of a thousand trades.
I could go on, and I know many of you could too, judging by my conversations and reading of Birmingham’s media and business websites while preparing this lecture.
However, I have not come here to spread gloom. My political hero Roy Jenkins – MP for Stechford for 27 years, who loved this city, albeit mostly from afar – used to say that to be half good as an adviser you need to argue to solutions, not conclusions; and that to be half good as a leader, you need the courage to implement the best solutions. The other half, he said, was down to luck.
So I have three big solutions to suggest to tackle three of Birmingham’s biggest challenges. An elected Mayor to provide much stronger and more effective civic leadership. High-speed rail to transform your transport connections and massively to intensify the benefit of your geographical position in the heart of England. And the conversion of all Birmingham’s lower performing schools into academies, to transform school standards and skills and to link the world of school to the world of work, apprenticeships and higher education in wholly new and better ways.
These are not of course complete solutions even to these three problems:
• A Mayor is only the beginning of what it will take to generate strong civic leadership and better public services – and he or she is only one part of what it will take to generate a step-change in business creation and investment.
• High-speed rail transforms Birmingham’s national and intercity connections, but the city also faces major challenges in urban transport. I could deliver a whole lecture on that subject alone, but let me just give you a few facts for the first Mayor of Birmingham to contemplate. Bus usership in London has doubled in the last 25 years; in the West Midlands it has slumped by a third; yet last year National Express, who run most of your buses, recorded a £160m profit while fares rose in the city by up to 9.5 pc as bus usership fell still further. If Centro, the Integrated Transport Authority, has a credible plan to tackle this, I haven’t noticed.
• As for education, Birmingham faces major challenges in under-five, further and higher education, as well as schools, and it is only the last of these that academies directly impact. I would note, for example, that you have three popular universities, yet – despite being Britain’s second city – Birmingham has no research university in the international league of a string of London institutions, and several others besides. While a Mayor could make big and immediate improvements in schooling, which is a direct city council responsibility, there is plenty of work in the city for university entrepreneurs too, and I know that your excellent vice-chancellors appreciate this.
So with inevitable caveats, let me sketch my view of a plan for Birmingham in respect of a Mayor, high-speed rail and academies.
A Mayor for Birmingham
Let me give you my frank opinion, as one who has dealt with Birmingham City Council a good deal in recent years. The city needs to raise its game significantly in terms of leadership, performance and strategy. I don’t put this down to individuals so much as to the system, in particular the failure to follow London a decade ago in creating a Mayor able to provide stronger leadership.
I can immediately hear the riposte that London is different because the Greater London Authority is a strategic authority, responsible for transport, policing and economic development, and there are the 32 boroughs underneath with the responsibilities of Birmingham city council.
Of course, no two cities are alike, but I wouldn’t allow the contrast to be explained away so easily. In the past, the patchwork and often conflictual character of London’s governance has been held to be its greatest weakness. By contrast, Birmingham, as the largest single-tier local authority in Europe with a £4bn annual budget covering a population of a million, could have the best of both worlds: an authority which, because of its size and reach, is the strategic leader for the region, able to significantly influence what it does not control – including transport, policing and economic development – while also possessing the advantage of direct responsibility for key public services, notably schooling, which are critical to the city’s future prosperity.
Instead, the city council has had something of the worst of both worlds. Weak strategic leadership alongside average (at best) improvement in the public services under its direct control.
Take education, which I know only too well from constant interaction with the city council. Secondary school standards in the city are now, at last, approaching – although they are still below – the national average. But promoting reform to secondary education in the city has been like pulling teeth. I cannot tell you how much agitation, and how many difficult meetings, it took to persuade the City Council – particularly the inward-looking children’s services department, repeatedly censured by Ofsted in recent years – to engage half seriously in the academies programme, which by harnessing the dynamic energy of outstanding education, voluntary and business sector sponsors is transforming school standards in so many disadvantaged communities nationwide. And this despite the fact that huge investment was on offer.
Let me illustrate with a few facts. Only 9 per cent of Birmingham’s schools are academies or planned to become so. In Croydon in London, the figure is 28 per cent; in Southwark, 53 per cent; in Hackney, 38 per cent. In the city of Bristol it is 42 per cent. Southwark, Hackney and Croydon are all now above national average in their secondary school performance, although the first two were well below Birmingham six years ago – indeed ten years ago they were by-words for chronic failure. And Bristol is improving faster than Birmingham.
That’s just academies. I won’t venture into child protection and children’s social services, where simply providing an adequate service, let alone engaging in transformational change, has proved beyond the city.
All this comes down to leadership and strategy. Indeed, the failure to establish a Mayor a decade ago was itself a failure of political leadership on the part of the City Council – because, as you know, the city’s electorate voted for a Mayor in a postal referendum with a respectable turnout, but the voters divided between two mayoral options and the council refused to establish the office, although Albert Bore, then Leader of the Council, was in favour.
It is hard to be an effective leader if people do not know who you are. Do you know anyone who can’t name the Mayor of London? I barely ever meet anyone outside Birmingham who can name the Leader of Birmingham. That includes a conference of local authority chief executives I addressed before Christmas, where I asked the direct question of the entire conference, and no-one could name him. Stephen Hughes wasn’t present, I hasten to add. They all knew who was about to become Mayor of Chicago. I’m not sure that the recognition factor is that high even within the city.
To make this point less impressionistic, a researcher at the Institute for Government compared Birmingham’s leader with the Mayor of San Jose in California and with the Mayor of Cologne. San Jose and Cologne are cities around the size of Birmingham. Chuck Reed in San Jose has a web presence 33 times as great as Birmingham’s leader; Jurgen Roters in Cologne has a web presence 19 times as great, and he has only been in office for 18 months. But one does not need to look abroad. A New Local Government Network poll conducted during the first term of elected mayors found that, just 18 months after being elected, on average 57% of people could identify their mayor, compared to only 25% who could identify their leader in councils without a mayor.
In politics profile is not all. But to wield significant democratic power and influence, people have got to know who you are, and they have got to believe that you can make a difference. Invisible leadership doesn’t generally work in democracies.
What difference could Mayoral leadership make? I have already spoken about jobs and education. Let me tell you also about my experience as Transport Secretary. I can say with absolute certainty that London would not have got and kept Crossrail without Ken and Boris. It was a hugely difficult and complex deal, pushed forward at every stage by the two Mayors using their formal powers, political authority and persuasive and media skills to the full. It involved the Mayor putting together not just the Treasury, the DfT, the GLA, the City of London Corporation and the boroughs within the public sector, but also a heavy duty partnership with the private sector because of the necessity for large corporate contributions and the agreement of business leaders to the highly innovative business rate supplement.
Then there is the Olympics, which I very much doubt London would have won without Ken guaranteeing that transport and other infrastructure would be sorted. Nor, without a Mayor, do I think it conceivable that there would now be a congestion charge, nor a transformation of the bus network, nor the Boris bikes – if Barclays thought they would be known as the Barclays bikes, they were rather naive. Only in airports policy has London failed significantly in the last decade, largely because Boris decided to go for a pie-in-the- sky estuary airport rather than back a third runway at Heathrow after the completion of Terminal 5. But in that respect I note that Birmingham still hasn’t got its runway extension, as year succeeds year and the necessary deal is still not clinched.
By now you may have gathered that my view is that you can’t elect a Mayor soon enough.
I mentioned earlier that on the key measure of low skills, only Leicester is below Birmingham. Leicester has just decided to create an elected Mayor. The first election takes place in seven weeks time, and last week Sir Peter Soulsby, the city’s senior MP, resigned from the House of Commons to stand for the new post. In even nearer Coventry, the city’s senior MP, my former Cabinet colleague Bob Ainsworth, influenced in part by events in Leicester, tells me he is keen to do the same and seek to become the city’s Mayor if it votes to create one in a referendum to be held in May 2012.
Under the Localism Bill, Birmingham too has the chance to start the mayoral process with a city-wide referendum in 14 months time. If Birmingham votes yes, the first Mayor will be elected in two years time; there is no scope this time for the Council to stand in the way. It is good to see candidates already coming forward, and starting to set out their stalls. Birmingham needs an open, intense debate about its future. The Mayoral election provides the opportunity for this debate, and for action to follow if a Mayor is elected on a clear mandate for change.
There are other issues to be considered in Birmingham’s governance. Does the City Council really need 120 members – 20 more than the United States Senate? Parliamentary constituencies in the Commons don’t each have three representatives – if they did, the House of Commons would have 1,900 members.
Then there is the relationship of Birmingham’s government to the new Greater Birmingham and Solihull Local Enterprise Partnership, to the Integrated Transport Authority Centro, and to the new West Midlands Police and Crime Commissioner to be elected in May 2012. All these relationships are important, sensitive and problematic. I would just make one general point. If you have a strong, effective Mayor, the promotion of the interests of the city regionally, nationally and internationally will be significantly enhanced. Not only Birmingham, but the West Midlands at large, will benefit.
Let me offer one final reflection on the mayoral debate. The Birmingham media is largely pro-mayor and critical of the status quo. But it does not have strong penetration, and has only a limited capacity to promote change. The Birmingham Mail and Birmingham Post have a combined circulation of only 60,000. By contrast, the Coventry Telegraph, serving a city a third of the size, sells more than half as many copies as the Mail and Post combined. It is almost embarrassing to mention London’s Evening Standard with its circulation of 700,000.
Penetration of radio and TV news is also comparatively weak. ITV doesn’t even have a West Midlands region for news, just a massive Central region which covers the entire East and West Midlands from Lincoln to Shrewsbury. MediaCityUK, to which 1,400 BBC staff are moving from London, is in Salford, not Birmingham.
Is Birmingham’s news media so weak partly because its political debate and institutions are similarly weak, or vice versa? A bit of both I suspect. A Mayor of Birmingham would inevitably strengthen the city’s media. In a democracy, power centres are also media centres – and whatever the love hate relationship between politicians and the media, they are equally vital to the democratic process.
High-speed rail
Birmingham Chamber of Commerce members consistently rank inadequate transport infrastructure as one of their top three concerns. This is one reason why a recent survey of businesses ranks Birmingham only 18th out of 36 European cities as “the best cities to locate a business today.‟
Some improvements are afoot. There is extra capacity on the M42, and more is planned on the M6, thanks to the success of hard-shoulder running. I mentioned earlier the welcome rebuilding of New Street. However, don’t get too excited. It is only the circulation area above the platforms which is being rebuilt – the highly constrained track layout beneath is being left as it is, so there will be no extra rail capacity as a result of the rebuilding.
The case for HS2, the high-speed rail plan from London to Birmingham and the north which as Secretary of State I published last March, and which I am glad to say that the Coalition is pressing ahead with largely unaltered, is that it is transformational in three key respects: speed, connectivity and capacity.
In all three respects Birmingham is the single biggest beneficiary. Birmingham is around or well under 100 miles from all of London, Manchester, Liverpool, Leeds, Sheffield, Nottingham and Derby. HS2 massively reinforces this geographical advantage in the heart of England.
Ensuring that HS2 proceeds with minimal delay is vital for the city to gain the benefits in the 2020s and beyond. Here again, a Mayor would be a powerful champion to take on – how can I put this delicately – the principled arguments against HS2 by those who just happen to live in Great Missenden, Amersham and Aylesbury. For the golden rule of high-speed rail is that everyone wants the stations but no- one wants the line.
Let me take the benefits of HS2 in turn, starting with speed and connectivity which are intimately connected.
London Euston will be 49 minutes from the proposed new Fazeley Street high-speed station, to be built on largely derelict land right next to New Street, down from 82 minutes now. However, journey times to Birmingham from London’s West End and business centres, and to Heathrow, are cut proportionately by far more than this because of a transformational new element of connectivity: the proposed interchange with London’s £16bn east-west Crossrail line at Old Oak Common, ten minutes west of Euston, at which all HS2 trains will stop. Using this Crossrail interchange, Birmingham city centre to Heathrow will be about 55 minutes, down from about two hours now via Euston, the tube and Heathrow Express. Birmingham to the City will be about 50 minutes, down from about an hour and 50 minutes via Euston and two tube rides. Birmingham to Canary Wharf will be an hour, roughly half the two hours it currently takes via Euston and the tube.
However, all that is just about connections south. Connections north and east are equally transformed by HS2. Birmingham’s rail and road connections north and east currently range between the poor and the terrible. Birmingham to Nottingham is a mere 56 miles by rail; yet the rail journey time is 1 hour 14 minutes. Birmingham to Manchester is only 82 miles – yet it takes 1 hour 30 minutes. Birmingham to Leeds is 90 miles – yet it takes fully 2 hours. All these journey times are halved or better by HS2.
Moreover, it is not just that journey times north and east are shorter by HS2. Here again, there is a transformation improvement in connectivity for Birmingham because of the deliberate route design of HS2.
At present, although Birmingham is at the heart of England, it is in rail terms a mere branch line off the West Coast Main Line. Fast trains to Manchester, Liverpool and Glasgow all branch off the WCML at Rugby, without stopping even there. And the WCML is itself only one of three main lines north from London – the other two being the Midland Main Line to the East Midlands and Sheffield, and the East Coast Main Line to Leeds, York, the north-east and Edinburgh. All these lines were built by independent Victorian railway companies preoccupied with their own fast routes from London to whichever cities they were seeking to reach; which is why connections between the cities of the Midlands and the north are so bad – with Birmingham’s geographical position of little advantage when, in effect, none of the main lines going north connect directly with Birmingham at all.
HS2 completely redraws this inter-city rail map. Instead of being at the end of an inter-city branch line, Birmingham International becomes the first HS2 stop out of London going north-west to Manchester, Liverpool and Glasgow, and north-east to the East Midlands, Sheffield, Leeds, Newcastle and Edinburgh. Britain’s second city becomes – for the first time – a national rail hub. And not just a high-speed rail hub. Birmingham International becomes a hub incorporating HS2, Birmingham airport, the M42, the NEC and the existing West Coast Main Line. This is a fundamental redrawing of the Victorian railway map of Britain to Birmingham’s advantage. With HS2, Birmingham Airport can be reached quicker than Stansted from Heathrow and much of London.
Having said all this about speed and connectivity, HS2 is justified on capacity grounds alone, and it is important to make this argument when pressing Birmingham’s case. Capacity constraints on the West Coast Main Line, already serious, become acute in the 2020s. If HS2 is not ultimately built through to Manchester and Leeds, all four existing main lines going north – not only the West Coast Main Line, but also the Chiltern line, the Midland Main Line and the East Coast Main Line – will need to be upgraded over coming decades, at a cumulative cost far greater than HS2.
No crystal ball is required. £10bn has just been spent on a hugely disruptive ten year upgrade of the West Coast line. Analysis for the Department for Transport shows that to upgrade existing lines to provide barely two-thirds of the extra capacity provided by the initial section of HS2 from London to Birmingham will cost more (£20bn against £17bn) than the high-speed alternative.
There is a big debate about the economic benefits of high- speed rail. Bizarrely it has been suggested that HS2 might disadvantage the regions by sucking more economic activity into the south-east than it generates in the regions – a view which has even been expressed in the West Midlands, a telling commentary on the lack of confidence there is in the regional economy. In fact, the evidence is of a fairly clear and positive relationship, among cities and large towns, between journey time to London and productivity. The shorter the journey time to London, the higher tends to be productivity. By bringing Birmingham closer to London, its productivity should rise, which is good for jobs, good for business and potentially transformational for Birmingham’s future.
I would add, from my international visits to understand the impact of high-speed rail in Europe and Asia, that I have not yet met the leader of a city who has got a high-speed connection who wishes they hadn’t. Speak to civic and business leaders in Lyon, France’s second conurbation, which was first linked to Paris by the TGV thirty years ago this year, and they believe its impact has been transformational. They are campaigning for a second high- speed link, because the first is approaching congestion.
Academies
Over recent years there has been steady improvement in Birmingham’s schools, and as Schools Minister I waxed eloquent about all good news in the city in order to encourage more. But this evening I owe it to you to be frank about the challenge ahead.
Birmingham parents should not be satisfied with a schools system which fails far too many of their children, and Birmingham employers should be campaigning from the rooftops for radical – not incremental – change to improve skills and qualifications among the city’s school leavers.
Birmingham has 75 state secondary schools. In 33 of them, fewer than half of the pupils last year got five or more GCSE passes at grade C or above including English and maths. Subtract the city’s highly selective state grammar schools, and that is half of the city’s secondary schools which are not achieving a decent school leaving standard for half of their pupils; a standard which, unless they have certain types of special needs, all young people ought to be able to attain.
Worse, even within the state system there is rigid divide in Birmingham between the grammar schools and the non- selective secondary schools, with too little being done to bridge the divide.
The King Edward VI Foundation, which runs most of the city’s state grammar schools, as well as its major private schools, was until recently treated as a virtual pariah by the education officials of the City Council, because of their hostility to grammar and private schools. I tried hard to bridge this divide as Minister, by making it possible for the Foundation to sponsor non-selective academies in the city, which would form part of the KEVI family. I hoped this would forge strong relationships between academy, grammar and private schools across the city. Getting the City Council to agree was an uphill struggle. Yet, to my surprise and disappointment, as this struggle showed signs of succeeding, key figures in the King Edward Foundation resisted and wanted to stand apart, anxious lest their status and resources be diluted. Only some way through this process did I learn that the City Council is itself – through its nominees – a major presence within the KEVI Foundation, yet was doing little to prosecute its own cause. So after a huge effort of persuasion and bridge building, KEVI is sponsoring precisely one academy in Birmingham, yet it is one of the most powerful educational organisations in the country.
I tell this story as a vignette. I could tell many others about the inability to get a truly ambitious academy programme going in Birmingham.
It would not be hard to write the education manifesto for a proactive Mayor committed to skills and educational transformation in the City. Instead of seven Academies, there should be a programme for 40 or 50. As sponsors, a Mayor of Birmingham would engage the city’s major employers, universities, educational foundations, and successful philanthropists, who abound but have not been mobilised behind the academy cause as they have for example in the London boroughs – Croydon, Hackney and Southwark – I cited earlier.
An academies programme of this kind could seize the city’s imagination and conscience in a dramatic fashion, and make educational transformation and a skill revolution the task of all the city’s movers and shakers. I cannot think of a more worthwhile and important cause.
Chamberlain II
In short, what Birmingham needs now is a second Joseph Chamberlain, and a Mayor might just provide the opportunity to secure one.
In his magisterial history of Birmingham, Asa Briggs entitles his chapter on the late 19th century: “The best-governed city in the world.” “While Birmingham maintained its position as the workshop of the world, it made striking advances in the sphere of government,” he writes. Let me quote his following words at length, for they resonate today:
The middle years of the century were years of municipal torpor. In the 1860s and 70s the forces of inertia were overcome … Social improvements completely altered the appearance of the town … above all, the interest of citizens was captured and their horizons extended. In the process Birmingham not only reformed itself, but set a model for the nation and even for other communities overseas, and Chamberlain, the great architect of change, could write after he became a Cabinet minister in 1880 that unless he could secure for the nation the same social improvements he had already secured for Birmingham, ‘it will have been a sorry exchange to give up the Town Council for the Cabinet.’
Towards the end of the 1860s, a few Birmingham men made the discovery that perhaps a strong and able Town Council might do almost as much to improve the condition s of life in the town as Parliament itself. I have called it a discovery, for it had all the freshness and charm of a discovery. One of its first effects was to invest the Council with a new attractiveness and dignity … The speakers, instead of addressing small questions of administration and of economy, dwelt with glowing enthusiasm on what a great and prosperous town like Birmingham might do for its people. They spoke of sweeping away streets in which it was not possible to live a healthy and decent life; of making the town cleaner, sweeter and brighter; of providing gardens and parks and music; of erecting baths and free libraries, an art gallery and a museum; they insisted that great monopolies like the gas and water supply should be provided without stint and at the lowest possible prices … Sometimes an adventurous orator would excite his audience by dwelling on the glories of Florence and the other cities of Italy in the middle ages, and suggest that Birmingham too might become the home of a noble literature and art.
This was the vision of the great Victorian leaders of your city. The challenge for Birmingham today is to make further striking advances in the sphere of government, and for them to promote a similar civic and economic renaissance. A directly elected Mayor looks the most striking way forward.
Chamberlain once compared his City Council to the Duke of Wellington’s army, which would “go anywhere and do anything.” Birmingham needs a modern Mayor in his image, to unleash the huge potential of this great city and its people once again. It cannot, I suggest, come soon enough.
The following talk was delivered at John Jay College of Criminal Justice in New York City on March 7, 2011, as a lecture in a series on “The 1960s: the Struggle for Justice Intensifies.”
Fifty years separate us, now, from the 1960s. For many who are college-age students today, it all must seem like ancient history. And even for those of us who are old enough to have lived a part of our young lives in that decade, it seems a long time ago – and yet, at the same time, it seems like only yesterday.
Our memories fill up most frequently, I suppose, with two recollections of that time: the Civil Rights Movement and the Vietnam War. The first involved the abolition of the last remnants of that “peculiar” institution that had, at first, kept enslaved a portion of the population of the United States; and then, even when slavery had ended, still used legal barriers, restrictions, and sometimes-brutal force to prevent a distinguishable minority of that population from having impartially secured equal rights before the law.
The second stands out as a searing memory of a military conflict ten thousand miles away from the United States, which went on for more than a decade, and at the cost of 55,000 American lives and at least one million causalities among the Vietnamese people. It was a war that tore the United States apart unlike any other armed conflict in American history since the Civil War of the 1860s, a century earlier. Tens of thousands of young men, not fortunate enough to have a college deferment, were conscripted into the U.S. armed forces, and sent off to fight a war that at least half of the American people either did not support or did not understand. And which finally ended with one of the most humiliating defeats in American military history.
Vietnam: The Hubris of War Planning and Conflict Fine-Tuning
A part of the Vietnam War tragedy was due to the fact that it was managed by “the best and the brightest,” as David Halberstam called them in his well-known book with that title. These were the people within the Kennedy and Johnson Administrations who orchestrated and escalated the war as the conflict progressed through the 1960s.
Halberstam referred to these war managers as the “whiz kids.” They believed that they had the theoretical and quantitative knowledge and ability to fine-tune a military conflict. By incremental “escalation,” they could bring to bear just enough pressure at vital points considered crucial to the enemy in North Vietnam. This would compel the appropriate response from the communist regime in Hanoi, to assure that the conflict ended with an “acceptable” outcome.
The disaster and the destruction that befell both the American and the Vietnamese people resulted from their arrogant pretence of possessing all the necessary and relevant knowledge for them to design and direct a war on the other side of the world, and, seemingly, all according to a central plan constructed in Washington, D.C.
What they learned (or should have learned) were the inescapable limits to man’s ability to try to consciously direct the future course of human events, and the ever-present occurrence of “unintended consequences.” It was a costly lesson in the need for humility and caution in believing that it is in our power to socially engineer global affairs to our own liking.
Lyndon Johnson – Master of Events and Manipulator of Men
The same, I would like to suggest, was also the case in the domestic policies of the Lyndon Johnson Administration, which became known as the Great Society agenda. Johnson was the consummate politician. Born in west Texas, he won a seat in the House of Representatives in 1937, and was a loyal supporter of Franklin Roosevelt and his New Deal programs. He won a seat in the U.S. Senate in the 1948 election, and later became the Democratic Party leader in the Senate, until his run for the vice-presidency of the United States as John F. Kennedy’s running mate in 1960. He became president in November 1963, following the assassination of JFK.
Johnson considered himself to have an uncanny power to read situations, manipulate and intimidate men, and control the flow of political events. In his leadership role as majority leader, Johnson supposedly knew every detail of the public and private lives of all the other members of the U.S. Senate. He, seemingly, knew just the right “buttons” to push to make the votes and often the policies go the way he wanted.
In one of the ironies of history, in 1954 he was used his Senatorial influence to stop then-President Eisenhower from militarily intervening into what was at that time France’s colonial war in Vietnam against Ho Chi Minh’s communist guerrilla forces. The French defeat left a divided Vietnam that became the catalyst for next phase of this conflict, and which pulled America into the vortex of war and finally brought about the downfall of LBJ.
While the Vietnam War became inseparably intertwined with Johnson’s name and was a defining mark of his presidency, he really viewed his Great Society agenda as the legacy for which he wanted to be remembered. In his mind, he was attempting to fulfil and complete the New Deal programs initiated by his mentor, FDR.
The Great Society: Designing a “War” on America’s Ills
What guided the Great Society agenda was not just Johnson’s political savvy. It was also the equally arrogant pretence of knowledge on the part of many in the economics profession of that time. As a student in my first undergraduate economics classes in the late 1960s, I soon learned that there was only one economics: Keynesian Economics, named after the famous British economist, John Maynard Keynes, who had published a book called The General Theory of Employment, Interest, and Money, in 1936.
Most economists, especially in macroeconomics, were convinced that the market economy was inherently flawed and susceptible to periodic and wide fluctuations in employment and production. They believed they had discovered the necessary monetary and fiscal policy tools to “steer” the economy and simultaneously maintain “full employment,” stable prices, and stimulate long-run growth in the economy as a whole.
At the same time, there was a general attitude among many economists and a large number of self-proclaimed social critics that most of the “evils” of the world – poverty, illiteracy, lack of decent housing or medical care, and environmental degradation – were all due to a lack of will-power and well intentioned and implemented policy. The guiding premise was that the private sector had failed in meeting these problems, and indeed may have contributed to them due to a disregard for “national needs,” while pursuing private purposes.
In a speech in May of 1964, President Johnson proposed a series of “activist” government policies that would create a “Great Society” for America. He told his audience that he was determined “to assemble the best thought and broadest knowledge from all over the world to find [the] answers” to these social ills. In 1965, following Johnson’s reelection to the presidency, he initiated a wide variety of pieces of legislation to fight his declared “wars” on these social ills. Government programs and spending were either introduced or expanded in almost every domestic direction.
Among the leading Great Society programs were:
· Medicare and Medicaid (as amendments to the Social Security Act)
· Economic Opportunity Act
· Office of Economic Opportunity
· Community Action Agencies
· Elementary and Secondary Education Act
· Higher Education Act
· Model Cities Program
· Housing and Urban Development Act
· Urban Mass Transit Act
· Supplemental Nutrition Assistance Program (Food Stamps)
· National Endowments for the Arts
· National Endowments for the Humanities
· Wilderness, Endangered Species, and Federal Water Pollution Control Acts
In the time available, it would, obviously, be impossible to offer a detailed, critical examination of each of these programs and pieces of legislation, and their impacts on various parts of society over the decades. Instead, I would like to approach it from a sceptical view of the underlying political, economic and social premises upon which the Great Society agenda was proposed and implemented. And, then, draw some conclusions about their longer-term effect on American society today, including the fiscal crisis in which the country finds itself.
Political Paternalism and the Reduction of Freedom
The fundamental premise upon which the Great Society vision for America was conceived is the idea of political paternalism. Good men, with enough political power, authority, and financial resources can successfully solve the problems of society. The dilemma, however, is that for government to do anything for us, it must at the same time have the police power do things to us.
If government is to plan our retirement, provide our education, oversee and guarantee our health care, supply our housing, and give us various amounts of cash and other in-kind benefits, then that same government must, invariably, determine and dictate the form, quality, quantity, and conditions under which we can be and will remain eligible for such welfare redistributive benefits.
Thus, many of the welfare programs specified, for example, the make-up and membership of a household to receive government housing, child allowances, and cash payments. Federal money to education invariably ended up coming with standards, requirements, and restrictions on the content of what was taught and the benchmarks for measuring student success for continued funding. Government financing of health care necessarily incorporated regulations, controls, and rules about the pricing of health care services, the types of treatments and coverage permitted or restricted, and access to what care in terms of age and gender.
Increasingly, the individual’s options and choices were narrowed by, and confined to, what the government directly supplied, or mandated through its rules and regulations. This, obviously, hit those in the lower income categories the most. Once such individuals and groups were completely or heavily dependent upon these government programs, escape from them was difficult due to the significant loss of benefits if such a recipient wished to find private-sector employment at a wage that would greatly reduce or terminate their eligibility for these programs. Thus, an underclass of more or less permanent wards of the state was created with inter-generational dependency on government transfers growing in frequency.
This political paternalism, obviously, also implied that those in the government establishing these standards and rules for welfare eligibility presumed to know what all those receiving such benefits and services “really” needed. That is, what kind of housing, what type of medical care, what content of education, what kind of nutritional requirements the recipients of these programs should receive.
Political Hubris and Unintended Consequences
This, too, was no less an arrogance or hubris on the part of the government welfare providers that the poor and unfortunate recipients of the government largess clearly did not have the knowledge, experience, or forethought to make such decisions for themselves. Since the State was providing these benefits, the State clearly knew best what “these” people really needed for them to have some minimum form of a “decent life.” The “poor” were classified and homogenized into one or a small handful of sizes that were to “fit all,” with little regard or sensitivity to the diversity between individuals and their personal and family needs and values.
This implicitly condescending attitude toward those receiving Great Society transfers resulted in some free market critics, such as Milton Friedman, to argue that if government was going to redistribute wealth it would show much more respect and confidence in such recipients if, instead of in-kind benefits in the form of such things as government housing, food stamps, health care services, etc., the government merely gave them cash equivalents. This way, each individual, in his own circumstances, and in terms of his own judgment about what was more or less important to her and her family could make the market-based trade-offs that would most fit with what they needed or valued.
But here, in essence, was the same fundamental flaw in the Great Society agenda as was to be found in the executing of the Vietnam War: the confidence and belief on the part of the implementers of these programs that they could redesign the social order at home just like the foreign policy makers believed they could remake entire societies abroad.
And here, too, were a series of unintended consequences. These included the weakening and break-up of groups and families due to inter-generational dependency on government programs; the emergence of an “entitlement mentality” that taxpayer-funded transfers from the government were as legitimate as a source of income as earning a living from a private-sector job; the entrapment of those on welfare in isolated, poorly-managed, and increasingly crime-infested public housing projects; and the deterioration of educational standards in public schools, especially in inner city areas of the country.
For the free market critic, the entire direction of the Great Society agenda was wrong-headed. Precisely because it was desirable to see an improvement in the condition of those least and less well off in society, government’s role had to be less rather than more. As a later president was to say, “Government was the problem, not the solution.”
The Free Market Agenda for a Truly Great Society
The free market agenda for a truly great society was for people to have the liberty to make their own decisions, find and take advantage of their opportunities, and have the latitude and incentive to design their own lives, according to their own conception of the good, desirable, and worthwhile. Government controls, regulations, redistribution, and handouts were the opposite of the direction needed for America.
· Government regulations and licensing requirements had to be reduced and abolished to make it easier for the less well off to start their own businesses, or expand their existing businesses to improve their own lives and create employment opportunities for others.
· Taxes had to be lowered in all personal income and corporate brackets to leave income, wealth, and savings in the hands of the people, themselves, to generate over time the investment and capital formation that would create jobs, raise the productivity and value of those in the work force, and increase standards of living for all over time, through more and better goods and services of all kinds offered on the market.
· Union power had to be reduced since, historically, it had been used to limit entry into the labour market in many “closed-shop” sectors of the economy, to artificially keep up the wages and benefits of those fortunate enough to belong to a particular labour union monopoly, at the expense of others locked out of employment opportunities.
Individual freedom, personal choice and responsibility, and open, competitive markets in a setting of limited government taxation, limited government spending, and limited or no government regulation, was the social and institutional circumstance most conducive to really fighting a war on poverty and illiteracy, and the lack of economic opportunity, with equal justice for all before the law.
Eliminating the disincentives for private sector construction of less expensive housing would better provide more housing for lower income groups. This would include ending or reducing zoning and various building codes that limited the locations for low-income housing and raised the costs of construction; it also required reducing property and other related taxes on the residential housing market.
Shifting to market-based education in place of the government monopoly school system would introduce needed competition in the educational market to improve the quality, variety and availability of education for all, including and especially for those in the lower income categories.
And moving to a truly market-based health and medical care system would provide the market-generated competition to keep costs down, while providing the incentives to improve hospital services and treatments.
Benefiting All Through the Freedom of Each
Free market economists, like Friedrich A. Hayek, explained that there is more knowledge and wisdom dispersed and decentralized in all the minds of all the members of society than can ever be known, integrated, or mastered by even the “best and brightest” who assert their ability to manage, direct, and redesign the complex society in which we live.
That is the advantage and the benefit of the competitive market order: it brings to bear all that there is to know and can be used to improve the condition of society through the informational mechanism of the price system, and the unhindered interactions of supply and demand. Shall we rely upon, and be limited to, what the government regulators, planners, and redistributors are able to know and understand; or shall we be free to utilize and benefit from what all of us can contribute through the institutions and workings of the free market economy?
Deficits, Inflation and Keynesian Mismanagement
Another legacy of the Great Society was the false confidence of the Keynesian macroeconomic planners that they could push the fiscal buttons and turn the monetary dials in just the right calibrated amounts to maintain full employment, stable prices, and economic growth all at the same time. They were sure that they could juggle the costs of an ever-more expensive war in Vietnam and supply all the needed money for the increased spending of the domestic Great Society programs without having to significantly raise taxes to foot the expanding financial bill, so the Johnson Administration could do all it wanted to do, both at home and abroad.
The government funded much of its spending through deficit financing. The amounts seem small by today’s trillion-dollar deficit standards, but for the 1960s the spending and the deficits were large compared to what government had spent in earlier years. The Federal Reserve – America’s central bank – attempted to keep interest rates low and private sector investment high by basically printing the money that was needed to feed the costs of growing government. In other words, they “monetized” the debt, to use the jargon of the economist.
Thus, added to everything else, by the end of the 1960s and into the 1970s, the United States was starting to experience and suffer from serious price inflation. Manipulated interest rates distorted and imbalanced the relationship between savings and investment; those who saved saw the real value of their “nest-eggs” eaten away due to rising prices; inflation distorted cost-accounting by making it difficult to know what one’s wealth, capital, and investments were really worth due to the uncertainty of what prices and costs of doing business would be tomorrow compared to today.
The inflationary spiral was not “broken” until the early 1980s, by which time America was suffering from “stagflation” – rising prices and increasing unemployment – a dilemma for which standard Keynesian theory had no answer.
Thus, the Great Society dream heralded by Lyndon Johnson in 1964 and 1965 began to degenerate into a disillusioning reality in the 1970s and 1980s. The Great Society provided neither the prosperity, nor the justice, nor the freedom that Lyndon Johnson had held out as its promise.
Liberalism: True and False
And that gets us to our conclusion: What is a just, good and great society? The Great Society advocates of the 1960s argued that theirs was a liberal vision for a better America. But was it?
I would like to suggest that theirs was a false conception of liberalism, and therefore a misguided idea of a free and great society. The real, or true, liberalism, as it took form in the nineteenth century as a political and economic ideal, and an agenda for social reform, emphasized the freedom and rights of the individual to his life, liberty, and honestly-acquired property. The individual human being was an end in himself, not a tool or means to the coercing will of others possessing political power.
These earlier (or, classical) liberals opposed and helped to do away with absolute monarchy and replace it with representative government. They led the cause for, and finally triumphed in bringing about, the end to human slavery. They insisted upon civil liberties and equal justice before the law for those whom the older political order had discriminated against, including Jews, religious dissenters, various ethnic and national groups, and women.
They also considered economic liberty – the freedom to own and use private property for consumption and production purposes; to peacefully compete in any trade, profession, or occupation the individual found attractive and advantageous; and to freely enter into any voluntary association and market exchange found to be mutually agreeable, including the terms of trade found acceptable by the traders – to be inseparable from any understanding of and practical existence to human freedom.
The classical liberals considered this also to be a morally better society. Why? Because it is based on the idea of respecting the dignity of the individual not to be viewed and treated as a “pawn” (a coerced means) to be manipulated, controlled or restricted by police power, to serve someone else’s preferred ends — even if that “someone else” is a large majority of his fellows in society.
The Self-Governing Individual and the Free Society
For these liberals, “self-government” did not only mean the right of the citizenry to participate in the political process to select those who will hold political office and enforce the laws of the land. It also crucially meant the “self-governing” individual. The individual was “sovereign” to freely live his life in peace, deciding what values and goals will give meaning and purpose to his own sojourn on earth. The individual had the unmolested right to the private property he had honestly produced or acquired in trade, as the means for pursuing and possibly fulfilling his dreams and conceptions of a good and happy life for himself and those others he may care about.
They considered such a truly liberal society also to be the one that provided the free market incentives and opportunity structures that would have the good affect of directing men (without force, and through the motive of self-interested improvement) to apply their knowledge, ability, and experience in ways — as if by an “invisible hand” — to reciprocally help improve the conditions of others as they advanced their own desired ends in the interplay of market competition.
They also argued that such a free society is more conducive to not only raising people out of poverty and making it possible for more people to be self-supporting, but also to foster a proper sense of benevolence and compassion towards others who may have fallen upon misfortune or “hard times” not of their own making. The history of voluntary charity and benevolence in the era of nineteenth century classical liberalism – before the advent of the modern welfare state and its undermining of some of this philanthropic spirit – attests to the magnitude of this private generosity and its success.
The Politically Governed Individual
What I have suggested to be considered the false liberalism of the Great Society turned its back on this earlier liberal tradition. Indeed, it turned liberalism on its head. Liberalism now meant bigger government, more intrusive government, more regulating and controlling government, with government’s very visible hand increasingly in every corner and aspect of American life.
Rather than self-governing, the individual in this new Great Society was to be governed. By whom? By those who arrogated to themselves the idea that they were “the best and brightest,” the social engineering “whiz kids,” who claimed to know how various segments and groups in the society should and would be made to live.
This paternalistic legacy of the Great Society era remains with us today. Indeed, it is at the centre of the political and social controversies enveloping American debate and conflict about the future direction of the country. Many, if not most, of the supposedly “untouchable” entitlement programs that are at the heart of the current budgetary and debt crisis facing both the Federal government and state governments are the outgrowths of the redistributive programs either introduced by or greatly expanded during the Great Society presidency of Lyndon Johnson.
LBJ wanted to be remembered for his Great Society legacy. And he has had his wish. His paternalistic and welfare state agenda is the Albatross that has a stranglehold around the fiscal neck of the American people.
It has become fashionable for our politicians to give us lists and pledges about things they will do or will not do to improve our well-being. A friend in Northern Ireland pointed me to this list, which is filled with great wisdom. I wonder if our politicians would do better to look at this, rather than promising another bonfire of red tape and more jam tomorrow.
You cannot bring about prosperity by discouraging thrift.
You cannot strengthen the weak by weakening the strong.
You cannot help little men by tearing down big men.
You cannot lift the wage earner by pulling down the wage payer.
You cannot help the poor by destroying the rich.
You cannot establish sound security on borrowed money.
You cannot further the brotherhood of man by inciting class hatred.
You cannot keep out of trouble by spending more than you earn.
You cannot build character and courage by destroying men’s initiative and independence.
And you cannot help men permanently by doing for them what they can and should do for themselves.
To ask the Chancellor of the Exchequer how much debt interest has been paid on Government securities held by the Bank of England and its subsidiaries in the last 12 months.
Mark Hoban (Financial Secretary, HM Treasury; Fareham, Conservative)
In the 12 months to end September 2010, the Bank of England and its subsidiaries have received the following interest on holdings of UK Government debt securities:
£ million
Banking Department
187
Issue Department
282
Bank of England Asset Purchase Facility Fund Ltd
8,527
Total
8,996
That’s right – the Treasury paid the Bank of England about £9 billion in debt interest.
The time for a six-month update on the figures is soon approaching, so I wondered what TCC readers thought…
Is this just the left and right hands of the State passing money to and fro and should bonds held by the Bank of England be written off? Is it vital those bonds are held so that QE can be “reversed” or is that like, as Mises put it, reversing over the man you just ran down in your car?
Mises also refers to the fact that deflation can never repair the damage of a priori inflation. In his seminar, he often likened such a process to an auto driver who had run over a person and then tried to remedy the situation by backing over the victim in reverse. Inflation so scrambles the changes in wealth and income that it becomes impossible to undo the effects. Then too, deflationary manipulations of the quantity of money are just as destructive of market processes, guided by unhampered market prices, wage rates and interest rates, as are such inflationary manipulations of the quantity of money.
The book Atlas Shrugged by Ayn Rand details the decay and collapse of a society from real wealth-creating activities to a society that uses policy and laws to appropriate that wealth from others. This leads to a strike by the true wealth creators, leading to a slow motion collapse of society.
The book is based on a society in the US and it tells the story of a family owned railroad business. At the time the book was written, the jet-setting and interstate car age was only just in its infancy.
A parallel seen today will be with the off-shoring of production and jobs with nothing to replace it. We also see in the West a rise of regulation and other enforcements that strangle new enterprises at birth. You may have heard the phrase ‘Too Big to Fail’ with reference to the banks but we now have ‘Too Small to Succeed’! The sums involved with all this regulation and enforcement are staggering. Ayn Rand comments on this state of affairs in the book:-
“Then you will see the rise of the men of the double standard- the men who live by force, yet count on those who live by trade to create the value of their looted money- the men who are the hitchhikers of virtue. In a moral society, these are the criminals, and the statutes are written to protect you against them. But when a society establishes criminals-by-right and looters-by-law- men who use force to seize the wealth of disarmed victims- then money becomes its creators’ avenger. Such looters believe it safe to rob defenseless men, once they’ve passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter.
Do you wish to know whether that day is coming? Watch money. Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion- when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see that money is flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you- when you see corruption being rewarded and honesty becoming a self-sacrifice- you may know that your society is doomed.“
We see today the outworking of this in the case of the ongoing financial scandals in the US and elsewhere (Iceland, Greece, Ireland…), where large private investment bets are paid out in full, backstopped by the taxpayer.
We see moral hazard: risk has been offloaded to those least able to afford it. People who took the risk are not willing to realise, or are sheltered from realising, the consequences of that risk. There is so much wrong here it would take many essays, books even, to document.
The people of Iceland have said no to paying the debts of private banks with public money and the world has not ended. Are the people of Ireland also about to say no? Austerity seems to now mean the taxpayer pays so that those that took the risk do not have to.
On the subject of Money
“Whenever destroyers appear among men, they start by destroying money , for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist…Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims.”
Today we have throughout the world paper fiat currencies backed by nothing. Debt is now paid simply by ‘printing’ more out of thin air – the Quantative Easing programmes of central banks around the world. ‘Printing’ was put in quotes as today printing is done simply with a computer keyboard, adding the appropriate number of zeros to an entry somewhere in a computer database.
The account these ‘looters’ draw on is the debasement of the currency, by that insidious process of inflation.
Inflation is a stealth tax on savers and pensioners applied by creating currency in ever-increasing amounts through government deficit spending – the unearned income of ever increasing debt. Inflation is not rising prices but the falling in the value of money.
Guilt – the weapon used against you.
Ayn Rand identifies the weapon used against you to great effect. It is an insidious tool of manipulation. That weapon is your decency and sense of fair play, it is your guilt. By making you feel guilty about any topic, it disarms you from an effective response. You are made to feel a bad person – the games used here are very cynical. Political Correctness is such a tool, one word accusations which instantly apportion guilt, making you defenceless, innocence denied. You know those words, they enable the manipulator to win the argument without having one. By making you guilty up front you have lost position, do not allow these contemptible frauds to win. Ayn Rand warns of this in the book:
“We are on strike, we, the men of the mind.
We are on strike against self-immolation. We are on strike against the creed of unearned rewards and unrewarded duties. We are on strike against the dogma that the pursuit of one’s happiness is evil. We are on strike against the doctrine that life is guilt.“
Moreover:
“Guilt is a rope that wears thin.”
“The worst guilt is to accept an unearned guilt”
“To hold him guilty in a matter where no innocence exists is a mockery of reason.”
This book should be mandatory in all schools for study. It teaches you how to think, not that I agree with everything, as I did note a certain self-centred sterility which would not work in a family setting. The book exposes well the cynical manipulation by others who try to exploit one’s good nature against yourself.
A comment on the Justice system
“When one acts on pity against justice, it is the good whom one punishes for the sake of the evil; when one saves the guilty from suffering, it is the innocent whom one forces to suffer. There is no escape from justice, nothing can be unearned and unpaid for in the universe, neither in matter nor in spirit—and if the guilty do not pay, then the innocent have to pay it.”
In Conclusion
Finally, what we see today can be summed up with this following quote which preceded Atlas Shrugged and was written during the Great depression by Adrian Rogers (1931):
“You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half get the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is the beginning of the end of any nation. You cannot multiply wealth by dividing it.”
One question may be, “Will the film be true to the book?” However the question may be, “Will Ayn Rand’s insights come over in the film or will it just be an excuse to defame capitalism with a straw-man cartoon of crony capitalism?”
What should be portrayed in the film is the ultimate bankruptcy of Marxism/socialism and the Robin Hood class of a self enriching elite, always claiming to act for the benefit and in the name of the people they ultimately oppress. In the book the society decays and collapses because those in control do not create any wealth but conspire to appropriate and consume the wealth created by others, wrapping it up of course in the obligatory self-justifying but bankrupt cause.
George Orwell’s sage words are ever more applicable today: “In the time of universal deceit, telling the truth is a revolutionary act!”
TCC Director Steve Baker with Peace One Day Ambassador Jude Law
The Cobden Centre exists to promote social progress through honest money, free trade and peace. As you can see from those links, we have touched on each issue from our founding but, events being what they are, we have concentrated on honest money over the last year.
Our CEO, Dr Tim Evans, intends to deliver a step change in our activities as we move through 2011. In addition to deepening our work on money and banking, we will also develop our work on free trade and peace, making appointments to our team of Senior Fellows and our Advisory Board.
In that context, I was delighted to attend an event this week in Parliament held by Peace One Day and hosted by my colleague Nadhim Zahawi MP.
As Member of Parliament for Wycombe, I am acutely aware of the widespread consequences of armed conflict on individuals across the world. For example, many of my constituents hail from Kashmir and Pakistan and their extended families and friends continue to be directly affected by the conflicts in the region and their fallout. Many are of Sri Lankan descent and have lived through conflict there, often having lost loved ones.
The tragedies of violence around the world come home to my constituents day after day. For anyone serious about promoting human flourishing, peace must be a prerequisite and the initiation of violence anathema.
It was an incredible privilege to meet Peace One Day founder and Chairman Jeremy Gilley, as well as their Ambassador, Jude Law. From their website:
In 1999, preoccupied with questions about the fundamental nature of humanity and the most pressing issues of our time, filmmaker Jeremy Gilley launched Peace One Day and set out to find a starting point for peace. He had a mission: to document his efforts to establish the first ever annual day of global ceasefire and non-violence with a fixed calendar date.
Remarkably, two years on, he achieved his primary objective when the 192 member states of the United Nations unanimously adopted 21 September as an annual day of global ceasefire and non-violence on the UN International Day of Peace. We call that day Peace Day.
Astonishingly, for three consecutive years, Peace Day has been observed in Afghanistan on a national scale.
To learn more, please watch Peace One Day’s introductory film:
I was humbled to learn of the achievements of Jeremy Gilley and Peace One Day. As The Cobden Centre sets out to grow in new ways, I hope we may deliver even a fraction of that contribution made by this inspiring man and organisation towards human flourishing.
