Editorial: Do They Take Us For Fools?

Gordon Brown got carried away at this year’s Labour Party Conference. The Labour government’s aim, he orated, is a return to full employment. Before the election he had resisted all attempts to have such a commitment put into Labour’s election manifesto, preferring some such vague and ultimately meaningless phrase as “the highest possible level of employment”.

In 1944 William Beveridge, the father of the Welfare State, defined full employment as 97 percent employment; the remaining 3 percent “would consist of a shifting body of short-term unemployed who could be maintained without hardship by unemployment insurance. There would be no long-term unemployment and there would always be more vacant jobs than idle men” (Full Employment in a Free Society).

As it happens, such levels were attained in the 1950s and 1960s, though you’ve got to be over 50 now to remember those days. The followers of Keynes believed that this was the result of their policy of state intervention to maintain demand. But this was an illusion: the adoption of Keynesian budgetary techniques just happened to coincide with a world market boom. When that boom came to an end in the early 1970s, and Keynesianism was put to the test, increased state spending was unable to keep the boom going.

Keynesianism died in Britain not at the hands of Thatcher but under Callaghan and his Chancellor Healey. As Callaghan was forced to admit at the 1976 Labour Conference: “We used to think that you could spend your way out of recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and that insofar as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy.’’

This is now the conventional wisdom, accepted just as much by Labour as by the Tories. Only the Lib Dems occasionally advocate increased state spending, only to be slapped down by Labour for being financially irresponsible.

So how does Gordon Brown expect full employment to be achieved? Since he rejects increased state spending, he is left with relying on what Beveridge called “the unplanned market economy” automatically self-adjusting itself to bring this about. Adam Smith called it the “invisible hand” and it is a measure of the extent to which Labour has abandoned all its earlier illusions that it now expects the workings of capitalism in its private enterprise version to deliver full employment, if only sometime before the middle of the next century.