Laissez faire economics makes you richer – Oh yeah?

The proponents of laissez faire economics claim that it creates more wealth than any other economic system. There is precious little evidence for this. The one and only bootstrapped Industrial Revolution took place in a Britain which was highly protectionist in its international trade . It was also with a domestic economy which had considerable restraints on the unrestrained operation of  the market in the laws governing the employment of agricultural workers and apprentices, the  lack of easy communications, especially roads, throughout much of the country, the power of custom  drawn from a pre-industrial society and a very powerful social hierarchy.  Every state which has industrialised since Britain has also done so behind protectionist walls.

Laissez  faire did not become the dominant elite ideology until the Industrial Revolution had been running for more than a century. By 1850 Britain was comfortably the dominant industrial power in the world. Between 1860 and the outbreak of the Great War Britain followed a policy as near to true free trade as any country has ever done. The result was her  economic dominance was  broken, most notably by the USA and Germany, countries which were conscientiously protectionist throughout the period. 

From the end of the Great War until the 1930s Britain attempted unsuccessfully to resurrect  the pre-1914 economic conditions until  the economic catastrophe  which became the Great Depression – created under the rule of laissez faire –  finally forced the British elite to abandon the ideology, a change symbolised by Britain‘s departure from the Gold Standard in 1931.  This abandonment lasted until 1979 when Thatcher reintroduced the ideology in a new and arguably more virulent form. 

During the modern period of greater protection  and state involvement in the economy  which ran from the Depression until the 1980s,  Britain’s economy did not cease to grow.  Wages  steadily rose, GDP expanded. 1950s and 1960s Britain was a world in which unemployment reached just about as low as it can (around 300,000 was the fewest to which  it sank) and  living standards were rising rapidly,  Britain made most of the things it consumed,  it was at the forefront of high technology, the country was largely self-sufficient in food and manufactured goods and most of  its  energy was supplied by publicly owned utilities fuelled by a native coal industry.   All of this happened in a Britain where inequalities of wealth and income were steadily declining, a trend which the laissez faire school would have us believe diminishes incentive and hence economic growth.

Whether overall  Britons would have been more prosperous under continuous laissez faire  from 1860  to the present day is a question which is impossible by its nature to  categorically answer. However,  the creation of the first Industrial Revolution  and the strong growth experienced between 1931-1979 , both  in circumstances bereft of uninhibited laissez faire , suggests that at best  it would have made little difference and at worst would have resulted in further economic catastrophes, the cost of which would have comprehensively outweighed any higher profits gained during boom times.  When  the colossal sums being put at risk in the present recession  are considered and placed with the catastrophic losses of the Depression, those sums alone  (and that ignores the other less dramatic economic slumps of the past century and a  half) suggest that a century and half of  stable economic progress  would have left  Britain considerably better off today than it is.

What is highly probable, based on the experience of the period 1979 to  the present, is that unemployment would .have been much higher than it was from 1945-1979. Since 1979 the rate of dole claimants has  never dropped below 800,000 and the real rate of  unemployment is has been much higher than the claimant rates. How much higher is debatable, but  the measure favoured by the government based on a household survey of  those seeking work has remained well over a million and currently stands at  2.46 million. In addition, there are nearly 3 million  on long term sick benefit, many of whom could probably work (the figure of long-term has risen from around 600,000 in the early 1980s) and the very large numbers of people kept off the unemployment registers by being in higher education and very large numbers working part time who  want to work full time. The real unemployment total in 2009 is probably 5-6 million, but it could even be higher. The Daily Telegraph  recently estimated the figure for just those who  wanted to work but could not at 5.7 million (Telegraph 12.11.09 5.7m and climbing: the real unemployment toll  Edmund Conway)

The  prime thing to note about Britain’s periods of protectionism and  state involvement in the economy since the Industrial revolution began  is that, although there were periods of recession as the trade cycle ran its natural course, these economic periods  never produced catastrophic economic failures such as that experienced in the 1930s or that which we are now living through. Even the financial upheavals of the 1970s, which  were caused primarily  by the oil price hike in 1973  and over-powerful unions rather than the economic policies being followed, did not produce anything like as severe a financial crisis as that of the 1930s or the present. Moreover,  the Depression and the present turmoil are not the only severe crises which arose during the time of laissez faire, they are merely the most dramatic, most notably the banking crisis of  1907 when  reputedly bankers led by J P Morgan averted a crash of 1930s proportions.

A fair summation of the experience of the past three centuries is that there is no obvious correlation between rates of  GDP growth and personal enrichment and the balance between laissez faire and state intervention by means of protectionism and  economic control of the domestic market. What can be said is that state intervention  produces a much more stable economy than laissez faire policies. That in itself is valuable for it prevents great economic upheaval . Consequently, even  if it could be proved that laissez faire policies increase wealth in the short to medium term  more quickly than would happen in an economy such as Britain had for the first 30 years after 1945,  there would be a powerful argument that the long term benefit of greater stability of a state interventionist regime might well make that the preferred economic state because it would offer greater security and certainty.

If laissez faire is such a wealth maker  its supporters need to explain why it leaves so many poor in supposedly rich countries.   In Britain, most Britons could not live on their savings for more than a month, approximately 50% of Britons have no private pension provision and around a third of the population live in rented accommodation  despite the criminally lax  mortgage regime of the past twenty five years. If it were not for the safety net of the welfare state, a very large proportion of the British population would be as insecure now as they were 100 years ago.  Indeed, the absurd  cost of  both rented and purchased property  in present day Britain arguably makes it more difficult now for the ordinary  person to raise a family than it did even thirty years ago  because of the need for both people in a relationship to go out to work to pay the housing costs and the shortage of money left over after paying for housing. The vast swathes of poverty in the USA, much of which would not look  out of place in the Third World, tell an even starker story.  The laissez faire advocates also need to explain the success of much more statist economies such as Sweden, France and Germany, who are at least as economically successful as Britain and arguably more successful. 

The laissez faire practitioners have for forty years or more attempted to justify free market solutions on the grounds of “trickle down”, the idea that if  the economically successful are provided with the right laissez faire conditions they will make massive amounts of money which will enrich society in general including the poor  because the creation of wealth will filter down through society to the very bottom of the economic pyramid. It simply has not happened. American blue-collar wages today are much as they were in 1970 and if anything are declining. The picture in Britain is not dissimilar. 

But wealth is much  more than money or property. It is also about free time, a sense of long term security of employment, the ability to comfortably raise a family and a sense that their homeland was just that, a homeland. Fifty  years ago most people had a short trip to work. Their work was secure.  They could  raise a family on a single full time wage and obtain decent housing. The country had not as yet been seriously affected by mass immigration.

 Today anyone under the age of 30 in normal social circumstances will struggle to  provide the wherewithal to start a family and will probably have to live a long way from their work, that is, if they have a job. Their sense of a homeland in which they are privileged has gone. The fact that we have more technological toys does not make us richer. Indeed, for most people it merely adds unnecessary complication and frustration to their lives.

The part of society which has suffered most in Britain  is the white working class. Their natural employments, especially  in the heavy and extractive industries, have been wilfully destroyed.  New council estates destroyed long established working class communities with their informal social support systems,  while massive immigration provided ever more intense competition for jobs, especially unskilled and semi-skilled jobs, and social goods such as NHS services, council housing and schools. In addition, the ever more frenzied privatisation, whole or piecemeal, of the past 30 years reduced the quality and scope of public provision, most notably in council housing, the NHS, the vital utilities (energy and water) and public transport. This of course affects everyone to a degree, but it disproportionately disadvantages the less well off because they are the people most in need of public services.

 To illustrate how  perilous the position is of many Britons wanting work today I  will quote this paean of despair by a middle-aged working-class Briton which I took from the uk.politics.misc  newsgroup:

“Yesterday I saw my husband with tears in eyes again, because he cannot get full-time work to support us. When I met him ten years ago, he was working 12 hour shifts, and even now, he refuses to go on the dole. I don’t understand why you refuse to believe that he and others like him simply cannot find work any longer. He is 50, and the agency books are full of 20-something Poles – what do you think? And don’t say he’s aiming too high – he has always earned minimum wage and still does. He is already hanging his head in shame, and not because he is lying, but because there is simply no work for him, and when there is, he is ignored. He has worked all his life in menial jobs – he cannot deal with not working. What shall I tell him?

“Many of them [Jobs] are advertised in Poland and employees are recruited directly from Poland – see above. This happens because it seems that British employers do not want British workers. Perhaps you can explain to me why there is not one factory or warehouse job advertised here, when the place is full of factories and warehouses, and every person that you pass in the street along these roads where the factories and warehouses are located, are Eastern European, when 5 years ago they would have been British? There is less work now than then, so what is the reason?”

But even if  the “trickle down” had occurred and the poor had got richer in absolute terms compared with what they had in 1979,  that would not be the end of the story. Wealth is not merely about who has what but about the power relationship between the rich and the poor. Money is power and the larger  the disparity in wealth and incomes, the greater the power of those who have the most.

If I am rich I can afford to go to law to harass and intimidate someone who cannot afford such costs. I can protect myself with servants. I can buy influence in government. I can give a poor man employment or take it  away from him.  I can do any number of things  to exert my will directly and indirectly over anyone  who is not rich.

The objective facts say that it is wealth which  primarily determines life outcomes. It allows privileged access to all the goods of life and these then become threaded into the structures of individual lives. To be born to educated parents is a boon which stems in all probability from  those parents having been born to educated parents. To be free of the worries of having enough money for the necessities of life frees the person to do other things. To live in comfortable and uncrowded circumstances  creates a sense of calm and security. Does anyone believe in their heart of hearts that the behaviour of the poorest, least well-socialised  sections of society would not change radically for the better  if they were all suddenly given middle class incomes? Of course they would because suddenly they would be removed from the stresses they experience being at the bottom of the material heap.

As income and wealth inequality in Britain is substantially  wider now than it was in the 1970s, the poor in Britain today have less power in their relationships with those better off than they had thirty years ago. Add in the emasculation of unions, the destruction of the natural employments of  the working class such as heavy  and extractive industries, the use of mass immigration to lower wages and increase competition for jobs and the position of the poorer sections of society is dramatically weaker than it was when Thatcher came to office.

It is telling that Western businessmen  who ostensibly support the idea of the positive effects of competition arising from “free markets” and  “free trade”   never want it for themselves. Instead of rubbing their hands when  this supposedly wealth creating circumstance arises , they always  happily accept   a state subsidy or push for protectionist practices when it is to their advantage.  None of  the US airlines had any hesitation in grabbing billions of  dollars from  the  Federal  government after  911.  Large  companies  publicly complain of government regulation while  secretly welcoming  it because they   can  bear  the  cost  of  it  more  easily  than  their  smaller competitors.  Multinationals shamelessly  play one country off  against another in their search  for massive subsidies and other favours before they deign to operate  in a countr

It has been ever thus.  The two greatest names of the early  Industrial Revolution, Josiah Wedgewood and Matthew Boulton, were   happy to climb on  the Enlightenment bandwagon  with its beliefs in  the  Universality of  Mankind   and advocate lesser tariffs and freer trade –  until  the proposed  freeing threatened their own businesses. What goes for businessmen goes for the individual worker.  Who has ever met someone whose job was threatened by “free trade” speaking in favour of it?

Countries play the same game, cheating wherever they can.  And the more powerful the state the greater the cheating,  both in terms of  helping particular  industries with direct state aid and in the formulation  of the treaties governing world trade. Hence,  the USA  presents itself as the  ultimate  champion of free enterprise whilst being  both  now  and throughout its history one of the greatest of protectionists  and state subsidisers  of  its  industries  –  that it  is   seen  widely  as  an enterprise society is one of the great propaganda triumphs of  history.

Its behaviour after 911 is symptomatic of  the unequal nature of modern “free trade”. The US not only  handed, as mentioned above,  billions to its ailing private airlines,  but put up protective tariffs to  protect its steel producers.

 Abe  Lincoln’s   used  to put this  question to  pro-slavers  who  said slavery  was  a boon for the slave because they were provided  for  and were free of normal responsibilities:  “What is this good thing that no one  wants for himself?”   The question should be put to  the the laissez faire disciples. 

The truth about laissez faire economics is  brutally  simple:  “free markets” and “free trade”  are simply part of  an  elite  ideology and like all elite ideologies  they  serve  the purposes of the elite first,  second and last.  If it does not suit their purposes the elite will exempt themselves from the requirements of the ideology while insisting everyone else continues to honour the official ideological line.  Those not of the  elite who espouse it act merely as useful idiots to promote the interests  of  the elite.

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